Amazon is to acquire grocery business Whole Foods Market in a deal valued at $13.7bn.

The two businesses announced a merger agreement under which Amazon will acquire Whole Foods Market in an all-cash deal valued at $13.7bn, including Whole Foods Market’s net debt.

Whole Foods Market operates more than 465 stores throughout the UK, Canada, and in 42 US states. The business, which turned over around $16bn last year, will continue to operate stores under the Whole Foods Market brand and source from “trusted vendors and partners around the world”.

John Mackey will remain CEO of Whole Foods Market, which will continue to be based in Austin, Texas.

“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 Amazon founder and CEO Jeff Bezos. “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.”

Amazon has just expanded its Amazon Fresh delivery service – which includes a range of in-house bakery products - to 42 postcodes in Hertfordshire and Bedfordshire. The service, which launched in the UK over a year ago, enables Amazon Prime members to have a range of fresh goods including fruit and veg, dairy and meat delivered to their homes.

Whole Foods operates nine stores in the UK - seven in London, one and Glasgow and one in Cheltenham.

Whole Foods Market co-founder and CEO John Mackey said the partnership was 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”.

Completion of the deal, expected to close in the second half of this year, is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other standard closing conditions.

’Incredibly difficult’

Fraser McKevitt, head of retail and consumer insight at analysts Kantar Worldpanel, said the news was “in some ways a tacit admission from Amazon that food retail is incredibly difficult as a purely online player”. 

Although online grocery shopping has grown rapidly it is still a fairly niche option for food shopping, with just over a quarter of Brits shopping online for groceries during the past year.

“Amazon is committed to cracking the grocery market, and a business like Whole Foods brings with it many of the crucial ingredients the e-commerce giant has been missing in its other forays into food and drink,” he said.

“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. 

Bricks and mortar stores would enable Amazon to expand its options for ordering, pick-up and delivery, added McKevitt.

It was a view echoed on Twitter by Dennis K Berman, financial editor of the Wall Street Journal: “Amazon did not just buy Whole Foods grocery stores. It bought 431 upper-income, prime-location distribution nodes for everything it does.”