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The Facts —
- Customer traffic at Whole Foods increased 25% in the two days following Amazon’s decision to reduce prices, according to a report published by Bloomberg from Foursquare Labs Inc.
- Foursquare told CNBC that Whole Foods stores in New York had the lowest surge in traffic (with a 15% increase) while Chicago had the highest growth in shoppers (with a 35% increase).
- Amazon also saw an increase in online grocery sales, separate from the increased foot traffic at Whole Foods stores.
- In addition to increased foot traffic, Amazon sold $500,000 of Whole Foods products online in its first week of availability, according to eCommerce data measurement company One Click Retail.
- One Click Retail CEO Spencer Millerberg told Food Navigator that Amazon added over 2,000 Whole Foods items to its online catalog. Millerberg said:
“This resulted in almost $500K of Whole Foods items sold in the first week after the merger… To see this kind of interest is unusual, it’s three times the response we’d typically see on new items added to Amazon.”
- Millerberg added:
“Of the top 100 selling [Whole Foods private label] items on Amazon, only 7% remained in stock [after the first week].”
The Context —
- On 28 August, Amazon announced the completion of its $13.7 billion acquisition of Whole Foods.
- Amazon said in the announcement that it would immediately cut prices on Whole Foods products.
- Prior to the price reduction, The Washington Post, which is owned by Amazon CEO Jeffrey Bezos, reported that Whole Foods’ prices are 15% above competitors’ prices.
- The Wall Street Journal reported that six large grocers — including Kroger and Walmart — lost a combined stock value of over $12 billion in the day following the announcement.
- CNBC reported that Amazon has reduced prices on some in-store products items by more than 40%.
- Kirthi Laylanam, director of the Retail Management Institute at Santa Clara University, told Bloomberg:
“This is very early evidence that this marriage made in heaven between Amazon and Whole Foods is working. Amazon has struggled with online grocery because shoppers didn’t always know what they were buying. Now Amazon has the seal of approval that Whole Foods’ brand provides. Consumers feel that they don’t need to touch and smell the produce because Whole Foods has already made sure it’s top quality.”
- Amazon Prime customers are eligible to purchase groceries on Amazon Fresh, which delivers same-day delivery from grocery stores to homes.
- According to Business Insider, Morgan Stanley found that Whole Foods’ 450 stores are within a 10-mile radius of 144 million customers. Amazon’s acquisition gives the company control of the store locations.
- Target announced price cuts on Friday, which some analyst saw as a response to Amazon. Target said in a statement:
“We’ve lowered our prices on thousands of items, from cereal and paper towels to baby formula, razors, bath tissue and more.”
- Burt Flickinger, managing director of Strategic Resource Group, believes the price reductions will lead to a price war among grocers. He told the New York Post:
“Whole Foods dropped the prices on less than 1% of its offerings, but at the same time competitors [like Target] have lowered prices in response. We are entering a food price war of unprecedented proportions.”
- Investopedia defines a price war as “when companies continuously lower prices to undercut the competition.” Lowering prices reduces companies’ profit margins but can increase their market share.
- Following Target’s announcement, Pan Kwan Yuk at the Financial Times argued that the price reductions would be “likely to fan concerns in the market that the intensifying discounting would only further erode profit margins at the country’s major retailers.
“Indeed, the news prompted shares in Target to drop 2% and dragged other retailers lower. Costco, Walmart and Dollar General — all purveyors of basic goods — are down 1.4%, 1.5% and 1.2%, respectively.”
William Spruance contributed to this report.