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Amazon has announcedthat it's lowering prices at Whole Foods on hundreds of customer favorites. The average price cut will be 20%, and emphasis will be placed on lower prices for produce and meat, according to documents viewed by The Wall Street Journal.
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The cuts are scheduled to last at least through the end of 2019. The grocer will also be doubling the number of weekly deals available exclusively for Prime members, saying that it's planning over 300 deals over the next few months.
Here's what it means: Amazon is likely trying to make Whole Foods a more tempting option for consumers, particularly its Prime members.
- The e-tailer is trying to make its price cuts less underwhelming than they have been previously. The price of a wide-ranging basket of items costing around $400 at Whole Foods had only fallen about $1.50 between Amazon's August 2017 acquisitionof the grocer and September 2018, according to research from Gordon Haskett. This isn't a great sign for Whole Foods because, before the acquisition occurred, 30% of consumers said they'd most like to see Amazon lower prices at Whole Foods. However, a direct cut to prices on over 500 products is a strong step toward drawing these price-conscious customers.
- Whole Foods is trying to elevate its popularity with Prime members, something it's struggling with. While 65% of Prime members shop on Amazon's website at least several times a month, only 11% shop at Whole Foods that often, according to a survey by Wolfe Research cited by The WSJ. This discrepancy could be caused in part by Prime members feeling that the deals offered at Whole Foods aren't on items they care about or aren't steep enough to warrant shopping at Whole Foods. By widening the spread of deals for Prime members each week, Whole Foods could entice a greater number of subscribers to try shopping with it.
The bigger picture: Amazon is seemingly looking to use a two-pronged approach to broaden the base of grocery customers it can appeal to in the long term, but this move could help Whole Foods handle both roles in the short term.
Whole Foods may be geared toward more affluent customers, while a new grocery chain may target price-conscious customers, but these price cuts raise questions about Amazon's strategy. Amazon decided to discontinue its expansion of its 365 by Whole Foods Market chain and integrate the 12 existing locations into Whole Foods' regional structure in January.
And at the same time, the e-tailer is reportedly launching a new grocery chain that will offer a selection of lower-priced products. This strategy may enable Amazon to capture both customers seeking premium products and those who are concerned only with value, helping it take a more dominant position in the grocery market. Adding price cuts to Whole Foods, however, doesn't align with this plan, but it's possible that Amazon is doing so to allow Whole Foods to bridge the gap until the new chain is ready for launch.
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