Amazon’s takeover of Whole Foods sent the stock of competing grocery chains plummeting. To understand why, you need to know something much simpler than Amazon’s far-reaching ambitions or possible vision for transformation of the grocery industry: Amazon doesn’t make any money, writes Vox Media’s Matthew Yglesias on CNBC.com.
Competing with Amazon is terrifying for any incumbent business because the company’s executive team operates on a radical model whereby the company’s overall net income is nearly zero quarter after quarter.
That is by design, not because they can’t come up with any ways to make money. On the contrary, to the best of anyone’s knowledge many of Amazon’s specific lines of business — including, notably, Amazon Web Services — are perfectly profitable. But while Apple, Google, Microsoft, and Facebook hire lawyers and accountants to amass vast stockpiles of cash legally held in overseas tax haven subsidiaries, Amazon simply chooses to barely accumulate any cash at all.
That’s an enormous problem for every grocery chain in America, which already operate on razor-thin margins. Nobody thinks Amazon bought Whole Foods in order to siphon off Whole Foods’ operating profits in order to subsidize something else. A Whole Foods under Amazon’s stewardship will almost certainly accept lower profit margins than it does as an independent chain — and that spells trouble for everyone else in the grocery business.
Head on over to CNBC.com to read Yglesias’ full breakdown of the Amazon-Whole Foods deal.