Will Amazon’s Move to Cut Grocery Prices Pay Off?
Whole Foods has reportedly seen more traffic after merger with Amazon
The first step Amazon (AMZN) took after completing its $13.5 billion acquisition of Whole Foods (WFM) last week was to slash grocery prices, and it has promised more price cuts in the future. Whole Foods offers high-quality products, which is why its products are priced at a premium. The company has thus had niche customers.
According to a car traffic analysis by JPMorgan Chase, Whole Foods stores have seen higher car traffic four days since the acquisition. The price cuts could entice customers who were earlier put off by Whole Foods pricing. According to the Wall Street Journal, many Whole Foods employees mentioned that they have observed higher sales since the acquisition.
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It was already a cutthroat retail industry
That said, it is hard to determine whether the price cuts could reverse the trend of Whole Foods’ declining same-store sales. As a standalone company, Whole Foods had a same-store sales decline YoY in the previous eight quarters. Further price cuts are likely to be limited as the company is already operating at razor-thin margins.
Amazon’s takeover of Whole Foods comes at a time when the food retail industry is in turmoil. Increased competition, more options to meet customers’ increasing inclination towards online shopping, and food deflation have caused traditional grocers to rethink their strategy. Grocery stocks have plunged 20% this year, while Kroger (KR) has seen its stock fall 34% in 2017.