Amazon is making a big bet on grocery stores and the business of food.
The online retail giant announced Friday that is buying organic grocery chain Whole Foods for $13.7 billion in cash. The deal values Whole Foods at $42 a share, 27% higher than where the stock was trading Thursday.
Amazon said Whole Foods stores will continue operating under that name as a separate unit of the company. Whole Foods CEO John Mackey will stay on to lead Whole Foods, which will keep its headquarters in Austin, Texas.
The deal shows Amazon's interest in moving into the business of operating stores, even as many retailers that have been crippled by Amazon's growth have announced a series of store closings.
It also shows Amazon's growing interest in groceries. The company has its own delivery service, AmazonFresh, and is experimenting with a "click and collect" model, offering customers to buy groceries online, then pick them up in person.
The supermarket business, like many other parts of retail, has been hit hard by increased competition from Amazon itself, as well as Walmart.
Grocery giant Kroger said Thursday that its profits for the year would be lower than Wall Street expected, sending its stock plunging nearly 20%. Then Kroger's stock plummeted 13% further on Friday after the Amazon-Whole Foods detail was announced.
Shares of other retailers with a big presence in groceries, such as Target, Costco, SuperValu and Sprouts plunged as well.
And Walmart was down 5%, despite announcing another online commerce deal of its own Friday. It bought men's apparel company Bonobos.
But Amazon's stock rose 3% on the news. Investors don't seem too concerned by how much the company is spending. A warning of a possible credit downgrade by ratings agency S&P Global Ratings didn't hurt Amazon either.
S&P said that Amazon may need to take on more debt as a result of the acquisition. But Amazon finished the first quarter with $21.5 billion in cash and securities on its balance sheet - and only $7.7 billion in long-term debt.
Amazon's deal for Whole Foods also further demonstrates the financial strength of the Jeff Bezos-led company, whose market value is greater than that of the 12 largest traditional general retailers combined.
"Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy," said Bezos.
Whole Foods, founded in 1978, is widely credited with helping to make organic food go mainstream. The company now has about 87,000 employees and more than 460 stores - mostly in the U.S. But Whole Foods has also expanded to Canada and the U.K.
