Nearly the first thing Amazon did after completing its purchase of Whole Foods was to announce that it would be cutting prices on dozens of staple products. This shot over the bow was a clear signal to competitors that the new partnership aimed to take over the grocery market. It required a response; the question now is whose strategy will prove successful when all the dust settles.
Amazon’s approach is to accept losing money for a while, to attract shoppers to Whole Foods stores and alter their behavior, such that they become accustomed to shopping there. Such outcomes also should prove beneficial for the larger company, because customers loyal to the grocery arm likely will visit Amazon first when they need other products and services too. Ultimately, if it can keep up the pressure, it can eliminate competitors from the market, rather like it did to Borders in the book market.
The margins on grocery products already are razor-thin, so few other chains can match Amazon on price over time. The competitor most likely to be able to do so is Walmart, which expressed confidence in its ability to survive this shift in the market. It pointed to its long-standing dedication to low prices, its experimentation with expanded service offerings (e.g., curbside pickup), and its investments in new online partners such as Jet and Bonobos as reasons for this confidence.
At Kroger, the plan is not to change anything too fast, though it will increase its investments in technology. Furthermore, it has expressed willingness to sacrifice some profits, in some markets, on some items, if doing so will keep customers shopping at its stores.
Rather than prices or channels, Target plans to meet the challenge head on, by expanding the number of grocery items it stocks in stores. It has invested in new market research to define its assortment better, and it added several veterans from the grocery sector to its executive ranks, in an attempt to gain expertise and insights into this portion of the consumer market.
It’s still too early to tell, of course, but some early evidence implies that this radical alteration to the market might not be as radical as expected. In the week after the takeover, foot traffic in Whole Foods stores jumped by a remarkable 17 percent. But just a couple of weeks later, that increase had fallen to 4 percent—still notable, but not game changing.
Perhaps even more interesting was the announcement that Amazon had sold $1.6 million worth of food products with the Whole Foods brand. Thus it may be that the goal is to drive traffic to Amazon, not to Whole Foods. In that case, the tactical strategies of the various competitors in the grocery market might need to shift, yet again.
Discussion Questions:
- How will Whole Foods compete under Amazon’s ownership?
- How will its major competitors react to the new Whole Foods?
- Have you shopped at Whole Foods since Amazon took over? Do you find any differences? Have your shopping habits changed as a result?
Source: Heather Haddon and Laura Stevens, The Wall Street Journal, September 28, 2017; see also Ben Eisen, “Whole Foods Price Cuts Spurred a Temporary Jump in Foot Traffic,” The Wall Street Journal, October 3, 2017