Amazon has not wasted any time in making an impact as the owner of the bricks-and-mortar grocery chain Whole Foods and has cut prices by as much as 43%.
The ecommerce giant’s $137 billion of Whole Foods has sent seismic shockwaves through the supermarket industry in that it has the potential to change the way that customers shop for groceries. By cutting prices at the Whole Foods chain (known by many as Whole Paycheck thanks to its expensive prices) it shows that Amazon is very serious about taking on bricks-and-mortar retailers such as Wal-Mart Stores, Kroger Co and Costco.
“Price was the largest barrier to Whole Foods’ customers,” said Mark Baum, a senior vice president at the Food Marketing Institute, an industry group. “Amazon has demonstrated that it is willing to invest to dominate the categories that it decides to compete in. Food retailers of all sizes need to look really hard at their pricing strategies, and maybe find some funding sources to build a war chest.”
In the UK, whilst Whole Foods has just seven shops there, the effect was still huge, with shares in each of the major grocers falling. Both Sainsbury’s and Tesco saw their share prices drop by more than 1.8% (as did M&S) but the biggest hit was felt by Morrisons whose shares fell by over 3%. The larger fall in the Morrison’s share prices could be caused by uncertainty about the future of Amazon’s agreement with the supermarket to sell fresh food in the UK with them.
However, Duncan Brewer, a partner in the retail and consumer team at Oliver Wyman, said he was unsure how much the share price drops were down to price cuts at Whole Foods.
“On the face of it it does not feel like a few Whole Food stores in the UK make a difference to the huge and successful players we have here but I think price cuts are one part of a much bigger strategy which Amazon has been pursuing for 5-10 years to move into the food space in an aggressive and frankly quite unusual fashion,” he said.
He does however think that Amazon are well positioned to seriously challenge the big supermarkets because Amazon are far better positioned to meet the needs of customers, having the potential to become what could be called a ‘digital butler’ service using the immense amount of data it has at its disposal to provide an informed and personalised shopping experience.
“They are building a capability to serve your food needs however you want them to be served and you have to start wondering if the data they have can could mean Amazon knows what you want to eat and cook before you do,” Mr Brewer said.