Amazon shelled out $13.7 billion to acquire Whole Foods. On Monday, its first official day as owner of the iconic Austin grocery chain, it made sure customers could shell out a little less when they shop there.
As announced last week, Amazon celebrated its largest-ever acquisition by slashing prices on an array of products at Whole Food stores, ratcheting up pressure on supermarket rivals and taking a first step toward shedding the derisive “Whole Paycheck” nickname that dogged the grocer for years.
At the flagship Whole Foods store at Sixth Street and Lamar Boulevard in Austin, several customers commented on the new prices, each marked with “Whole Foods + Amazon” signs.
Of a list of 45 items checked at the store last week, prices on 11 were reduced by Monday. Coho salmon dropped to $16.99 a pound, $3 lower than last week. Organic Hass avocados were $1.99, down 70 cents from last week.
The move to lower prices and bring in Amazon’s branding and products were just the first of what promise to be a series of adjustments at Whole Foods in the weeks and months to come.
Analysts and industry experts expect Amazon to integrate its streamlined logistics and delivery systems with Whole Foods’ network of about 465 stores nationwide, each of which could serve as a local distribution hub. But even just the lower prices within the brick-and-mortar stores will have an impact on $800 billion supermarket industry.
Amazon could cut prices at Whole Foods as much as 4 percent to 8 percent and still break even, according to a report Sunday from Brian Nowak, an analyst at Morgan Stanley.
“One of (Amazon’s) sharpest competitive edges is its ability to consistently operate at razor thin margins,” Nowak wrote. “We expect more of the same with Whole Foods.”
The bottom line would depend on any increased traffic the price cuts might generate, he said. But the lower costs hit directly at Whole Foods’ weak spot. In a survey of consumers, Nowak and his colleagues found that 70 percent of customers cited the company's prices as the No. 1 reason they shop elsewhere.
Excluding meat and other proteins, prices at Whole Foods were an average of 5 percent higher than at competitors, according to Nowak’s analysis.
“Amazon has the ability to close that gap,” he wrote.
Furthermore, Amazon will leverage the relationship to bring more customers into Amazon Prime and gin up more business for its one- to two-hour delivery services. For example, Prime could become a sort of customer-rewards program within Whole Foods, bringing more into memberships.
As more consumers join Prime, the payoff for Amazon could be substantial. The average Prime member spends 4.6 times more on Amazon.com than non-members, Nowak noted.
Some grocery and e-commerce rivals have already reacted to the kickoff of what could become a new era of selling food in the U.S.
Wal-Mart, the world’s biggest retailer, has invested billions into lowering prices across the board over the past year or so and revamped the produce section at its U.S stores, improving sight lines, adding more fresh-cut fruits and even creating a sweeter bespoke cantaloupe.
Those moves, along with an aggressive rollout of curbside grocery order pickup, helped the company record its best food sales growth in five years in its most recent quarter.
Costco, meanwhile, has a full slate of organic items that are priced about 30 percent cheaper than the same products at Whole Foods, according to Sanford Bernstein. It’s able to price lower thanks to a business model that charges membership fees, focuses on selling a limited assortment of bulk-sized goods and features a treasure-hunt experience in the stores.
“Goodbye, Whole Foods as we know it,” Karen Short, an analyst at Barclays Capital Inc. in New York, said in a note. “The conventional supermarket has not evolved much in decades. But Amazon will likely drive drastically different shopping behavior in grocery.”
American-Statesman staff writer Addie Broyles and Bloomberg News contributed to this report.
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