Amazon's stunning takeover of Whole Foods shook the entire food chain.
The stocks of traditional grocery stores like Kroger were clobbered Friday after the deal was announced. So were Walmart and Target, which made big moves into groceries in recent years and now depend on food for a huge chunk of their sales.
The damage didn't stop there: Food companies themselves, like Hershey and Campbell Soup, also slumped because of investor concerns that Amazon will do for their products what it does for everything else -- cut prices ruthlessly.
Wall Street is betting Amazon (AMZN) could be as disruptive to the $800 billion grocery industry as it has already proved to be for brick-and-mortar retail businesses.
Amazon already had a relatively small grocery business of its own, Amazon Fresh, but its acquisition of Whole Foods is much more ominous sign for competitors.
Traditional grocers are already struggling with fierce competition and falling prices. Amazon's war chest and online strength, coupled with Whole Foods' brand power, could force grocers to cut costs and spend heavily on e-commerce.
"For other grocers, the deal is potentially terrifying," Neil Saunders, managing director of GlobalData Retail, said in a report on Friday. "Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat."
Walmart (WMT) stock tumbled 5% on Friday. The selloff instantly wiped out more than $11 billion from the retail giant's market value.
Target (TGT), another big grocery player, plunged as much as 10% in what would have been its second-worst day since 2008. Target stock rebounded a bit to close down 5%.
Walmart gets 53% of its sales from food, groceries and things like household cleaning products, according to GlobalData Retail. Target gets a third of its sales from those categories.
Related: Amazon is buying Whole Foods for $13.7 billion
Kroger (KR) stock plunged 9%, just a day after the struggling company crashed 19% in its worst day since 1999. Ahold Delhaize (ADRNY), the parent company of the Food Lion and Giant supermarkets, plunged 8%.
The stock of Sprouts Farmers Markets (SFM), another rival of Whole Foods, dropped as much as 14% before closing down 6%. Supervalu (SVU), a smaller grocery chain, lost 17% of its value. Discount giant Costco (COST) sank 7%.
All told, just roughly $22 billion of market value vanished from grocery-related stocks on Friday.
Supermarket chains were already in trouble. Even before buying Whole Foods, Amazon had invested heavily in its food delivery business. Walmart has boosted its grocery business and private companies like Trader Joe's have also offered tough competition.
Food stocks also sank. The stocks of Hershey (HSY), Campbell Soup (CPB) and Conagra (CAG) all slumped 2% or more. Cereal stocks like Kellogg (K), General Mills (GIS) and Post Holdings (POST) retreated as well.
The concern is that Amazon's acquisition may force existing supermarkets to cut prices even on name brands, potentially squeezing the profit margins of these food companies. At the same time, Amazon has a private label food business that it can distribute at Whole Foods, while Whole Foods brands can be sold through Amazon's website.
Moreover, Amazon has just thrown its considerable weight behind a grocery chain in Whole Foods that doesn't sell many of those companies' name-brand products, like Frosted Flakes or Campbell Soup.
"Investors fear the competitive implications," said Global Data's Saunders.
Contrast the grocery carnage on Wall Street with the extreme optimism around Amazon. The e-commerce leader's stock popped another 4% on Friday, lifting its market value to an incredible $477 billion. Whole Foods (WFM) shares spiked 29% to $42, Amazon's offer price.
