• Whole Foods deal raises fear of internet undermining grocers
  • Apollo Global’s Fresh Market bonds trade at distressed levels

The bond market has long viewed America’s supermarkets as a species apart from their deeply troubled peers in the retail sector.

As conventional wisdom had it, grocers could resist the onslaught of e-commerce that was decimating industries such as clothing and electronics. After all, shoppers want to touch their avocados and see their T-bones.

But now, just days after Amazon.com Inc. officially entered the grocery business, that confidence is shaken.

The bonds that financed Apollo Global Management’s purchase last year of upscale grocer Fresh Market plunged to new lows this week. The cost of buying contracts to protect against a default in Albertsons Cos.’s debt has jumped. Bonds of Bi-Lo Holdings have lost almost half their value this year.

It’s no secret why. Amazon, with its low prices and online convenience, has revolutionized retail and driven traditional rivals into bankruptcy. This week, the company completed its purchase of Whole Foods Market Inc. for $13.7 billion, raising the prospect that it will have the same impact on a grocery industry that was already starting to struggle.

A price war has weighed on supermarket results, and the threat of e-commerce is raising concerns that the weakest won’t survive.

“It’s the fear factor of Amazon,” said Mickey Chadha, an analyst at Moody’s Investors Service. “No retailer can under-price as long as Amazon can, make no money and get away with it. That’s why people are scared.”

Ill-Timed Deal

When Apollo Global bought Greensboro, North Carolina-based Fresh Market for $1.4 billion last year, the grocery world seemed quite different. The chain, known for its fresh produce, had seen sales slow. To lure customers back to Fresh Market’s…