Amazon cuts prices on items at Whole Foods

The cuts come days after Amazon promised to reduce the price of foods at its newly acquired organic grocery store. But news that Amazon plans to lower Whole Foods prices last week caused investors in prominent grocers such as Kroger (down 4.40%), Sprouts Farmers Market (SFM) (down 3%) and Supervalue (SVU) (down 3.5%) to run for the exits.

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

"Even if Whole Foods is just getting down to parity on price, they might be able to capture a little bit of market share", said Joseph Feldman, senior managing director at Telsey Advisory Group.

In a August 24 press release, Amazon and Whole Foods said they would bring "more in-store benefits and lower prices for customers over time as the two companies integrate logistics and point-of-sale and merchandising systems".

RBC Capital Markets analyst Mark Mahaney thinks Alexa could be the next big thing for Amazon, potentially generating $10 billion in revenue by as soon as 2020. Making Whole Foods' groceries searchable on Amazon's website doesn't increase the internet's cache of product information - consumers can already get that on the grocer's website - but it will steer consumers squarely toward Whole Foods' products. "If I see the lower prices at Whole Foods, I would start buying those basics here".

Organic fuji apples and bananas were among the most heavily discounted foods.

While Google and Walmart attract the masses, Amazon and Whole Foods have accessed the elite few who can afford the best foods. Rotisserie chickens are a dollar cheaper, now selling for $7.99 each. "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". Amazon will pay $42 per Whole Foods share, an 18 percent premium from its price the day before the tie-up was announced June 16.

Whole Foods will also be integrated more closely with Amazon's retail site, with frozen Whole Catch products being offered for sale on Amazon's various grocery e-commerce sites.

Inc. (AMZN) is changing the way we shop all over again because its acquisition of Whole Foods Market seems like it has to be about so much more than just groceries. Amazon increases its purchasing power and negotiating ability, which should allow for lower prices.

But will the move make them more competitive and are the price drops worth it?

Amazon vowed last week to slash prices at the organic grocery chain beginning Monday "on a selection of best-selling grocery staples", including selections of fruit, vegetables, dairy and meat. We expect more of the same with Whole Foods.

Whole Foods has two stores in Pasadena, one in West Pasadena at 465 South Arroyo Parkway, and another in East Pasadena, at the Hastings Ranch Shopping Center at 3751 E. Foothill Blvd.


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