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Conor Sen

Amazon's Real Target Isn't Whole Foods. It's Everything You Buy.

The really tempting margins are in consumer products. Look out, Procter & Gamble and Colgate-Palmolive.
Imagine an aisle full of Amazon-branded products instead....

Imagine an aisle full of Amazon-branded products instead....

Photographer: Ramin Talaie/Bloomberg

"Your margin is my opportunity." This aphorism favored by Amazon founder and CEO Jeff Bezos is the lens through which we should evaluate Amazon's intention to buy Whole Foods. After the announcement on Friday, investors were harsh on grocery stores and big box retailers -- but it's not their margins in which Amazon sees an opportunity. This modern conglomerate is not primarily going after the stores, but the products on the shelves.

Grocery stores are a notoriously low-profit-margin business. Kroger, which had $115 billion in revenue in its most recent fiscal year, showed a net profit of just under $2 billion, for a profit margin of under 2 percent. Costco, with its lucrative membership revenue stream, earned just $2.35 billion on revenue of $118.7 billion, also a profit margin around 2 percent. There's a reason e-commerce has had a difficult time disrupting this business.