Whole Foods Market Inc is famous for its selection of organic produce and health-conscious product lines but the company is also notorious for high prices. This week, though, the latter may be less of an issue for shoppers as Amazon—who recently bought the chain—has just announced some massive price cuts.
Amazon is wasting no time with these changes, making its first round of cuts on the same day the nearly $14 billion acquisition closes. But it is a smart move, too, as shares of Costco Wholesale Corp, Wal-Mart Stores Inc, and Kroger Co all took a hit this week, too. By cutting prices at a highly-respected (but not necessarily easy to patronize) chain, Amazon could hit the whole of the grocery industry right where it counts.
You know, like the way that Amazon hit the mall industry where it counts a decade (or so) ago when they expanded from an online book seller to a full online marketplace.
Now, it is equally important to remember that that price cuts are not, necessarily, going to make Whole Foods’ higher-priced items available to everyone. After all, the company really only opens stores in already high-rent neighborhoods. Still, the lower prices could draw in more price-conscious consumers or, perhaps, win back some folks who migrated to discount chains when costs got a little too high.
AT Kearny consulting partner Greg Portell comments on the move: “Changing prices across the board is not a simple process for most retailers,” he says. “It takes time and labor. What Amazon has done is bring a level of dynamic pricing that will have to be matched by anybody selling food. It will disrupt the way the sector works.”
Not that long ago, the grocery price war was actually dependent on maintstream products like cereal, soup, and even soda (believe it or not). But with organics and whole food sales on the rise, these products are certainly carrying more clout. And, since Amazon has a lot more space to experiment on the margins front, this could be the perfect time to see just how much pressure the market can take from a company that can take the risk.
“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,” explains Cadent Consulting Group managing partner Ken Harris. “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.”