Amazon Prime members will see perks at Whole Foods soon
Amazon.com Inc. is quickly bringing its signature pricing strategy to its costliest acquisition of all time, promising discounts at Whole Foods Market Inc. as early as Monday when the e-commerce giant completes its $13.7 billion acquisition of the high-end grocer.
For a supermarket chain sometimes parodied as “Whole Paycheck,” the move could help it gain some market share from conventional grocers who have increasingly stocked organic produce and products at cheaper prices. For Amazon — which has long valued growth ahead of profits — it’s a move from a well-worn playbook.
Starting Monday, Whole Foods will cut prices on certain “best-selling staples,” including “Whole Trade organic bananas,” “responsibly-farmed salmon,” and organic large brown eggs, Jeff Wilke, chief executive of Amazon Worldwide Consumer, said in a statement Thursday. He promised that price cuts for more items would follow.
“We will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards,” he said in a statement.
Monday’s deals will be available for all Whole Foods shoppers, but to take advantage of all future price cuts you’ll have to be member of Amazon’s $99 yearly subscription service, Prime.
Amazon Prime subscribers will receive “special savings and in-store benefits” after Prime is integrated into Whole Foods’ point-of-sale system. Prime will also become Whole Foods’ customer rewards program.
The special offers aren’t likely to drive Prime membership growth, as analysts expect there’s already a large overlap between the two groups. But the strategy aligns with Amazon’s tendency to leverage its loyal customer base, said Joseph Feldman, senior managing director at Telsey Advisory Group.
And it could entice some current Prime members that might have ruled out Whole Foods shopping previously.
News of the price cuts was enough to make investors a little uneasy. Shares of grocery giant Kroger Co. closed at $21.10, down $1.86 or 8.1%, while Sprouts Farmers Market Inc. closed at $22.10, down $1.65, nearly 7%. Shares of Amazon closed at $952.45, down $5.55, almost .6%
While it’s not clear how deep the cuts will be — or how long they’ll last — analysts said Amazon is likely trying to expand Whole Foods’ reach beyond its typically affluent customer base. Doing so could shake up the hugely competitive, low-margin grocery industry.
“Even if Whole Foods is just getting down to parity on price, they might be able to capture a little bit of market share,” said Joseph Feldman, senior managing director at Telsey Advisory Group. “And any little bit means less somewhere else.”
Though Amazon has previously used aggressive price cuts to weed out competitors and dominate markets in other retail sectors, analysts said they didn’t expect that to play out exactly the same way in the grocery business.
For one, there are retailers like Wal-Mart and Costco Wholesale Corp., which have been the “everyday low price” leaders for years, said Michael Pachter, research analyst at Wedbush Securities.
And Whole Foods’ strength in organic products has gone from a niche category to a mainstream obsession as competitors such as Wal-Mart and Kroger stocked up at cheaper prices.
“Just bringing it to price parity doesn’t necessarily mean you’re going to win [shoppers] back,” Feldman said.
But there are other ways for Amazon to lure customers to Whole Foods.
Whole Foods label products, such as 365 Everyday Value, will be available through Amazon.com, Prime Pantry, Prime Now and AmazonFresh. Customers could one day use the Amazon’s popular voice-activated home speaker products to buy Whole Foods goods. And Amazon Lockers will soon be placed in select Whole Foods stores, so customers can pick up e-commerce orders or send back returns during a grocery run.
“What they’re really doing is they bought 440 distribution centers,” said Pachter, referring to the rough number of Whole Foods locations in the U.S.
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UPDATES:
3:55 p.m.: This article was updated to include comments from analysts.
This article was originally published at 11:45 a.m.
