Are Whole Foods’ price cuts game-changing for food retailing?

Discussion
Photo: RetailWire
Aug 29, 2017

On its first day of ownership on Monday, Amazon — as promised — lowered prices across a selection of staples at Whole Foods.

According to Bloomberg, categories at Whole Foods’ 57th Street location in Manhattan seeing cuts of between 33 and 48 percent included organic Fuji apples, to $1.99 a pound from $3.49; Whole Trade bananas, from 49 cents a pound from 79 cents; and animal-welfare rated, 85-percent lean ground beef, $4.99 a pound from $6.99. Items dropping between 13 and 15 percent included organic baby kale (per package), $3.49 from 3.99; and 365 Everyday Value Organic Butter (per pound/four sticks), $4.49 from $5.29. A dozen large brown organic eggs were reduced 7 percent to $3.99 from $4.29.

The items surveyed by Bloomberg had been expected to be lowered per a press release issued by Amazon on Friday after regulators approved the $13.7 billion takeover. The release indicated Whole Foods would also be offering in-store specials to Prime members, that Whole Food’s private labels would sell across Amazon’s platforms, and lockers would land in select Whole Foods locations to enable the pick-up/return of Amazon.com purchases.

Store visits by RetailWire showed the price reductions extended to some dairy items, cases of bottled water, frozen whole chickens and various pasta sauces, but not much beyond the 14 items mentioned in the release.

Indeed, the changes were barely perceptible inside stores. A small display of Amazon Echos sat alongside the produce department. Posters on front windows showing freshly-picked produce read, “We’re growing something good. This is just the beginning. Whole Foods Market + Amazon.”

Photo: RetailWire

The few staples receiving the price reductions came with hangtags promising “More to come…” Many in the industry expect other grocers will have to match a steady stream of cuts in other categories bound to arrive.

Moody’s lead retail analyst Charlie O’Shea said in an e-mail Monday, “As we have seen multiple times, and in multiple product segments, Amazon has the advantage of not facing the same scrutiny surrounding its profitability from its shareholders as other competitors, and we believe the company will continue to exploit this in the grocery segment.”

DISCUSSION QUESTIONS: What actions do you expect Amazon to take in recasting Whole Foods’ pricing stance? What other features of Amazon’s approach to Whole Foods revealed so far will be challenging for other food retailers to match?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I can only hope that Amazon will not focus solely on price."
"Yes, it’s amazing how this story has garnered high-profile coverage while the facts spin out of control."
"There is a theme of Amazon disrupting verticals which incumbents strongly proclaim as un-disruptable. Grocery is one such category, I believe."

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39 Comments on "Are Whole Foods’ price cuts game-changing for food retailing?"


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Neil Saunders
BrainTrust

At this stage, no. The selective price cuts are a step in the right direction, but they are hardly revolutionary — at most, they bring Whole Foods into line with other retailers. Our checks yesterday reveal that outside of fresh — in areas like household and ambient groceries — Whole Foods remains considerably more expensive than most other grocers.

I would never suggest that Whole Foods focus on price to the exclusion of everything else, but I refuse to buy things like Vitamin Water there at a temporarily-discounted price of $1.39 when it’s $0.88 at Target! Others will feel the same.

Whole Foods has a lot more work to do on pricing before it captures a larger share of wallet of existing customers and draws in new shoppers. That said, I think over time Amazon is ultimately prepared to make this investment — yesterday’s cuts were just the opening headline-grabbing salvo.

Bob Phibbs
BrainTrust

I don’t see this as bringing in a much broader segment of the population. Their highly educated, disposable income-having target are less likely to rave that avocados are 30 cents cheaper but it follows Amazon’s pattern of dominating the news cycle with low prices. Whole Foods couldn’t make it work for many years and be profitable — Amazon can cut prices because of deep Wall Street pockets and their AWS. You have to wonder if it is really good for one company to be able to have such abilities divorced from being profitable.

Paula Rosenblum
BrainTrust
Someone pointed out on Facebook that Amazon/Whole Foods got what amounted to a free ad on the front page of the Wall Street Journal because of this price cut. What’s ironic is that if you look at the list, the items in question were crazily overpriced before. For example, I learned when I moved to Miami that bananas grow like weeds (literally! They are almost impossible to get rid of) … none of the price cuts made me say anything beyond “well, it’s about time” and yet so many column inches were dedicated to them. I expect Amazon to lower prices and then slowly raise them. Plus, I think the company is about to find out you just don’t have the kind of pricing flexibility in stores that you do online. People have to actually DO something when you change those prices. There are laws in place. I suppose they can get around it by creating Prime-only prices, but they will also have to be careful to keep prices consistent across channels — just like… Read more »
James Tenser
BrainTrust

Yes, it’s amazing how this story has garnered high-profile coverage while the facts spin out of control. This morning I read an article that flatly stated Amazon had cut Whole Foods prices by 50%. No mention of the short list of items. No clarification that the largest item price reduction was in fact 43% and others are less. Once again the Amazon hype engine is blowing some intoxicating smoke.

