Amazon.com Inc. is wasting no time bringing its reputation for undercutting competitors to the grocery business through newly acquired Whole Foods Market Inc.
The company said it will begin slashing prices on a broad cross section of Whole Foods groceries Monday — the same day the $13.7 billion deal is set to close. That will start with items such as chicken, eggs, avocados and organic farmed salmon. Amazon reeled off a long list of other plans to combine its leading e-commerce and delivery assets with the physical locations of Whole Foods stores.
“This is a pretty impressive array of bold moves on the first day of an acquisition — unprecedented, we would say,” said Carol Levenson, an analyst at Gimme Credit.
The moves by Amazon inflame an already raging price war in U.S. groceries — a sector known for razor-thin profit margins. German discount grocers like Lidl and Aldi are expanding in the U.S. and Walmart Stores Inc. has been investing in more discounts too. Low prices are familiar terrain for Amazon, which has operated with little profitability for more than a decade.
“They can afford to do this to create market share and traffic,” said Matt Sargent, senior vice president of retail at Frank Magid Associates. “That is terrifying for someone like Kroger.” Shares of grocery-store chains fell on the announcements, with Kroger Co. slumping 8 percent.
Amazon will also begin selling Whole Foods branded products, including those that are part of the 365 brand, via its website, and through fast delivery services like AmazonFresh, PrimeNow, and Prime Pantry, the company said. Beyond price cuts and increased distribution, Amazon Prime will become Whole Foods’ customer rewards program, allowing shoppers to rack up Amazon rewards when they purchase pasture-raised eggs, organic milk and kombucha.
“It’s going to be brutal,” said Scott Mushkin, an analyst for Wolfe Research, referring to how Amazon’s new private-label push will affect the competition. “The entire way we shop for consummables is going to change.”
Whole Foods’ more than 400 locations in the U.S., Canada and the U.K. give the e-commerce giant a vast physical network to sell products to more customers. Amazon will install Amazon Lockers in select Whole Foods locations. This will allow customers to order products via Amazon online and have them delivered to a Whole Foods store for pick up. The service will also allow customers to return items to Amazon by placing them in the lockers inside of a Whole Foods store.
Amazon also plans to leverage its new retail footprint for boosting its consumer devices business, Amazon told Bloomberg News. Amazon plans to begin selling its Echo and Echo Dot Alexa-powered speakers in select Whole Foods location. Amazon could choose to market those voice-based devices as additional hubs for people to order products, such as groceries, to their homes.
(c) 2017, Bloomberg · Mark Gurman, Matt Townsend