Dive Brief:
- SpartanNash has given Amazon the right to purchase up to 5.44 million of the grocery company’s shares, or about 15% of the company, according to a disclosure from SpartanNash and media reports.
- Amazon has until October 2027 to complete its purchase of SpartanNash stock under the arrangement, which builds on an existing deal under which SpartanNash supplies Amazon with groceries to sell through its e-commerce channels.
- Amazon’s decision to deepen its relationship with SpartanNash is part of the e-commerce company’s multibillion-dollar push in recent years to become a significant player in the grocery business. If Amazon fully exercises its rights under the agreement to invest in SpartanNash, the e-commerce giant would become the company’s largest shareholder, Dow Jones reported.
Dive Insight:
SpartanNash’s deal with Amazon is poised to catapult the retailer/wholesaler, which has been providing groceries to Amazon since 2016, into the e-commerce company’s growing grocery portfolio. That could allow SpartanNash to take advantage of Amazon’s expertise and market clout as it charts its future course.
In addition to its wholesaleing business, SpartanNash operates over 150 supermarkets under banners including Family Fare, Martin’s Super Markets, D&W Fresh Market, VG’s Grocery and Dan’s Supermarket. The company also runs commissaries on military bases.
Investors cheered the news of Amazon's intended investment. Shares in SpartanNash surged more than 35% during mid-afternoon trading on Friday, to about $23 each. Amazon’s agreement with SpartanNash, known as a warrant, gives Amazon the right to buy shares in the grocer for $17.73 each.
The grocery chain’s supplier relationship with Amazon is a legacy of former SpartanNash President and CEO David Staples, who left the company in August 2019. During a call with investors on May 26, 2016, to discuss the company’s results for the first quarter of 2016, shortly after the companies began working together, Staples said the volume of its business with Amazon had exceeded expectations and had “significant growth potential.”
SpartanNash signed on with Amazon to provide goods to the company’s Prime Now and Amazon Fresh grocery businesses, Staples said at the time.
In a note to investors, R5 Capital analyst Scott Mushkin said SpartanNash is likely now the main distributor to Amazon’s new fleet of Fresh grocery stores as a result of this latest agreement, which according to MarketWatch includes volume targets that would more than double the value of Amazon’s annual purchases from SpartanNash.
Mushkin, who called the companies’ latest deal a “big win” for SpartanNash, said Amazon appears ready to spend about $8 billion on products supplied by SpartanNash over seven years, which would equate to approximately $1.1 billion per year. The arrangement is also beneficial for Amazon because it gives the company the potential to profit from the business it gives SpartanNash, Mushkin said.
SpartanNash’s decision to step up its relationship with Amazon comes less than a month after the company named former Borden Dairy leader Tony Sarsam as president and CEO. Sarsam, who replaced interim President and CEO Dennis Eidson, came to SpartanNash shortly after the company returned to profitability on a year-over-year basis.
