BRIEF

Amazon's discounts have minimal impact on Whole Foods prices, analysts say

AUTHOR

Jeff Wells@JeffWellsWH

PUBLISHED

Aug. 31, 2017

Dive Brief:

• Despite its much-hyped price cuts on items like organic avocados and unsalted butter, Amazon didn’t put much of a dent in Whole Foods' overall prices when it assumed ownership of the natural and organic retailer on Monday, according to CNBC. 
• An analyst with Gordon Haskett Research analyzed 100 products at a Princeton, New Jersey Whole Foods on August 21 and then again on August 28 — after Amazon took ownership — and found that average price declined by just 1.2%. “Our initial checks suggest that Amazon's bark may be greater than its bite," the analyst, Charles Grom, wrote.
• Some products actually went up in price, like a box of Annie’s Mac and Cheese that increased from $1 to $2.19. Overall, Grom found that dairy and yogurt prices decreased the most, posting a 5.6% drop, while dry grocery and baking items rose the most with a 4.9% price gain. Grom also noted that prices on about 78% of items didn't change.

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Dive Insight:

Other analysts have echoed Grom’s assertion that Whole Foods’ overall pricing didn’t change much on Monday. Barclays Research performed spot checks on high-frequency items like Organic Valley milk, Newman’s Own salad dressing and Amy’s frozen pizza, and found prices to be unchanged. In other words: While Amazon did cut prices on some staple products, it left many of its best sellers untouched.

“While we believe Amazon will undoubtedly make Whole Foods a more competitive format over time – the price cuts account for less than 1% of total SKUs in Whole Foods stores,” Barclays analysts wrote in a research note.

An analysis by Bloomberg, meanwhile, compared 18 items sold at Whole Foods and Walmart stores and found the natural and organic grocer to be 50% more expensive than the mega retailer. The two stores serve different consumer groups, though the results do fly in the face of Amazon’s claim to make organic “affordable for all.”

“Jeff Bezos will have to trade in his potato peeler for a meat cleaver if he wants to fight a price war with Wal-Mart Stores Inc.,” Bloomberg noted.

What matters, of course, is not whether average prices are actually lower or not but rather that they appear to be lower. In this, Amazon succeeded, drawing a blitz of media coverage and crowds of curious shoppers to its Whole Foods stores. Several shoppers interviewed at the company’s Upper East Side location in Manhattan told Food Dive they felt the store’s prices were down significantly.

Still, it’s important to note that, as Amazon’s marketing materials point out, this is just the beginning. More cuts are likely to come, and a Whole Foods representative confirmed to numerous media outlet that the current discounts are permanent.

How far will Amazon go? It’s hard to say for sure. Experts note that Whole Foods prices average 15% higher than those found at conventional supermarkets. That means Amazon needs to drop prices below that mark to enter “value” territory — which it may very well do. But don’t expect the e-tailer to drop prices any more than it needs to in order to fix Whole Foods' pricey image. Although it has the ability to absorb major losses on the road to increased market share, Amazon doesn’t want to lose any more money than it has to.