On the other side of its $13-billion Whole Foods purchase, Amazon has announced plans to slash prices at the popular grocery store chain’s 365 locations. Specifically, the cost of organic avocados, organic brown eggs, organic salmon, almond butter, organic apples and organic rotisserie chicken are about to fall. This represents both a win for customers who want the quality of Whole Foods without the notoriously high prices, but also an important moment for the grocery store sector overall. Amazon is disruptive because it optimizes for scale over short- term profit and creates loyal customers. The company passed the billion-orders-per-year mark some time ago. The only way to do that is to rapidly grow your customer base while continuously focussing on new markets. In going public with Whole Foods price cuts, Jeff Bezos is putting a new(ish) market on notice and potentially signaling the beginning of a grocery store war.
At the time of the Whole Foods acquisition, Mari Gallagher, a principal at Mari Gallagher Research & Consulting Group, offered the best summation of the profit motives at play and why Amazon wanted not only all those aisles but a prominent brand. “The middle customer has a Whole Foods aspiration but wants a Wal-Mart price,” she told Eater. Amazon would not have made the purchase if executives didn’t think that were possible. The price cuts are a step towards realizing that vision.
That threat is significant enough that it has already made unlikely bedfellows of Google and Walmart, which are going in together on a project that will ultimately allow customers to order from Walmart through Google Express. That new initiative makes it clear that this will be a two-front war. There is convenience and there is cost. Amazon’s interventionism will drastically affect both and ultimate change the landscape for American buyers.
“Prepare for blistering competition and complete upheaval,” Eric Schiffer, chief executive of a private-equity firm in California told the Amazon-owned Washington Post. “Bezos is coming full circle by marrying the enemy.”
Amazon is an especially terrifying competitor because it is capable of not only increasing market share but consuming entire industries. It also exists as a cohesive ecosystem of shopping opportunities that extends directly into the over 10 million American homes currently equipped with Alexa devices. That doesn’t even count the Dash Buttons or the experiences of the roughly 85 million Amazon Prime subscribers, who will receive additional discounts at Whole Foods locations. The news of the price discounts at Whole Foods is, in other words, not just about a markdown. This is the beginning of a paradigm shift.