Amazon has been making some aggressive moves in the grocery industry in recent months, but perhaps none so aggressive as its just-announced deal to buy Whole Foods for $13.7 billion.

The deal takes away a key differentiator that Walmart and Target have counted on in their competition with Amazon: a massive retail footprint. Whole Foods, an upscale supermarket chain focused with 465 stores in the U.S. and U.K., may not have the scale of Walmart (which has 4,692 stores in just the U.S.), but it's a massive change for Amazon, which has so far only had experimental retail presences, mostly in Seattle.

Bloomberg News

Traditional grocery chains such as Walmart and Target have been working hard to keep up with the online behemoth’s forays into their territory with new initiatives such as in store pickup and delivery, but until now probably didn’t take the threat seriously that Amazon was aiming to become a top 5 grocery retailer by 2025.

This morning, that threat has become reality. The market has reacted swiftly. In premarket trading this morning, Walmart shares dropped 4% and Kroger a shocking 12% on news of the deal. Both Walmart and Kroger had been beefing up their technology and range of services to stay competitive with Amazon.

With ownership of Whole Foods, Amazon could rapidly deploy the systems it is testing such as AmazonFresh Pickup for order-ahead grocery shopping and Amazon Go for checkout-free shopping. Amazon also recently reintroduced its Amazon Dash wand, which ties into AmazonFresh and lets people reorder groceries by scanning bar codes in their kitchens.

Nick Holland

Nick Holland

Nick Holland is a Senior Analyst at PaymentsSource. He has previously held analyst roles at Javelin Strategy & Research, Yankee Group and Aite Group.