Tag Archives: Internet

Amazon to buy Whole Foods Market in $13.7bn deal

Takeover of organic food specialist marks new push into grocery market after launch of Fresh delivery service

Amazon, the worlds most powerful online retailer, has taken a giant stride into traditional retailing, spending $13.7bn (10.7bn) to take over organic food chain Whole Foods Market.

The all-cash deal could be game-changing for the traditional supermarket business. Amazon has long had ambitions to move into the grocery business and launched its food delivery service, Fresh, in the US 10 years ago. It introduced the service in the UK last year after signing a wholesale deal with British supermarket Morrisons.

Amazon is the fourth biggest business in the US and accounts for 43% of online sales there. Whole Foods, founded in 1980, has about 460 stores, including nine in the UK where it has operated since 2004.

Supermarket share prices in the US and Europe went into reverse after news of the deal, while Amazons stock rose 3.5%, taking it close to $1,000 a share. The online retailers founder and chief executive, Jeff Bezos, is close to overtaking Bill Gates as the richest person in the world.

Amazon share price graphic

Walmarts shares dived 6%, wiping about $13bn off the value of the worlds biggest retailer as the deal ramped up pressure on traditional chains already hit by a rapid change in shopping habits. Shares in the UKs biggest chain, Tesco, and Germanys Metro were also down about 6% each.

This deal is potentially terrifying for other grocers, said Neil Saunders from retail analysis firm GlobalData. Although Amazon has been a looming threat to the grocery industry, the shadow it has cast has been pale and distant. Today that changed: Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.

Amazon revenue graphic

Until now, Amazon has had a limited impact on the grocery market. In the US, it still only accounts for less than 0.5% of grocery spending, according to GlobalData.

It only began experimenting with its first bricks and mortar food store in its hometown of Seattle in December last year. Buying Whole Foods will give it a trusted brand and an established network of stores where a basket of goods can be efficiently picked and packed for home delivery in a range of new cities. It will also give shoppers the option of picking up goods ordered online.

Whole Foods revenue graphic

Bryan Roberts, an analyst at TCC Global, said the deal with Whole Foods suggested that Amazon could now look to buy supermarket chains in its major markets which include the UK, France and Germany. He said: This is planting a huge flag that Amazon is incredibly serious about become a significant grocer.

Analysts at Bernstein suggested Morrisons and Sainsburys were possible targets in the UK alongside Ahold Delhaize in the Netherlands and Frances Carrefour.

But Roberts said Amazon already operated partnerships with a number of regional supermarkets in the US as well as Morrisons in the UK and would not necessarily need to buy them out in order to expand. He said the deal was likely to be focused on acquiring access to Whole Foods brands, supply chain and distribution network to power the growth of its Amazon Fresh delivery service.

Some analysts expressed surprise at the tie-up between Amazon, which has traditionally focused on cut-price deals, and the upmarket Whole Foods, which is nicknamed Whole Paycheck in the US. Roberts said the two firms customer bases were likely to overlap substantially.

Bezos said: Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy. Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades theyre doing an amazing job and we want that to continue.

John Mackey, the Whole Foods co-founder and chief executive, said: This partnership presents an opportunity to maximise value for Whole Foods Markets shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.

Mackey will remain as chief executive and Whole Foods headquarters will stay in Austin, Texas.

Mackeys 0.03% stake in the business, which is listed on the Nasdaq stock market in the US, is worth just over $41m. He is likely to retain a stake in the business.

Whole Foods shares graphic

Whole Foods has had a huge influence on food retail in the US, bringing organic and health foods to the mainstream. But recently growth has stalled.

In February, it announced it would close nine stores in the US after six quarters of decling sales in a row.

The deal with Amazon comes days after Mackey attacked the hedge fund Jana Partners, which had acquired a 9% stake in the retailer. He described Jana as greedy bastards that would have to knock Daddy out if it wanted to take over the company.

Mackey said the business had changed because the more conventional, mainstream supermarkets have upped their game. He added: The world is very different today than it was five years ago.

Amazons move into the grocery market will pile on the pressure for traditional supermarkets around the world which have been affected by shoppers switching to online, smaller local stores and discounters such as Aldi and Lidl.

Lidl is opening its first stores in the US this week as part of a plan to open about 100 by the middle of next year, while Aldi is in the middle of a $3bn-plus expansion plan to take its total number of US stores to 2,000 by the end of next year. In the UK, the traditional big four supermarkets Tesco, Sainsburys, Asda and Morrisons have all lost market share in recent years to the rapidly expanding German chains.

Clive Black, a retail analyst at Shore Capital, said: Amazon is clearly getting into offline as well as online. It is not going to spend nearly $14bn and then close nearly 500 stores. This is going to cause an awful stir in the US and some of those waves will lap into the UK and beyond.

A good fit? How they measure up

Amazon

Roots Founded by Jeff Bezos in his Seattle garage in 1994. After spending a year building a website and sourcing stock, Amazon opens its virtual doors the following summer, billing itself as the Earths biggest book store with 1m books to choose from.

