Amazon’s plans for Whole Foods drives Supermarket stocks down

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As if Supermarkets didn’t have enough to worry about with competition amongst themselves (Aldi has overtaken Waitrose to become the UK’s sixth largest supermarket), Amazon has just made a move which has seen supermarket share prices plunge by up to 2%. Shares in French and US supermarkets were also negatively impacted.

It’s all as a result of what Amazon said when they announced that their acquisition of Whole Foods (which incidentally saw a bump in Amazon’s share price and the inflated value more than paid for the acquisition) will close this Bank Holiday Monday.

Saying that they are determined to make healthy and organic food affordable for everyone Amazon anounced a number of immediate price cuts

“To get started, we’re going to lower prices beginning Monday on a selection of best-selling grocery staples, including Whole Trade organic bananas, responsibly-farmed salmon, organic large brown eggs, animal-welfare-rated 85% lean ground beef, and more. And this is just the beginning – we will make Amazon Prime the customer rewards program at Whole Foods Market and continuously lower prices as we invent together. There is significant work and opportunity ahead, and we’re thrilled to get started.”
– Jeff Wilke, CEO of Amazon Worldwide Consumer

Amazon also announced a series of innovations coming off the back of the Whole Foods acquisition including integration with Amazon Prime:

  • Starting Monday, Whole Foods Market will offer lower prices on a selection of best-selling staples across its stores, with much more to come. Customers will enjoy lower prices on products like Whole Trade bananas, organic avocados, organic large brown eggs, organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic Gala and Fuji apples, organic rotisserie chicken, 365 Everyday Value organic butter, and much more.
  • In the future, after certain technical integration work is complete, Amazon Prime will become Whole Foods Market’s customer rewards program, providing Prime members with special savings and other in-store benefits.
  • Whole Foods Market’s healthy and high-quality private label products—including 365 Everyday Value, Whole Foods Market, Whole Paws and Whole Catch—will be available through Amazon.com, AmazonFresh, Prime Pantry and Prime Now.
  • Amazon Lockers will be available in select Whole Foods Market stores. Customers can have products shipped from Amazon.com to their local Whole Foods Market store for pick up or send returns back to Amazon during a trip to the store.

Importantly this is just the beginning with Amazon promising “Amazon and Whole Foods Market plan to offer more in-store benefits and lower prices for customers over time as the two companies integrate logistics and point-of-sale and merchandising systems“.

To see this announcement in context and understand why it’s sent shockwaves through the supermarket world you have to remember that traditionally supermarkets operate on razor thin margins. Amazon operate on slim margins too but Amazon have never cared about making a profit and instead obsess about growth and the customer experience.

Amazon have been slowly ramping up their food and household goods sales with programs such as Amazon Pantry, Amazon Fresh, Amazon Prime Now one hour food deliveries and Amazon Restaurant. Now they own a supermarket chain, albeit a small one with just 350 branches in the US and Canada and just 9 in the UK, it gives them a base where they can slash prices, attract customers and tie them into the ever increasing value of Prime membership.

Supermarkets are worried, investors in supermarket shares are worried, Amazon is about to change the supermarket model forever and whilst they may not have the reach of the larger chains there is little doubt that supermarkets will have to innovate and invest ever more to keep Amazon at bay.

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