Amazon to Cut Whole Foods Prices

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Kate TaylorWith Amazon's $13.7 billion acquisition of Whole Foods formally going through on Monday, customers are about to notice some changes in their stores.

Major supermarket chains and grocery sellers, including Kroger Co, Sprouts Farmers Market Inc, Supervalu Inc, Costco Wholesale Corp and Wal-Mart Stores Inc, already were grappling with growing pricing pressure when Whole Foods and Amazon announced their $13.7 billion merger deal on June 16.

The cuts add another front to a price war that's already raging across the supermarket sector.

Amazon last week announced that starting Monday, it will lower prices of items at Whole Foods like organic bananas, brown eggs, salmon, ground beef, and more.

Its prices even sparked a legal controversy in 2015 when New York City's Department of Consumer Affairs accused Whole Foods of "systematic overcharging for pre-packaged foods", like sliced fruit and sandwiches.

"It's something I worry about", said Lauren Beitelspacher, an assistant professor of marketing at Babson College. But under Amazon, Whole Foods poses a legitimate threat.

Whole Foods has always taken pride in offering top-of-the-line organic and natural foods.

In addition, Whole Foods' private labels, including 365 Everyday Value, Whole Paws, and Whole Catch, can now be bought through Amazon's Prime Pantry and Prime Now food delivery programs that are only available to Prime members.

Produce at Union Square Whole Foods
Produce at Union Square Whole

Hurley said she is not sure how big competitors like Walmart will fare, but that Amazon is showing a determination to shake things up, and fast. "If Whole Foods can be successful at [changing] what the customer thinks is a fair price for an organic item, there are implications beyond store overlaps".

Customers can also have products shipped from Amazon to their local Whole Foods Market store for pickup or send returns back to Amazon during a trip to the store. "They will lower prices on consequential items to drive traffic and sales but not do a whole store price reduction which could really damage gross margin and potentially wipe out operating margin".

That explains why the FTC approved the Whole Foods deal with lightning speed. The discounts ranged from about 6 percent on the rotisserie half-chicken to about 33 percent on organic apples.

The marriage between the upscale grocery chain and Amazon has promised to change the way its customers shop for their groceries.

Keep in mind, too, that this is just the beginning.

Whole Foods employees were working late Sunday at multiple stores to prepare for their own "Day 1" as part of Amazon.

John Mackey will remain chief executive of Whole Foods and the company will operate as a subsidiary and continue to be headquartered in Austin, Texas, the companies said on Thursday.

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