Amazon’s $13.7bn acquisition of Whole Foods, which was announced in June, just closed and on the first day under Amazon ownership, the ecommerce giant began putting its imprint on the upscale grocer.
While Amazon is already using Whole Foods to sell its Echo Dot device, the most significant change Amazon wasted no time in making is to cut prices. As detailed by Bloomberg’s Jennifer Kaplan and Matthew Boyle, on Monday, price cuts of up to 43% were observed at some Whole Foods locations.
For example, at a Whole Foods in Manhattan, organic apples dropped in price from $3.49 per pound to $1.99 per pound, organic avocados dropped from $2.79 each to $1.99 each, and the price of an organic rotisserie chicken was cut to $9.99 from $13.99.
Amazon clearly wanted customers to know about the price cuts and its role in making them happen, as it placed Whole Foods + Amazon signs on these items’ displays along with the original price of the items and a promise of “more to come”.
Changing the Whole Foods brand
To date, Whole Foods has been positioned as an upscale grocer with prices to match. In fact, because of its prices, it has earned the amusing moniker Whole Paycheck Foods. That, for obvious reasons, kept many consumers away from the grocer, and limited what some customers would buy from it.
According to Mark Baum, SVP at the Food Marketing Institute, “Price was the largest barrier to Whole Foods’ customers.”
Based on what Amazon is already doing, it is evident that Amazon is aiming to change Whole Foods’ position in the marketplace. Under Amazon, no longer will Whole Foods be an upscale retailer that is accessible to a more affluent shopper. Instead, it will become a more mainstream grocer that is accessible to all.
A different Whole Foods
If Amazon is to fully take advantage of the Whole Foods acquisition, it can’t rely solely on price cuts. As Bloomberg Gadfly columnist Sarah Halzack pointed out, ”Whole Foods simply is not an ‘everything store’ — and that stubborn truth limits its ability to attract convenience-minded shoppers.”
For Amazon to truly bring Whole Foods into the mainstream market, it will need to ensure that consumers don’t just look at Whole Foods as a grocer of choice for purchasing items like organic fruits and vegetables but also see it as a grocer of choice for purchasing snacks, personal care products, cereal and the like.
Fortunately for Amazon, on paper it clearly has the potential to do that. After all, the 800 pound gorilla of online retail sells virtually everything through its website and has built an amazing supply chain that enables it to most of the time fulfill orders as quickly or more quickly than almost any other retailer can.
That supply chain could help Amazon turn Whole Foods into a so-called everything store. As Halzack explained:
…the e-commerce giant has said it will install Amazon Lockers in certain Whole Foods locations that serve as pickup points for online orders. You can envision a set-up in which shoppers order their non-organic, brand-name products online from Amazon, have them delivered to a Locker, and then pick them up during a Whole Foods trip, where they also buy cage-free eggs and responsibly farmed salmon.
The big question: will it work?
As Halzak noted, “it’s not a sure thing shoppers would find that terribly convenient” so there’s definitely risk to the Whole Foods acquisition. If consumers don’t embrace using Whole Foods as a pick-up location for online purchases, Whole Foods might not be as powerful an asset as Amazon hoped it could be. And in a worst-case scenario, Amazon’s price cuts will erode the perception among Whole Foods’ existing customers that it is an upscale brand.
Of course, Amazon has a lot of levers to pull to avoid that fate. For example, it has already announced plans to offer in-store benefits to Prime members and it would not be surprising to see it replicate Walmart’s Pickup Discount program, which offers discounts to customers who opt to retrieve their online orders at a physical store.
Because of all of the tools Amazon has at its disposal, including Prime, its transformation of Whole Foods will probably make for one of the most interesting business studies yet in the current century and given its potential to influence numerous markets, including retail, consumer packaged goods and payments, there is no shortage of companies that would be wise to monitor what Amazon does in the coming weeks, months and years.