How Amazon is threatening grocers
Amazon (AMZN) announced the acquisition of premium organic and natural food retailer Whole Foods Market on June 16, 2017. The deal sent tremors across the food retail sector on fears that Amazon would end up disrupting the grocery business in the same way it has dislocated books and electronics.
The deal finally closed at the end of August, and then Amazon announced its plans to lower the price of products such as avocados and apples by a third. It also signaled that Whole Foods’ prices would be reduced selectively and there would be more discounts going forward. These discounts are Amazon’s bid to shake off Whole Foods’ “whole paycheck” status that cost the company its sales comps (comparables) in recent years.
“We’re determined to make healthy and organic food affordable for everyone. Everybody should be able to eat Whole Foods Market quality—we will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards,” said Amazon Worldwide Consumer CEO (chief executive officer) Jeff Wilke.
What does it mean for grocers?
The change in Whole Foods’ pricing strategy will trigger similar price cuts by other grocers such as Kroger (KR), Sprouts Farmers Market (SFM), and Walmart (WMT), affecting their already paper-thin margins.
As noted by Barclays analyst Karen Short, that could mean “the demise of mediocre conventional retailers will meaningfully accelerate…as will the demise of other higher-priced natural/organic/specialty retailers.”
Read the next section to know how Kroger’s been impacted by the Amazon threat.