When Amazon.com, Inc’s (NASDAQ:AMZN) $13 billion deal for Whole Foods was announced last year, the natural reaction was to assume that the e-commerce giant was about to shake up the grocery industry as we know it. We’ll have to wait and see how that ultimately plays out, but signs continue to emerge that Amazon is all in when it comes to growing Whole Foods.
CNBC shares an interesting tidbit from Amazon’s recent 10-K filing.
Amazon’s “unconditional purchase obligations,” a required disclosure for future payment agreements, ballooned to $24.2 billion in 2017, according to its 10-K filing last month. Amazon had just $1.6 billion of such obligations prior to the Whole Foods deal, and never had more than $2 billion in company history.
After acquiring Whole Foods, Amazon took on an additional $22 billion in contractually obligated future purchases. The balance, which also showed up in Whole Foods’ filings for the first time in November, is almost entirely tied to the grocery chain’s prior contract with its largest supplier United Natural Foods (UNFI), based on CNBC estimates and prior filings.
Typically, Amazon looks to sign short-term agreements with suppliers as a means of maintaining control over prices. However, the rare move by Amazon can be explained by the fact that it’s a new segment for the company, and one which they plan to grow at all costs.
As Patrick Badolato, an accounting professor at the University of Texas notes, “It is definitely a clear signal of Amazon’s commitment and confidence to make the Whole Foods deal work.”
Amazon.com, Inc. shares were trading at $1,546.41 per share on Thursday afternoon, up $1.41 (+0.09%). Year-to-date, AMZN has gained 32.23%, versus a 2.32% rise in the benchmark S&P 500 index during the same period.