Amazon slashes Whole Foods prices for Prime members in new grocery store showdown

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Amazon.com Inc and Whole Foods Market are launching a surgical strike in the already brutal grocery price war.

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On Wednesday, Whole Foods launched a highly anticipated loyalty program that offers special discounts to Prime customers, including 10% off hundreds of sale items and rotating weekly promotions such as US $ 10 per pound of wild halibut steaks. .

These benefits are available now in Florida and will roll out to all other stores starting this summer. Amazon previously announced free two-hour delivery to Whole Foods stores for members of Prime, its subscription club with fast shipping and video streaming.

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New loyalty strategy will test whether Amazon’s US $ 13.7 billion deal for Whole Foods causes much-feared disruption and escalating price war in the US $ 800 billion food industry US dominated by Walmart Inc and Kroger Co.

Whole Foods, with 463 stores in the United States and about 1% of the fragmented U.S. grocery market, has gained momentum since the Amazon merger last summer, the co-founder and co-founder told Reuters. General Manager of Whole Foods, John Mackey.

The size of the closely watched basket – the number of items purchased per transaction – has increased since the merger, Mackey said. He declined to give details.

Mackey is betting on Prime to convince shoppers wary of his reputation as a “full paycheck” that it is an affordable option for most of their purchases.

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The new perks could make Whole Foods cheaper than conventional grocery stores for about 8 million of its customers who are already subscribed to Amazon Prime, analysts at Morgan Stanley say.

Prime members scan an app or enter their phone numbers at checkout to receive discounts.

Still, Heather Kincade, 46, a Whole Foods buyer in the Philadelphia area and Prime member, will have to be convinced.

While Whole Foods’ prices on staples like roast chicken, bananas, and avocados have come down, she still believes some everyday items are prohibitive. “If I start buying dish soap and stuff over there, I’ll have hit the jackpot,” she said.

LOWER MARGINS

At Amazon, Whole Foods has found an owner who is notoriously comfortable spending their profits on new businesses or on lower prices.

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“Given the importance for Amazon to deliver value to its customers, and customers appreciate lower prices, I think they would be comfortable operating Whole Foods at a lower margin while still experiencing the operating model, ”said Tom Furphy, former vice president. President of Consumables and AmazonFresh, and now Managing Director of Consumer Equity Partners.

Mackey said other rounds of cuts are in the cards.

“Whole Foods is going to get more and more competitive,” said Mackey, who declined to detail the haircut his suppliers will take.

Hain Celestial Group, one of Whole Foods’ biggest suppliers, says a lower profit margin might be worth it.

“I don’t mind giving up room for growth,” Hain CEO Irwin Simon told Reuters.

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Small grocers, who still control a significant portion of sales in the United States, typically have very slim margins. They are under increasing pressure as German discounters Aldi and Lidl are also lowering their prices.

Walmart said it will continue to offer everyday low prices to all shoppers at its more than 5,000 stores in the United States.

Kroger Co, the largest US supermarket operator with approximately 2,800 stores, uses buyer data to personalize loyalty discounts.

CEO Rodney McMullen told Reuters earlier this month that the chain’s prices would be “absolutely” lower than Whole Foods on a typical buyer’s basket of around 50 items per week.

“It’s easy to beat someone on four or five points,” said McMullen.

Kroger tested an annual grocery delivery subscription but dropped it due to insufficient demand, he added.

© Thomson Reuters 2018