Amazon has entered into a definitive merger agreement to purchase the up-market grocer Whole Foods for $13.7 billion (£10.7 billion), at $42 per share.

While Amazon has toyed with bricks and mortar retail in recent years with the launch of a handful of physical stores, this acquisition firmly places the e-tail giant in the physical grocery sector.  

“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 Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

Whole Foods co-founder and CEO, John Mackey, who will stay on in his position, added: “This partnership presents an opportunity to maximise value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers.”

In 2016, Whole Foods revenues were around the $16 billion mark. The retailer has over 460 stores in the US, Canada and the UK and employs around 87,000 people.

Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, described the move as a “tacit admission from Amazon that food retail is incredibly difficult as a purely online player”.

“Online grocery shopping has grown rapidly and may seem quite well established, but it is still a fairly niche option for food shopping: only just over a quarter of the UK population shopped online for groceries during the past year, and many consumers still don’t do so regularly,” he said.

“Amazon is committed to cracking the grocery market, and a business like Whole Foods brings with it many of the crucial ingredients the eCommerce giant has been missing in its other forays into food and drink. The power of a physical presence on the high street to grow a brand’s reputation and credibility is particularly important in grocery, where consumers want to be able to see the quality of the items they’re buying first hand.”

Meanwhile, eCommera’s head of insight, Alex Hamilton said grocery retailers should be concerned.

“When it comes to grocery, convenience is key. And there are very few businesses, like Amazon, who have been able to deliver an experience that keep customers coming back time and again,” he explained. “It’s this skill, combined with the acquisition of a significant store estate through Whole Foods, that will worry all grocery retailers in markets where Amazon operates or is likely to soon. This is without even mentioning the tech giant's current experimentation with checkout-less stores.”

Neil Saunders, MD of GlobalData Retail, on the other hand, described the deal as “potentially terrifying” for grocers, as he points to the Whole Foods store estate which could be used to offer click & collect services for Amazon’s other businesses.

“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. The only mitigation is that the more niche appeal of Whole Foods will, at least for the time being, limit the threat to other players.”