Amazon to cut prices on Whole Foods staples like eggs, beef
Amazon plans to use its deep pockets to make big changes at Whole Foods, saying it will cut prices on bananas, eggs, salmon, beef and more when it completes its $13.7 billion takeover next week.
Helping Whole Foods win back customers who found “good enough” organic and natural products elsewhere - possibly at a lower cost fits Amazon’s track record of keeping prices low to lock in customer loyalty. Looking ahead, Amazon hopes to give members of its Prime program special savings and other instore benefits.
It’s an “opening salvo” in the grocery wars, said Neil Saunders, managing director of Globaldata Retail, and shares of other supermarkets fell sharply on the news.
“Rivals should be under no illusion that they are now dealing with a competitor that is not afraid to damage profits and margins if it creates longterm gains,” Saunders said in an analyst note.
Among other Whole Foods items getting discounts Monday: avocados, tilapia, baby kale, apples and rotisserie chicken - all organic, Amazon said. The company also said certain Whole Foods products will be available through Amazon.com, Amazonfresh, Prime Pantry and Prime Now.
Amazon’s announcement comes a day after Whole Foods shareholders gave their approval and the Federal Trade Commission said it would not block the purchase. Amazon will pay $42 per Whole Foods share, an 18 per cent premium from its price the day before the tie-up was announced June 16. The stock edged up to $41.98 on Thursday.
By buying Whole Foods, Amazon is taking a bold step into brick-and-mortar, with its more than 460 stores and potentially very lucrative data about how shoppers behave offline. The grocery chain, which has fought the “Whole Paycheck” reputation, had been under shareholder pressure to improve results as customers moved on and discount chains like Lidl and Aldi expanded in the U.S.
Whether Amazon will succeed in the fiercely competitive grocery segment is unclear, but customers are going to benefit from the attempt, said Charlie O’shea, lead retail analyst at Moody’s Investors Service.
“Amazon can come in and price items very low,” he said. “Its shareholders are agnostic about profit, and seem more interested revenue and market share. That’s a competitive advantage.”
Rivals have been scrambling to catch up with the ecommerce giant. Walmart, which has the largest share of the U.S. grocery market, is expanding its grocery delivery service with ride-hailing service Uber and announced Wednesday that it will join forces with Google to let shoppers order goods by voice on Google devices.
But Walmart’s shares were off 2 per cent, and shares of other big grocery businesses fell more. The Kroger Co. dropped nearly 8 per cent, and Supervalu Inc. fell more than 6 per cent. Costco lost 5 per cent and Target fell 4 per cent.
While Whole Foods accounts for less than 3 per cent of U.S. grocery and supermarket sales, the purchase gives Amazon a foothold in a fragile industry that can ill-afford more price cutting.