“When you think about Amazon’s dynamic pricing, it is taking a 21st-century technology and putting it in front of consumers in a new venue,” said Ken Harris, managing partner at Cadent Consulting Group. “Consumers have come to expect it in other places but not their neighborhood supermarket. So it’s profound, and other retailers have to take notice.”
For years, organic food was a niche category, but Whole Foods showed there was growing demand as it opened more than 400 stores across the country. Eventually, major chains like Wal-Mart and Kroger responded by stocking more organic items. U.S. consumers bought more organic fare than ever before in 2016, with sales increasing 8.4 percent to $47 billion and accounting for more than 5 percent of all food sales in the country, according to the Organic Trade Association.
But as organics became more widespread, the traditional supermarkets undercut Whole Foods on price, and the chain’s same-store sales have fallen for eight straight quarters as it struggled to respond. It introduced a new store format called 365 that offered less expensive items to attract younger, budget-conscious shoppers. But the declines continued, and the company had only opened a handful of 365 locations before Amazon pounced in mid-June.
That makes having Amazon behind Whole Foods all the more important, according to Jennifer Bartashus, an analyst for Bloomberg Intelligence. Even before the deal, the grocer was offering more discounts to combat its “Whole Paycheck” reputation and investing in a rewards program. Amazon will speed those efforts by layering on discounts for Prime members, who are typically shopping at Whole Foods already. Nearly two-thirds of Whole Foods’ regular customers are Prime members, according to retail consultancy Magid.
“Whole Foods customers are very Amazon-savvy,” said Matt Sargent, Magid’s senior vice president of retail. “That’s a good thing but with this deal, Amazon bought the same customers it already had. So they have to expand beyond current Whole Foods customers by offering more value.” Whether Amazon can convert those value-seekers into long-term customers will be the challenge, Barthashus said.
Amazon’s rapid price moves could also backfire, some analysts said. If the retail giant is unable to move quickly enough to adjust price tags in the store to reflect the discounts it’s advertising, the company could get called out by watchdogs and even fined by federal trade regulators, according to Cadent Consulting’s Harris.
“There are huge risks,” he said. And even with all this attention, Whole Foods is still a small player in the U.S. grocery market compared with Wal-Mart and Kroger, who together garner more than 30 percent of sales.
Still, the brick-and-mortar crowd no doubt noticed Amazon’s ominous note that the price cuts were “just the beginning,” with more changes in the works. Bezos is fond of saying that it’s always “Day 1” at the online giant, a reminder to maintain the aggressive, risk-taking culture of the company’s inception.
On Monday, the supermarket industry will learn just what Day 1 means.