Amazon/Whole Foods is in a unique position in that it could choose to set prices for some items that are not connected with the actual costs of procurement. It can certainly afford to use a few loss-leaders as trial balloons. Near-matching prices on a couple dozen items makes a statement that may drive curiosity among shoppers who have previously avoided the store. But the company should be mindful about the “fake news” this announcement has spawned. A price image is a delicate thing that depends greatly on trust.

Anne Howe
Guest

I visited the Lake Norman (NC) Whole Foods yesterday. Saw no evidence of those orange signs or price drops. If this combo is going to be a game-changer for grocery shoppers and convert shoppers from Harris Teeter, Publix and Earth Fare, they’d better do some obvious in-store events to capture attention.

Max Goldberg
Guest

With many grocers facing slim profit margins the last thing that they needed was Amazon cutting prices at Whole Foods, bringing the ability to better gather, analyze and use data, and taking a long-term view of profits and growth. Yet here we are. Amazon has taken a big step into brick-and-mortar retail. The only upside for grocers is that there are only around 460 Whole Foods stores.

Doug Garnett
BrainTrust
Doug Garnett
President, Protonik
4 years 10 months ago

Reports developed later in the day yesterday that many price cuts in the long run will only be available to frequent shoppers. That makes sense — business sense.

While Amazon has had the investor flexibility to run an unprofitable retail business online, there’s no indication investors will let that happen in Whole Foods where there’s risk of unprofitability rising to massive new levels very quickly.

But we will continue to see Amazon PR drive panics like yesterday where a mere announcement ends up reported far beyond what is actually said.

Ed Dunn
Guest
4 years 10 months ago

Definitely looking forward to the headlines about Whole Foods “future concepts” of no-cashier checkout and self-driving shopping carts delivering groceries to numbered parking spaces after checkout — it works well for Amazon PR.

Richard Layman
Guest
4 years 10 months ago

I think this is a very good point. If instead of creating a “loyalty card” system comparable to other supermarket firms, the Whole Foods loyalty program is an element of Amazon Prime, not a separate standalone initiative, it could make a big difference. For example, Dorothy Lane Market in Ohio and how they work their loyalty program.

They don’t want someone like me, who is a member of multiple loyalty programs, to get the best discounts from various stores. Instead, they focus on their best customers.

That’s the direction Amazon + Whole Foods should move towards. It’s dangerous for supermarkets because it will operate on a much bigger platform than a typical supermarket (outside of Kroger Marketplace, Fred Meyer, Meijers, and the HEB Plus formats).

Dick Seesel
BrainTrust

I did a fast price check at the site for Metro Market (one of the Kroger divisions operating here in Milwaukee, and the sister brand of Mariano’s in Chicago). Its prices on organic bananas, eggs, butter and Fuji apples are already at or slightly below the new pricing at Whole Foods. (Its price on lean ground beef is 50 cents higher as of this morning.) What this points out is that Whole Foods had a pricing problem (“Whole Paycheck”) that Amazon is taking aggressive steps to correct.

Based on what happened to Costco’s and Walmart’s stock prices since Friday, there is a typical overreaction to the steps that Amazon is taking. Just keep in mind that Walmart and many other grocers are already competitive and Whole Foods is just joining the party. Also keep in mind that the Whole Foods brick-and-mortar footprint has a long way to go before it catches up with its competitors, despite the smart moves that Amazon is likely to make.

Ross Ely
Guest

Beyond these immediate high-visibility price changes, Amazon will likely focus much more on the integration of their digital properties with Whole Foods’ business. Expect to see much more linkage with Amazon Prime and programs like Subscribe and Save.

These features will appeal to Whole Foods’ traditional base of shoppers, but it’s not clear that they will attract new shoppers to Whole Foods, which will continue to be perceived as a premium brand.

Lee Kent
Guest

I can only hope that Amazon will not focus solely on price. Although Whole Foods is pricier than most grocers, their private-label goods are priced well and, as far as I can tell, doing well. Offering deals to Prime customers? Now that sounds like moving in the right direction. Pulling people into the store with Amazon lockers? Another good thought but hopefully they will merchandise properly to those people who might not otherwise have come into a Whole Foods. There is a lot to think about that goes beyond just price. And that’s my 2 cents.

