Amazon Plans to Lower Some Prices at Whole Foods – New York Times
SEATTLE — Attention all shoppers: The era of Whole Paycheck, the nickname some use for Whole Foods, may be drawing to a close. Amazon, which takes control of the upscale grocer on Monday, intends to slash prices the same day.
The significance of the move goes well beyond the price of organic avocados, baby kale and rotisserie chickens, all of which will cost less on Monday than on Sunday. Rather, it is an outsize way for Jeff Bezos, Amazon’s chief executive, to announce his plan to shake up the grocery industry and take on competitors like Walmart and Kroger.
“This is how Amazon operates,” said Michelle Grant, head of retailing at Euromonitor. “It’s all about speed, speed, speed.”
In the past, Mr. Bezos has been willing to lose money — and dissappoint some shareholders — to gain customers. In 2010, for example, he slashed the price of diapers to compete with Diapers.com, which he eventually bought.
Amazon plans to weave together its online business and physical stores by turning its Prime membership program into a Whole Foods rewards program, providing additional savings to customers. Amazon Prime is a $99-a-year service that gives customers faster free shipping, video streaming and other benefits.
Whole Foods’s private-label products will be available through Amazon’s online services and Amazon lockers that will be installed in some Whole Foods markets. Customers will also be able to return online orders to Amazon through the lockers.
“We’re determined to make healthy and organic food affordable for everyone,” Jeff Wilke, the executive who runs Amazon’s consumer businesses, said on Thursday in an announcement about the changes. “Everybody should be able to eat Whole Foods Market quality.”
Discounts are not the only reason shoppers use Amazon — selection and convenience are others — but Mr. Bezos has never been shy about starting price wars that inflict pain on rivals. In the 1990s, the company tussled with Barnes & Noble to see which could discount books the most. Amazon and Walmart have been in an on-and-off price war in a variety of categories for years.
In its battle with Quidsi, a start-up that owned Diapers.com, Amazon put so much pressure on the company that it eventually agreed to be acquired by Amazon rather than by Walmart.
Ever since Amazon made the stunning announcement in June that it was acquiring Whole Foods for over $13 billion, competitors have expected it to shake things up at the grocer, which has struggled in the face of competition from Costco, Walmart and others that have wooed customers with a growing selection of organic produce and kitchen staples.
Still, the speed with which Amazon completed the acquisition and embarked on a price-cutting campaign is stunning. Amazon completed the deal in less than three months — unusual for a multibillion-dollar transaction. The Federal Trade Commission approved the deal only on Wednesday.
“I absolutely think it’s the putting rest of the market on notice,” Bob Hetu, an analyst at Gartner, the technology research firm, said of Amazon’s news.
Investors in competing grocery chains drove down shares of Kroger more than 8 percent on Thursday afternoon, while shares of Walmart, the nation’s biggest grocer, fell about 2 percent. Shares of the companies also fell sharply when the deal was announced in June.
Amazon and Whole Foods would not say how much they would cut prices. Amazon said all of the company’s more than 460 stores in the United States, Canada and Britain would have the new prices, and promised that further cuts were on the way. People who have studied Whole Foods’ struggles in the marketplace said the reductions needed to be substantial to compete with other stores.
“I believe what we will see is Amazon and Whole Foods becoming aggressive on price,” said Brittain Ladd, a strategy consultant who previously worked for Amazon on its grocery business. “I won’t be surprised if some prices are lowered 15 percent to as high as 25 percent in some categories.”
Mr. Wilke of Amazon said in his statement that the lower prices would not compromise the quality of products at Whole Foods, the main selling point for the brand. The company will drop prices on bananas, organic large brown eggs, responsibly farmed salmon and tilapia, crunchy almond butter, organic Fuji apples, butter and other items, Amazon said.
While a number of groups, including congressmen and organized labor, have raised concerns about how the acquisition will impact competition in the grocery business, the Federal Trade Commission had no trouble with the deal.
Antitrust lawyers pointed out that Amazon and Whole Foods are relatively small players in the grocery business and in different corners of the market, Amazon in online grocery delivery and Whole Foods in physical retailing.
Those arguments will do nothing to assuage a growing chorus of Amazon critics, who believe the company is developing too powerful a grip on retail spending, at least on the internet. Yet Amazon’s announcement of immediate price reductions on groceries underscores how the company has managed, so far, to say on the right side of regulators.
“At the end of the day, the F.T.C. is in the business of watching out for the consumer,” said Brendan Witcher, a retail analyst at Forrester Research.
It remains to be seen whether the deal will revive the fortunes of Whole Foods or if it turns into a costly foray into an industry Amazon has never mastered itself. Amazon has offered its own internet grocery business, AmazonFresh, for a decade, but has had little impact on the habits of consumers, who overwhelmingly favor buying their groceries in stores.
Amazon is experimenting with automation technologies that could save costs in physical stores by eliminating cashiers, but it has vowed not to use it at Whole Foods to layoff workers. Sharp prices cuts on items in stores will put pressure on Amazon to find cost savings elsewhere at Whole Foods, analysts said — for example, by making the logistics network that delivers goods to stores more efficient.
After the combination of the two companies, Amazon’s competitors in the grocery business are still vastly larger. Walmart alone has more than 4,600 stores and early last year started making a multibillion-dollar investment in lowering grocery prices. Walmart has also significantly increased its investments in online shopping through acquisitions to better compete with Amazon on its main turf.
“We feel great about our position with our network of stores around the country and fast growing ecommerce and online grocery businesses,” said Randy Hargrove, a spokesman for Walmart.
Local grocers expressed some trepidation about the entry of Amazon into their business, but said it was part of a long history of upheavals and competition.
Stew Leonard Jr. is the chief executive of Stew Leonard’s, a chain of six grocery stores in New York and Connecticut that focus on fresh produce. There are several Whole Foods close to his stores, and Mr. Leonard said he was watching the Amazon deal closely.
“I’ve been in retail since I was a kid, and I’m always nervous,” he said. “Costcos were opening, then Walmarts. then Whole Foods. But at the end of the day, you just have to try and get the freshest corn out there on the sidewalk.”
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