Amazon to increase spending on grocery deliveries, reckons US broker Wedbush

Internet retail giant Amazon.com Inc. (NASDAQ:AMZN) is expected to increase spending to drive growth of online ordering and delivery of groceries following its deal to buy Whole Foods Market Inc (NASDAQ:WFM) for US$13.7bn, according to analysts at US broker Wedbush

The analysts said they see the acquisition giving Amazon’s revenue a boost but only a slight lift to earnings per share due to further spending.

“We expect incremental top-line growth to be largely absorbed by increased spending as Amazon augments its grocery delivery capabilities,” they said.

However, Amazon has plans to cut costs by culling jobs at Whole Foods, Bloomberg has reported. The e-commerce group is said to be considering replacing Whole Foods cashiers with technology.

Meanwhile, Wedbush also expects Amazon will use the grocery stores of Whole Foods as distribution centres. Following the acquisition, the number of Amazon’s refrigerated US locations grows by 440 Whole Foods Market stores from an estimated 20 fulfillment centres.

“As a result, Amazon is positioned to quickly expand its Amazon Fresh offering, through which Amazon Prime subscribers pay an additional US$14.99 per month for grocery delivery,” Wedbush said.

“Amazon may eventually offer expedited grocery delivery, potentially in an hour or less, to the vast majority of the US population once it has built up its delivery network.

Wedbush added that Amazon Fresh customers may no longer have to make delivery reservations days or weeks in advance and see Whole Food stores as ideal outlets for popular Amazon products such as Echo, Fire TV, and Kindle “given the favorable demographics of the customer base”.

The analysts gave Amazon an ‘outperform’ rating and a target price of US$1,250. Shares in Amazon rose 0.94% to US$997.0 in US pre-market trading.

Story by ProactiveInvestors