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Amazon-Whole Foods deal hits Canadian grocery shares

A woman shops for produce inside a Whole Foods Market in the Manhattan borough of New York on June 16. (CARLO ALLEGRI/REUTERS)

– Amazon.com Inc’s proposed purchase of high-end food retailer Whole Foods Market Inc hammered share prices of food and retail companies on Friday as the proven retail disruptor stepped boldly into another consumer space.

Shares of U.S., Canadian and European retailers and supermarket chains fell after the online retailer said it would buy Whole Foods in a deal valued around $13.7 billion.

Whole Foods shares were up 27.0 per cent at $42.00 after touching a two-year high of $42.35, and Amazon shares were up 2.9 per cent after the news.

However, stocks across the food production and distribution sectors were hit by the imminent competition of a company known for sacrificing margins in search of market share.

“Whole Foods has given up a lot of market share because they didn’t capitalize on being the leader in organic, but they still have a footprint,” said Jan Rogers Kniffen, chief executive of retail consultancy J. Rogers Kniffen WWE in New York.

“It’s a little different when you’re Amazon,” he said. “Whole Foods has to make money, Amazon doesn’t have to make money. All Amazon’s got to do is grow.”

Canadian consumer staples stocks fell as much as 3.36 per cent, their biggest fall since October 2008. Two of Canada’s largest grocery chain operators, Loblaw Companies Ltd and Metro Inc both fell more than 5.5 per cent at one point. Loblaw, which also operates banners including No Frills and Superstore, was down 4.4 per cent at $72.20, while Metro fell 4.2 per cent to $42.61.

Kroger Co shares slumped 11.9 per cent, United Natural Foods Inc tumbled 13.3 per cent and Sprouts Farmers Market Inc sank 11 per cent.

The S&P 1500 food and staples retailing index was off 4.6 percent.

“Again we see Amazon leading, and other supermarkets following,” said Phil Bak, chief executive of ACSI Funds, an asset manager. “How they plan to implement technology in the buying experience remains to be seen.”

The news hurt shares of large diversified retailers as well. Wal-Mart Stores Inc dropped 4.9 percent and Target Corp declined 7.8 percent.

The fallout also spread to Europe. Supermarket chain Tesco Plc was down 4.4 percent and Carrefour slipped 3.7 percent.

“Amazon’s got its tentacles everywhere and that’s another place to go,” said Bruce Bittles, chief investment strategist at R.W. Baird & Co in Sarasota, Florida. “Amazon sees that industry changing significantly – and they see that people don’t necessarily go to the grocery store anymore.”

Packaged food companies were hit as well at the specter of cheaper, healthier food targeting their customer base.

Shares of Mondelez International Inc, the owner of Oreo cookies and the whole Nabisco brand, were down 2.1 per cent while Kraft Heinz Co dropped 2.8 per cent and Hershey Co was down 3.1 per cent.

Food distributors were also punished, with the S&P 1500 sector index down 4.6 per cent. Andersons Inc fell 3.3 per cent and Sysco dropped 3.9 per cent.