This weeks case assignment continues our work with Amazon.

Background

In mid-2017, Amazon reached an agreement to buy Whole Foods for $13.4 billion. This was a landmark deal, as Amazon had been trying to break into the grocery business for some years, but consumers had been reticent to purchase groceries online. After all, theres value in assessing whether the bananas are too green, the parsley looks too wilted, or the milk has a best buy date thats too close to the present date. Purchasing online often removes all those options for the discerning customer, and Amazon had been struggling in their attempts to battle that. So they shifted gears and bought Whole Foods.

Amazon itself was already a large company before the purchase of Whole Foods. They were the second largest private employer in the USA, and at the time of the deal had a market capitalization of approximately $500 billion. The addition of Whole Foods would make it a major player in the grocery business, where roughly $800 billion is spent every year by Americans. And while an expenditure of $13.4 billion might seem like it pales in comparison in relation to the size of Amazon, it still represented nearly 2.5% of Amazons value at the time, so it was a big deal. Thus, it was essential that Amazon was getting this decision correct. Clearly, the analytics team at Amazon felt that purchasing Whole Foods was the correct choice, and they advised management to go forward with the acquisition. Only time will tell if they are correct. In this case, we will step back and examine some other hypothetical possibilities.

Part I

Imagine that its May 2017 and you are part of the analytics team at Amazon, and your team has been assigned some tasks to help management decide whether or not buying Whole Foods is the right decision. As an alternative to Whole Foods, your team is also considering buying Trader Joes from Aldi, who is TJs parent company. The two are fairly comparable in terms of size and annual revenues. Whole foods reported revenues of $15.7 billion in 2016 and Trader Joes had revenues of roughly $13 billion. Both had approximately 475 locations worldwide at the time of purchase. The biggest difference that your team sees between the two will be the profits that could be generated during different economic outcomes in the future. Trader Joes seems like its revenue stream (and thus profits) will be steadier, but Whole Foods has more upside potential if the market for higher end groceries is good. Your team also must consider the Do Nothing option, which in this case means Amazon will push forward with its Amazon Fresh business, which hasnt been as good, but will still yield some profits. Your team has compiled the following table of potential annual profits under different economics states of the world for each of the various choices you could recommend. Note that numbers in red parentheses indicate losses instead of profits.

	Recession	Modest Growth	Economic Boom
Buy Whole Foods	($2,000,000,000)	$8,000,000,000	$26,000,000,000
Buy Trader Joes	$3,000,000,000	$12,000,000,000	$18,000,000,000
Do Nothing (Amazon Fresh)	$4,000,000,000	$6,000,000,000	$10,000,000,000

From these numbers, your team notes a few things. First, each of the three choices is optimal in at least one state of the world, so none of them can be dismissed without further analysis. Second, the payoff for buying Whole Foods when a recession is coming is highlighted red with parentheses, which is the Accounting departments method of indicating a negative payoff (i.e. the payoff is a loss of $2B).

The Chief Economists Office for Amazon has given your team the following probabilities of each of the three states of the world occurring in a given year: 30% to a recession occurring, 30% of modest growth happening, and 40% to an economic boom happening.

Your team decides that the presence of probabilities for the outcomes means that this is a decision environment with risk, and so you will conduct the analysis as such. To do so, your team wants to make use of the proper template in Excel.

Tasks:

• Using the information above, please identify the correct template (from those provided) so that you can conduct a decision table analysis. Be sure to select the appropriate options with respect to the setting of the case.
• Once you have identified the correct template, please fill in the information accordingly