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Smoke, but no fire, in Amazon speculation, sources say

Recent reports mention Whole Foods, BJ’s as potential targets

For the second time in a single week, Amazon.com has been mentioned as a potential suitor for a brick-and-mortar food retailer, but observers contacted by SN saw more smoke than fire.

Citing confidential sources, the New York Post on Friday said the internet retailing giant had “discussed” evaluating BJ’s Wholesale Club as an acquisition target that would speed its slow foray into physical food stores. The article came three days after Bloomberg reported Amazon showed similar interest in Whole Foods Market last fall, but those discussions didn’t proceed past the discussion stage. That article was also based on anonymous sources.

A spokeswoman for Amazon told SN the Seattle-based company was unable to comment on those reports.

Observers acknowledged the stories would confirm Amazon’s interest in the physical food space but were reluctant to see it as anything more than that.

“There seems to be an awful lot of smoke around Amazon on a potential acquisition, so I think they’d have to be at least looking at things internally,” said Neil Stern, managing partner for McMillanDoolittle. “Their name keeps popping up. I think they are recognizing that if they’re going to become a serious player in food retail that it’s likely it’s going to be some combination of clicks and bricks. They can’t get it done solely on a virtual and delivery model.”

Amazon in recent months has built two versions of food stores near its Seattle headquarters that would suggest it is exploring physical stores as a means to bolster its AmazonFresh business, which has come up against operational challenges of virtual food retailing business.

“If I’m a speculator, I’d look for them to do something that’s a little closer to their space,” Stern added. “While BJ’s and Whole Foods are intriguing, they are fundamentally different business models than Amazon has.”

Both of the reported targets have been drawing investor speculation in general. BJ’s, owned by the private equity firms Leonard Green and Partners and CVC Capital, is said to be looking to cash out via a sale or a public offering. Those companies acquired BJ’s in 2011 for $2.8 billion. Whole Foods has become the target of activist investors looking for a shake-up that could include a sale.

Burt P. Flickinger III, managing director of Strategic Resource Group, dismissed Amazon’s interest in BJ’s and Whole Foods to investor speculation. BJ’s owners, he contended, would not settle for a “suboptimal” return on their investment and despite dim investor view toward retailers, Flickinger believes the company could still do a public offering.

“It’s customary for Leonard Green to do IPOs, and BJ’s has really been doing exceptionally well,” Flickinger said. “They’re doing as well as any retailer in America.”

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