Exterior of Whole Foods store A Whole Foods Market in Folsom, CA. Recent press reports have suggested consumer dissatisfaction following Amazon’s acquisition of the specialty grocery chain. (Photo: Whole Foods Market)

NEW YORK CITY—Amazon’s June 16 announcement that it would purchase Whole Foods Market for $13.7 billion sent shudders through the grocery sector. Six months later, the shudders have largely subsided into a modern-day equivalent of the “keep calm and carry on” resoluteness that got wartime Londoners through Luftwaffe bombing runs on their city.

BTIG analysts Michael Gorman and James Sullivan note that shares of strip center REITs in their coverage universe declined by more than 6.5% in the days following Amazon’s statement of its plans to enter the brick-and-mortar grocery space. Since then, though, this cohort of shopping center landlords has outperformed the broader MSCI US REIT Index, according to a research note from BTIG.

“Although the grocery business remains a competitive market with narrow margins, there has not been a material decline in fundamentals since the WFM acquisition,” Gorman and Sullivan write. “Management teams in the grocer space have also cited limited impact on their business to date.” Their operating metrics have remained stable, with occupancies exceeding 95%, leasing spreads nearly 11% and growth in same-store NOI of 2.3% during the third quarter.

Longer term, strip centers have seen consistent improvement in the productivity of the average tenant, rising from just under $10 million per store in 2002 to nearly $20 million in 2016, stabilizing at about $19 million in the most recent period. During the same period, net rental expense for the grocers has remained modest, averaging just under 1%. Gorman and Sullivan write that these data show that “while quality real estate can drive better sales for grocers, rent expense is a relatively modest component of their cost structure.”

At the same time, the honeymoon period of the marriage between Amazon and WFM may be getting testy. “While initial price reductions and hype drove higher traffic levels, the narrative has started to shift,” according to BTIG’s analysts. “Recent press reports have focused on WFM raising prices, on average, since the initial reduction. Moreover, others have also indicated consumer dissatisfaction with changes in quality, inventory and customer experience at the stores.”

BTIG had anticipated potential trouble spots in the Amazon-WFM combination when it was first announced six months ago. “The potential to scale Whole Foods business might not be as large as investors expect,” according to a research note Gorman and Sullivan prepared this past June.

They noted that about 67% of WFM’s sales come from fresh and perishable products that often require local distribution. “Based on reports from the USDA, the first point of sale for 75% of the organic produce sold in the US is less than 100 miles from where it originated. This leads to a more expensive, complicated and less scalable distribution network.” Furthermore, other grocers have improved their business models and organic product offerings over the years.

As a result, the BTIG analysts wrote in June, “despite the increase in store count, annual sales and buying power of Whole Foods, margins for the company have trended down from their peak in 2013-2014. The company’s margins since 2000 have been essentially flat at 34.5% gross and 5.5% operating.”