The Amazon Effect Strikes Again: An Event Study of the Amazon-Whole Foods Acquisition and Subsequent Inter-Industry Initiatives

Abstract

On June 16, 2017, e-commerce giant Amazon.com, Inc. announced that it would acquire popular grocery retailer Whole Foods Market for $13.7 billion. In the several months following, other leading grocery firms announced their own e-commerce initiatives. While there has been substantial media coverage of the Amazon-Whole Foods acquisition and its implications for other firms, this paper is the first to study the market’s reaction empirically. I use event study methodology to investigate the performance of leading grocery and e-commerce players after the Amazon-Whole Foods acquisition and the subsequent initiatives of rival firms to assess how investors interpreted inter-industry partnerships as signals for these firms’ future performance. The results of this paper indicate that the Amazon-Whole Foods acquisition and subsequent events caused immediate day-of disturbances in the stock price of rival firms, though firms exhibited normal performance patterns before and after the event dates. I propose two explanations: First, investors may have been expecting the trend of inter-industry partnerships and could therefore quickly and efficiently price in new information when such plans were announced. Second, because groceries are an experience good that consumers are unlikely to purchase online, investors may have been cautious about partnerships between the grocery and e-commerce industries significantly changing the way households consume groceries, so these events did not have persistent effects on markets’ expectations of performance.