Sterling Hawkins
BrainTrust

Customer experience is front and center in just about everything Amazon does and pricing at Whole Foods is just one (high profile) component of that. I think Amazon is trying to shake the high-price image that Whole Foods historically has had to make it more value and experience based, consistent with the Amazon brand vs. just using it as a competitive strategy.

Phil Chang
BrainTrust
Phil Chang
Retail Influencer, Speaker and Consultant
4 years 10 months ago

As a consumer, I want Whole Foods to reliably drive down the price of organic so I can shop at Whole Foods for my family of five. Having said that, 14 items doesn’t make a new standard. It barely registers as competitive on price.

Probably more interesting than the 14 items is the speed at which an approved buy out has become operational control. I’m really excited to see how fast Amazon starts to move on getting craft brands into stores and how much more control they have before the official close of this deal at the end of the year.

Shep Hyken
BrainTrust

So, the “Amazoning” of Whole Foods begins. If nothing else, this is causing a major buzz and resurgence of the announcement of the acquisition. Pricing may change at Whole Foods, but I doubt the level of quality, freshness, etc. will. That’s the reputation that Whole Foods is known for and wants to keep.

Ryan Mathews
BrainTrust

First of all let’s remember we are talking about Whole Foods here. Cutting their prices starts to bring them in line with market pricing — not exactly the most revolutionary concept in retail history.

I assume Amazon will continue its downward pressure on pricing but I don’t think that’s going to move the industry as a whole to a series of radical en masse price cuts.

For me, the real challenge to other retailers is that Amazon continues to surround shoppers with an increasingly complete “consumption environment” in which they only have to deal with Amazon to satisfy a growing percentage of their routine shopping needs.

If it works, it will be an-all-but unbeatable strategy.

Richard J. George, Ph.D.
BrainTrust

Amazon continues to be the thorn in the side of most food retailers. Now that it has made a significant transition into the brick-and-mortar space, it is firing a warning shot across the bows of the competitive ships. In essence, Amazon is following the acquisition strategy of Safeway, Ahold and others who gobbled up many terrific independent food retailers. However, the key will be not to Safewayize Whole Foods, nor follow the Ahold approach of rolling these banners into existing Ahold formats. Instead, I expect Amazon to apply its noted resources, namely, sourcing, customer intimacy, logistical excellence, price transparency, etc. to a brand (Whole Foods) which has a terrific image, save for price.

Roy White
Guest
I believe Amazon is just announcing — knowing full well it will get media coverage — that it now owns Whole Foods and the chain, and probably all of grocery retailing, may be in for some changes. The culture of Amazon encourages experimentation and management can and does experiment. Amazon can do this because, unlike many corporations (Whole Foods formerly included), it does not appear to be fettered by a quarter-to-quarter regime requiring steady and substantial increases in earnings and stock price. This is probably helped by Bezos’ ownership of a quarter of the float. Despite Amazon’s spotty long-term earnings record, its stock price is around $900 plus, P/E ratio 235 to 240. Now with the acquisition, Whole Foods is no longer fettered by the necessity of trying to generate big profit gains. Amazon can and will use this chain as a living laboratory to see how brick-and-mortar and digital selling can be integrated in the grocery industry. The price reductions are showmanship. The real changes will be occurring going forward, and they may well… Read more »
Mark Price
BrainTrust
Mark Price
Chief Data Officer, CaringBridge
4 years 10 months ago

Amazon is likely to see the biggest benefits of the Whole Foods acquisition to be rapid entry into the grocery market, particularly fresh produce, and the immediate acquisition of hundreds of points of distribution for the Amazon organization as a whole. As a result, Amazon will not be as dependent on the high margins of Whole Foods; rather, they would like to increase the traffic into the stores, which further benefits their ultimate goal — a physical presence across online and off-line.

I anticipate a gradual reduction of prices on commonly compared products across the Whole Foods product assortment.

Steve Montgomery
BrainTrust

As several have noted the price drops simply brought Whole Foods prices in line with the market. In short this is, as Shakespeare wrote, much ado about nothing.

You’ve got to give Amazon’s PR department great kudos for all the uproar. To use a part of a phrase from another Shakespeare play (Macbeth) — it’s “full of sound and fury signifying nothing.” I do agree that over time Amazon’s impact through its acquisition of Whole Foods may have an impact on food retailing, but not in the short run.

Mel Kleiman
BrainTrust
4 years 10 months ago

Amazon has lots to gain with low downside risk. I see them milking this acquisition for all it is worth in the press. Something they are an expert in. They will turn the store into another major perk for Prime members, and get to test things in 450 brick-and-mortar stores with a high-end customer base. It’s a great place to test new technology in the retail space like the automated c-store they demonstrated last December.