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Critics hit Amazon's Whole Foods takeover

Antitrust and labor issues stir discontent; retail analysts skeptical

Amazon's plan to gobble up Whole Foods is causing indigestion on Capitol Hill and elsewhere as critics worry the plan would be too successful or, on the other hand, not successful enough.

Rep. David Cicilline (D-R.I.), for one, thinks the merger would take too big a bite out of competition.

“Competition is essential for a healthy economy. That’s true across the board. Amazon’s proposed purchase of Whole Foods could impact neighborhood grocery stores and hardworking consumers across America,” said Cicilline in a prepared statement. “Congress has a responsibility to fully scrutinize this merger before it goes ahead. Failing to do so is a disservice to our constituents.” 

Cicilline, the top Democrat on the House Judiciary Antitrust Subcommittee, is asking his collegues to hold a hearing on the $13.7 billion acquisition.

Cicilline is not alone. Consumer Watchdog wants the feds to block the merger "until the online retailing giant formally consents to halt its deceptive pricing practices that falsely lead consumers to believe they are getting deals with discounted prices."

"Slime Day"

In a statement issued on Prime Day earlier this month, the nonprofit consumer advocacy group cited studies that it said found Amazon's reference prices were often misleading, causing consumers to think they were getting a great deal when in fact they were paying as much, or more, than the prevailing price. 

“While Amazon celebrates its Prime Day, their pricing scams may make it more like Slime Day,” said John M. Simpson, Consumer Watchdog Privacy Project director.

The United Food and Commercial Workers International Union (UFCW), meanwhile, says the merger would cost thousands of Whole Foods workers their jobs. 

“Amazon’s very business model is to remove as many humans from all facets of production and service as possible. Much like Walmart’s big box model destroyed small businesses when they spread across the country, the Amazon automation threat is arguably greater and worse if it comes to fruition – the destruction of 16 million service and retail jobs," Perrone said in an op-ed on CNN.com. 

But will it work?

Leaving aside for a moment the critics like those quoted above, one prominent retail analyst is skeptical that Amazon would be successful in the grocery business. 

The appeal of food retailing is obvious, says Jim Tompkins, CEO of Tompkins International and MonarchFx, supply chain and retail operations consultants -- "huge revenues, repeat business and in-store traffic."

Tompkins says these undeniable strengths have resulted in "a proliferation of food retail models ranging from dollar stores, off-price stores, convenience stores, drug stores, supermarkets, discount supermarkets, premium supermarkets, farmers markets, restaurants, online retailers, specialty/natural food stores, supercenters and warehouse clubs."

But "the appeal and fascination fades when the reality of low margins, a shameful amount of waste and slow sales growth sets in," he warned.

"Although there are many lessons to be learned from grocery to non-grocery retail, one needs to be aware that with the margins in food retailing being substantially lower than in non-food retailing, what is true in grocery may or may not be applicable to non-food retailers," Tompkins said.

Acquiring, storing and delivering fresh foods is a lot different from selling e-books, shoes and households goods, Tompkins cautioned. He warned that Amazon would be "jumping into the deep end of the pool" with the Whole Foods acquisition.

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