Forgive grocery retailers if instead of putting out promotional banners and changing out end caps these days, they’re draping their aisles in black crepe. Mourning may feel like an appropriate response to Amazon’s rapid price-cutting actions at Whole Foods Market on day one of its ownership on Monday, as announced on Friday after it closed the deal to buy the organic and natural foods retailer.
Amazon has slashed prices by up to 43 percent at Whole Foods Market on high-volume staples such as bananas, eggs and ground beef in the chain’s 470 stores, sending a clear message that it will compete with other grocery retailers on price (to begin) in order to woo consumers and overturn the chain’s “Whole Paycheck” reputation.
We’re growing something good with @amazon. Acquisition to close Monday 8/28 https://t.co/v1806LS8PW. https://t.co/xGgCw30V6G
— Whole Foods News (@WholeFoodsNews) August 24, 2017
It’s a wake-up call for other grocery brands, where competitors ranging from Kroger to Walmart have cut into Whole Foods’ market share for organic and other better-for-you fare with broad selection and lower prices. Amazon’s jolting presence in the grocery aisle will no doubt be transformative for the entire grocery sector and, of course, the Whole Foods Market brand, which was founded with a single store in Austin, Texas, in 1980.
The natural and organic grocer grew to a $13 billion Fortune 500 company, with more than 470 stores and 87,000 Team Members in the US, Canada and the UK. It has been named by Fortune magazine as a “Best Company to Work For” for 16 consecutive years and the Number One Most Admired Food and Drug Store Company in the World in 2012. Yet it’s still reeling from job cuts in 2015 and inroads by rivals.
Amazon’s deep pockets and tech innovations means it can afford (as long as it’s patient) to lose money at the Whole Foods Market checkout as it seeks to drive traffic and sales. In addition to wooing non-Whole Foods shoppers into stores, it aims to cement their business with the Amazon Prime loyalty program and introduce them to its wider retail orbit of digital convenience, delivery and free shipping. As Amazon noted on Monday, “We’re growing something good — this is just the beginning.”
“Amazon’s using the same playbook they always have when competing with booksellers and other retailers,” Chris McCabe, a former Amazon executive turned retail consultant, told the Wall Street Journal. “They take out their revenue stream by killing [competitors] slowly on price.”
Amazon CEO Jeff Bezos and an executive team led by Jeff Wilke, CEO of Amazon Worldwide Consumer, are quickly bringing other Amazonian touches to Whole Foods, including installing Amazon Lockers (its click-and-collect system) to select stores, and selling the Amazon Echo voice-recognition digital assistant at stores such as in Brooklyn, NY. And now it has a key partner for its AmazonFresh delivery business.
Starting today you can pick up an @Amazon Echo speaker next to the corn @WholeFoods in Brooklyn. https://t.co/GunjiuW9xT via @WSJ
— Sarah Nassauer (@SarahNassauer) August 28, 2017
“We’re determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality – we will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards,” stated Wilke in a press release. “We’re going to lower prices on a selection of best-selling grocery staples, including Whole Trade organic bananas, responsibly-farmed salmon, organic large brown eggs, animal-welfare-rated 85% lean ground beef, and more. And this is just the beginning – we will make Amazon Prime the customer rewards program at Whole Foods Market and continuously lower prices as we invent together. There is significant work and opportunity ahead, and we’re thrilled to get started.”
“It’s been our mission for 39 years at Whole Foods Market to bring the highest quality food to our customers,” added John Mackey, the “conscious capitalist” who is also Whole Foods Market co-founder and CEO. “By working together with Amazon and integrating in several key areas, we can lower prices and double down on that mission and reach more people with Whole Foods Market’s high-quality, natural and organic food. As part of our commitment to quality, we’ll continue to expand our efforts to support and promote local products and suppliers. We can’t wait to start showing customers what’s possible when Whole Foods Market and Amazon innovate together.”
The prospect of Amazon’s expansion into brick-and-mortar grocery retailing beyond its experiments to date, which include the Amazon Go cashier-free store concept, have pummeled US supermarket stocks in the last few weeks.
As Adweek points out, among the additional pain points Amazon-Whole Foods will bring to other retailers are the fact that most supermarket chains’ e-commerce platforms badly trail those of Amazon and Walmart. To compete, rivals may have to create a more emotionally appealing brand experience than they’re used to, given what Whole Foods means to many consumers. They’ll have an especially hard time competing with Amazon-Whole Foods for the business of millennials, the generation that made “better-for-you” eating into a mainstream pursuit—a cohort that Whole Foods already targets with its cheaper 365 by Whole Foods Market chain.
Kroger, which has managed to be a survivor in a business that has been famously low-margin from the start, has vowed to trade punch for punch with the new schoolyard bullies.
Walmart isn’t donning black just yet, either. The company has been dramatically overhauling its ability to compete with Amazon in the e-commerce space and isn’t about to cede the grocery aisle. It’s sprucing up its stores, offering e-commerce pickup options at about 25 percent of them, acquiring e-commerce startups to help, and partnering with Google to provide voice ordering for e-commerce delivery. Will it be enough to compete with an Amazon-transformed Whole Foods?
To be sure, Whole Foods Market has tried to win a bigger share of wallet by cutting its prices in the past, as witnessed by its 365 by Whole Foods Market sub-brand. So Amazon was smart to not promote WFM’s lower prices (such as re-pricing Hass avocados to $1.49 each from $2.50 and Gala apples to $1.99/lb from $2.99 previously) broadly on Monday but to focus instead on bigger news for the Texas-based Whole Foods—the impact of Hurricane Harvey on its customers.
Amazon and Whole Foods announced a joint million-dollar donation commitment via matching funds to the American Red Cross. It may find that winning customers’ loyalty may depending on winning their hearts as well as their wallets.
.@Amazon/@WholeFoods will match cash donations via Amazon–up to $1MM total–for @RedCross Hurricane #Harvey Relief https://t.co/KgFTsiaqqi pic.twitter.com/C4z2woxLsy
— Amazon News (@amazonnews) August 28, 2017
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