Value $477bn

Annual sales $142.6bn

Profits $2.6bn

Employs 341,400

Head office Seattle

Blue sky thinking Bezos is pouring his billions into his private spaceflight company, Blue Origin, developing rockets capable of shuttling the paying public into space.

Whole Foods

Roots College dropout John Mackey and his then girlfriend, Renee Lawson, scrape together $45,000 to open a natural foods store in Austin, Texas, in 1978. In 1980 they join forces with like-minded entrepreneurs Craig Weller and Mark Skiles to open the first Whole Foods Market.

Value $13.7bn

Annual sales $15.9bn

Profits $402m

Employs 60,000

Head office Austin, Texas

Blue sky thinking Mackey wrote Conscious Capitalism, which espouses a business philosophy that is good for suppliers, staff and communities as well as shareholders. A long-term vegan, he more recently co-wrote The Whole Foods Diet, which promotes the health benefits of veganism.

Read more: https://www.theguardian.com/business/2017/jun/16/amazon-buy-whole-foods-market-organic-food-fresh

Spotify hopes going public will cement streaming as music’s future

As music industry celebrates second straight year of growth, service hopes to buck trend of tech industry disappointments on Wall Street

The world may love the services they provide, but the new generation of tech companies havent found much love on Wall Street recently. Spotify, the leading music streaming service, is hoping to change that with a share sale could lead another round of unicorns to try their luck on the US stock markets.

Founded 11 years ago in Sweden by Daniel Ek, 34, Spotify currently has more than 100m monthly active users, of which 50m are paying subscribers. A successful debut for Spotify, valued at least $8.5bn, will officially crown streaming as the future of the music industry.

The companys closest rival, Apple Music, counts 20 million paying users; Tidal, fronted by the rap superstar Jay Z, a little over one million. Amazon and Google are also in the game, with Facebook a likely entrant.

Ek, a serial entrepreneur who started his first company at age 14, owns a stake in Spotify valued at $1.8bn. But while he will leave this share sale a rich man, streaming will probably never make the sort of money for the music industry that CDs and vinyl did. Even so, after more than 15 years of disruption that kicked off with industry revenues eviscerated by illegal peer-to-peer file-sharing, the music business is currently celebrating its second straight year of growth.

In 2016, streaming revenue increased 60%, while the overall global music industry grew 5.9% the fastest rate of growth since 1997. According to a global music report issued by the industry group IFPI, music revenues hit $15.7bn in 2016, up from $14.8bn in 2015. Fifty per cent of that came from digital sales.

A Goldman Sachs research note, Music in the Air, projects that streaming will help revenues double to $104bn by 2030.

The industrys begrudging acceptance of technology has proved its salvation.

This is the triumphant return of innovation, says Les Borsai, music-tech entrepreneur behind the business-facing music platform SongLily. Instead of fighting consumer preferences, the labels have come around to realizing that consumer demand for innovation drives the business.

Its not so long since we had to walk into Virgin Records to buy the physical product. Back then, we thought people would hate losing that experience. Download kills retail, but that becomes archaic. So we go to the streaming model that gives instant gratification, which is now the model for everything.

As recently as three years ago, artists were still sharing their doubts that music subscription services would ever be widely accepted. Taylor Swift pulled her music from Spotify in 2014. She later explained she was not willing to contribute my lifes work to an experiment.

But significant hurdles remain. One is Google-owned YouTube, which dominates music streaming with a free, ad-supported model. While YouTube points to $1bn it paid back to the industry in advertising last year, payments to artists have not kept pace.

Part of the issue, says Greg Barnes, general counsel of the Digital Media Association, is that copyright laws have lagged behind technology. We want to make it easier to licence vast quantities of songs in an efficient manner. We need to make the system more efficient and more transparent.

While it may be hard to imagine a time when one hit single could sell 18m copies of a Twisted Sister album, todays numbers are nonetheless impressive. Take the Canadian rapper Drake: last year, Spotify streamed his songs more than 4.7bn times.

But music label executives also urge caution. They note that neither Spotify or its rivals have reported a profit. Cary Sherman, CEO of the music industrys US trade group, noted in a blogpost that the improvement in revenues does not erase 15 years of declines, or continuing uncertainty about the future.

Ek is listening. Last week, Spotify announced it had added four new board members, including the former Walt Disney chief operating officer Tom Staggs; Shishir Mehrotra, YouTubes former head of product; Padmasree Warrior, who heads of the US unit of the Chinese electric auto firm NextEV; and Cristina Stenbeck of the Swedish investment firm Kinnevik.

The appointment of Staggs, a 26-year veteran of Disney, was widely interpreted to signal that Spotify is looking to enter into the video-streaming market. The company previously added Netflixs chief content officer, Ted Sarandos, to the board.

It may not just be streaming that Spotify makes mainstream. The company is considering a direct listing on the New York Stock Exchange (NYSE), an unusual tactic that avoids millions in underwriting fees and could help attract other tech unicorns companies valued at over $1bn to follow suit.

