Amazon just placed a $13.7 billion bet on Whole Foods

Amazon has been nibbling around the edges of the supermarket business for years, and Friday the online commerce giant went straight for the jugular by acquiring Whole Foods in a $13.7 billion all-cash deal.

The announcement of the deal comes as the way Americans shop changes at an increasingly quick pace. Online retailers — dominated by Amazon — continue to devour market share. But brick-and-mortar retailers are increasingly struggling, laying off workers, and leaving a glut of unused commercial real estate across the country.

Over the last year through May, total U.S. retail sales were down 0.3 percent, while sales at nonstore retailers — mostly online sales — rose 10.2 percent.

In recent years, Seattle-based Amazon has been experimenting with various physical stores and other online grocery initiatives, but those efforts have mostly failed to resonate with consumers in a big way.

Whole Foods, meanwhile, has been struggling like most other brick-and-mortars. The organic supermarket chain shed more than a quarter of its market value in the last two years, and has spent much of this year fending off activist investors pressuring the company to sell itself.

Grocery stores have remained somewhat immune to the online onslaught. In 2016, less than 1 percent of the $1 trillion U.S. grocery market was made online. That makes grocery sales an incredibly lucrative prize for the online retailer able to find a way to convince shoppers to buy milk, bread, fruit and meat on the web. But even Amazon has been unsuccessful in its efforts to find a compelling online grocery platform.

One big question about the deal: What will happen to Instacart? The grocery delivery startup, in which Whole Foods is a major investor, inked a five-year partnership with Whole Foods last year, and it directly competes with Amazon. Instacart raised $400 million at a $3 billion valuation from investors earlier this year, but it has struggled to build stable business.

The Amazon-Whole Foods deal is supposed to close sometime in the second half of 2017, according to a press release. Whole Foods CEO John Mackey will keep his job, and the company’s headquarters will remain in Austin, Texas.

It is the largest acquisition in Amazon’s history by a significant margin; the company bought the video game-streaming site Twitch for about $1 billion in 2014, and rival digital retailer Zappos for $1.2 billion in 2009.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Amazon CEO Jeff Bezos in a statement. “Whole Foods Market has been satisfying, delighting, and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”