How Amazon-Whole Foods deal will hit Philly's small and independent grocers the hardest

Malls were losing mall-goers, so Pennsylvania Real Estate Investment Trust wanted to try something different when it made a Whole Foods grocery an anchor at its Plymouth Meeting Mall in 2010, one of the first retail grocers in the country to have that status.

It generated more foot traffic, so a second PREIT-owned area mall, Exton Square in Chester County, will get a Whole Foods later this year.

Several PREIT malls also began adding Amazon lockers last year for convenient pick-up of online orders from the retail juggernaut.

With Amazon now acquiring Whole Foods Market and its network of 400 organic stores in a deal worth $13.7 billion, will these same PREIT malls benefit or suffer from the merger?

PREIT chief executive officer Joseph Coradino said the deal will likely foster innovation in the grocery segment, especially involving delivery of products.

"Amazon's acquisition of Whole Foods both illustrates the strength of the grocery segment and confirms the continued need for brick-and-mortar retail," Coradino said. "A majority of grocery purchases are still made in physical stores, and with Whole Foods at Plymouth Meeting Mall offering more than just groceries – including an organic espresso bar, taco food truck, and pub serving locally brewed beer – the location will continue to attract consumers."

He said as online shopping keeps growing, the quest for social experiences remains a constant.

"Experience cannot often be replicated online, underscoring the growth of dining and entertainment in PREIT's portfolio and across the mall industry," he said.

Coradino said he can see convergence on a whole new level: when consumers will be able to order certain Whole Foods items online, and have them delivered  to Amazon lockers at the PREIT mall closest to where they live.

The running joke at a major retail real estate convention in Las Vegas last month was that food was the only thing Amazon hadn't yet figured out how to sell cheaply and deliver quickly. That's now likely to change, experts say.

The pending purchase "puts grocers on notice that Amazon is going to be a serious and formidable player on the grocery business," Moody's vice president Mickey Chadha said. "Supermarkets will now have to contend with not only competition with each other and nontraditional grocers like Wal-Mart and Target, but with a retailer like Amazon, which has the financial capacity to price aggressively. The smaller regional supermarket chains and independents will bear the most pain."

The Amazon-Whole Foods deal is expected to close in the second half of the year, pending shareholder and regulatory approvals and if Amazon doesn't get outbid by rivals.

Added Douglas Green, managing principal at Center City-based MSC Retail: "This is clearly a play at an affluent customer, one that Amazon already has squarely in its cross-hairs with its Prime platform. This is a way for Amazon to provide better service to those customers and attract more of them.

"Amazon loses billions of dollars per year on shipping, so with over 400 supermarkets in the U.S., Amazon gains an incredible distribution and delivery network atop the rooftops of their Prime customers. This acquisition will put pressure on others to increase the quality of the in-store experience; everything from the physical ambiance of the supermarket to in-store events, displays, etc."

And faster home delivery.

Giant announced last week it had partnered with Instacart Inc. — the on-demand grocery delivery service — to offer same-day delivery in the Philadelphia area. Giant customers can use instacart.com or the Instacart app to fill their virtual carts with their favorite Giant products and select a delivery window, and Instacart staff will fill the orders for them.