When Amazon, the king of online retail, bought Whole Foods for $13 billion in 2017, many saw a future of on-demand delivery of affordable organic produce and packaged foods. Financial disclosures revealed in Amazon’s 2017 annual report demonstrate that the company is betting on this future too, in the form of a huge investment in their rapidly growing grocery business.
CNBC reports that the annual report describes “unconditional purchase obligations” of over $24.2 billion for 2017 — a huge increase in these payment agreements, especially for a company that had previously never had more than $2 billion in such expenses.
These expenses are tied to the existing, Whole Foods’ contract with its biggest supplier, United Natural Foods, or UNFI, and are “a clear signal of Amazon’s commitment and confidence to make the Whole Foods deal work,” says accounting professor Patrick Badolato in the CNBC article.
UNFI is the source for fresh produce, as well as key organic and natural brands like Horizon milk and Kettle Foods, and has a decades long relationship with Whole Foods, which is already seeing an Amazon bump. According to CNBC, UNFI raised revenues in September 2017 due to an “unexpected increase” in demand.
We’ve been reporting lately at Hygeia on some encouraging news about growth in organic farming, specifically in apples and wheat. Coupled with this latest news from the consumer-supply side of the business, are we seeing a turning point in the organic industry?
Time will tell, but with big players like Amazon coming to the table we better set a few extra places.
Eugene Kim, “Amazon has committed to roughly $22 billion in future food purchases as it bulks up Whole Foods,” CNBC, March 7, 2018.