Poised to own the (grocery) market
Whole Foods is famous for its flawless organic produce, fresh natural meats and sky- high prices. But now, as the high- end gro- cery chain becomes part of e-commerce giant Amazon, some of those prices will be coming down.
On Monday, Amazon’s $14 billion purchase of the grocer sometimes known as “Whole Paycheck” will close, the companies said Thurs- day. Amazon’s first move will be lowering the cost of many items, said Jeff Wilke, CEO of Amazon Worldwide Consumer.
Amazon’s sweeping incursion into America’s grocerystore landscape is expected to dramatically transform the way people shop, and change the shape of the retail grocery business. It means “thermonuclear war” for competitors such as Safeway and Costco, said Eric Schiffer, CEO of private equity firm Patriarch.
“They will be underground in their bunkers trying to figure out how to understand technology so that they can level the playing field with Amazon,” Schiffer said.
To grasp the impact of Amazon’s announcements, look no further than the stock market: Within an hour of Thursday’s announcement of the deal’s impending closure and plans for price cutting at Whole Foods, Costco’s share price dropped 6 percent and Kroger’s plunged 9 percent.
Wilke promised in his Thursday statement to make organic food affordable to all.
“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,” Wilke said.
Those lower prices are part of Amazon’s tried and true strategy for market domination, said Eli Portnoy, CEO of data firm Sense360.
“The way they think they’re going to own the market is by always having the lowest prices, the largest selection and the best convenience,” Portnoy said.
And the Seattle- based behemoth will no doubt apply to Whole Foods the “Just Walk Out” system it has showcased in its “Amazon Go” store, Schiffer said. In that Seattle store, shoppers pick up their items and leave without having to go through checkout, thanks to Amazon’s proprietary technology that tracks movement of goods. Even payment will be automatic, Schiffer said.
“The days of checking out are over,” Schiffer said. “The days of bringing your wallet are over.”
Starting Monday, prices at Whole Foods for “bestselling staples” will drop, Seattle- based Amazon said. Slated for cost reduction are bananas, organic avocados, baby kale, Fuji apples, brown eggs, “responsibly farmed” salmon and tilapia, “animal-welfare-rated 85 percent lean ground beef,” and “much more,” Amazon said.
Wilke promised to “continuously lower prices,” and Schiffer said it will be hard for competitors to keep up. Five years from now, grocers such as Safeway and Kroger will “look like a fighter who got beat up by Mike Tyson,” he said.
Expect to see “a lot of ugliness, a lot of consolidation” and probably Amazon gobbling up other grocery chains, Schiffer said.
Thursday’s statement from Amazon and Whole Foods highlighted the boost Amazon expects to its subscription- based “Amazon Prime” program from the acquisition of the grocery chain. Prime will become the customer-rewards program for Whole Foods shoppers, offering special savings and benefits, the companies said.
Shoppers at Amazon.com will also be able to buy private- label Whole Foods products online, including “365 Everyday Value” goods, “Whole Paws” dog food and “Whole Catch” seafood items, the companies said.
The move will help expand digital grocery sales in the U. S., which, according to eMarketer, are expected to climb to $177 billion a year by 2022, from $71 billion this year. Those private label products also will be available through the Seattle firm’s AmazonFresh, Prime Pantry and Prime Now.
Amazon plans to expand the number of Whole Foods stores beyond the 470 it has in the U.S. and U.K., it said. There are three dozen Whole Foods stores in the Bay Area.
The company’s network of stores will become engines of consumer data production, Portnoy said.
“They will be capturing as much data as they can and then using that data to optimize their business,” he said.
Amazon itself will be gathering purchasing data and likely will work with partners to track shoppers’ habits and movements within Whole Foods stores, Portnoy said.
“They’re going to be able to create a much better customer experience where the consumer will be presented with the right items in their path as they’re moving through the store,” he said.
To help get shoppers through Whole Foods’ doors, Amazon will install delivery lockers in some stores, which will allow its e- commerce customers to pick up or return ordered items at the stores.
Portnoy said Amazon’s Whole Foods acquisition will ultimately be good for the grocery industry.
“There are some very, very strong players out there and this will force them to up their game,” he said.