Tech companies have traditionally favoured an initial public offering (IPO) in which the company offers investors shares before it goes public. A direct listing only allows investors to buy shares through the open market. The move saves a fortune in fees but also potentially makes the sale highly volatile as long-term investors, like pension funds, who could have bought into the pre-sale of an IPO, will only decide whether to buy in once shares start trading.

If approved, the Swedish streaming service could go public later this year, marking the first tech listing since the disappointing launch of Snap Inc, which lost $2bn in value after releasing disappointing results earlier this month.

If the IPO is successful, other hot startups, such as Airbnb and Uber, could follow swiftly in Spotifys wake.

Read more: https://www.theguardian.com/technology/2017/may/27/spotify-ipo-stock-market-daniel-ek

Even Trump’s Twitter binges aren’t enough to make it worth $11bn | Nils Pratley

Twitter chief says he is proud daily usage is rising, but revenues just fell and profits are nowhere to be seen

As Jack Dorsey, the Twitter chief executive, said he was proud to report a 14% increase in daily usage of the social media service, the shares moved higher. Its hard to understand why. Quarterly revenues fell by 8% to $548m (427m), the first time they have dropped since Twitter became a public company in 2013. Meanwhile, profits are nowhere to be seen. In the first quarter, the company lost $62m, an $18m improvement on a year ago, thanks to cost cutting, but hardly justification for a stock market value of $11bn less than it was, yet still substantial.

While we continue to face revenue headwinds, we believe that executing on our plan and growing our audience should result in positive revenue growth over the long term, Dorsey said. The plan is probably the only one worth backing: get the audience up and hope revenues follow. But the current breakdown in the relationship between audience and revenues suggests Twitters clout with advertisers is fading fast.

Maybe it is being outgunned by Facebook and Google, with their vastly greater audiences and budgets. Or perhaps Twitter, despite Dorseys many modifications, is simply less suited to commercial messages. If so, even Donald Trumps tweeting flurries, which boost the audience statistics, wont bring salvation or a reason to value an 11-year-old company making a loss so highly.

GSKs new chief takes on the perennial question

Emma Walmsleys first big call as chief executive of GlaxoSmithKline was easy to make and correct: she ruled out a breakup and committed herself to a corporate structure that houses complex pharmaceuticals, vaccines and consumer products such as toothpaste and Horlicks under one roof.

In truth, nobody expected any other decision. Walmsley was an internal appointment, blessed by her predecessor Sir Andrew Witty. He spent ages deflecting calls for GSK to do the splits and she used to run the consumer division. Still, theres no harm in Walmsley addressing the perennial question, as she called it, in her first month in charge.

Like Witty, she argued that reliable cashflows from vaccines and consumer products are a natural counterweight to the higher risk and more volatile business of developing pharmaceutical drugs. And she agreed that there are benefits from being able to switch prescription medicines to the consumer category when patents expire. Neither argument is 100% convincing in itself, but both are more persuasive than a disruptive separation in which the only guaranteed winners would be investment bankers and lawyers.

There were no major fireworks, then, which may explain why the shares were the biggest fallers in the FTSE 100, down 2%, despite first-quarter figures that showed revenue and profits marginally ahead of City forecasts. But Walmsley was clearly signalling a shakeup of some sort in pharmaceuticals with her pointed criticism that GSK has sometimes pursued interesting drugs that lack sufficient commercial potential. Some programmes may be dropped or shoved into partnerships.

Until full details are published in July, its hard to tell whether the plan represents a tweak or a serious reform. But the markets yawn seems odd. A new CEO who talks about disciplined choices to make the labs more commercial usually gets applause from investors.

The Lloyds investigation is welcome, but a mess

It is understandable that Lloyds Banking Group feels the need to answer definitively the charge that its board and executives were complacent about fraud at the Reading branch of HBOS.

The bank has appointed Dame Linda Dobbs, a retired high court judge, to examine whether Lloyds handled the matter properly and met its reporting obligations after buying HBOS in 2009. The fraud, for which six people were jailed in February, ran from 2003 to 2007, but victims have long argued that Lloyds wouldnt listen to their complaints after the takeover. That allegation is serious, and an investigation is overdue.

Everybody happy then? Not really. The natural investigator is the Financial Conduct Authority, which is supposedly on the job. The regulators inquiry into HBOS Reading, which was suspended in 2013 when Thames Valley police leapt into action, reopened last month. The primary focus may be on what HBOS did under its own steam, but Lloyds actions after it bought the ailing lender will also be under the microscope.

Indeed, Lloyds will not be allowed to publish the Dobbs report or any of its findings until the FCA says so. Put another way, Lloyds has launched an independent inquiry into itself that wont be regarded as independent or credible until the regulator allows. Its good that this affair is getting the attention it deserves, but the process is a mess.

Read more: https://www.theguardian.com/business/nils-pratley-on-finance/2017/apr/26/twitter-quarterly-revenues-profits-jack-dorsey-donald-trump-gsk-lloyds