After it completes its acquisition of Whole Foods Market, Inc. (WFM) on Monday, Amazon.com, Inc. (AMZN) intends to slash prices for best-selling products at the organic grocery chain. The e-commerce behemoth is also planning to expand the Whole Foods rewards program to Amazon Prime members and establish lockers for e-commerce deliveries at the retail chain. The moves are among the first set of operational and pricing changes instituted by Amazon after its purchase of Whole Foods.
More changes are expected.
"This is just the beginning – Amazon and Whole Foods Market plan to offer more in-store benefits and lower prices for customers over time as the two companies integrate logistics and point-of-sale and merchandising systems," the Seattle-based company wrote in a press release on its site. (See also: Amazon Gives Few Hints on Whole Foods Acquisition.)
Prices for popular Whole Foods products, such as organic salmon, baby kale and bananas, will be lower starting Monday. "We are determined to make healthy and organic food affordable for everyone," said Jeff Wilkes, CEO of Worldwide Consumer at Amazon. A strategy consultant who worked at Amazon earlier said that prices for popular products could go down by as much as 25%.
Members of Amazon Prime, the company's subscription service, will also see benefits from the integration as Prime is integrated with the Whole Foods Rewards program, which offers discount coupons and price cuts on items to members, after "certain technical integration work" is complete. Products from the Whole Foods catalogue, such as 365 Everyday Value and Whole Catch, will also be available to customers as part of the Prime Pantry program. (See also: Why Whole Foods Is Amazon's Biggest Risk.)
Finally, the company is installing Amazon Lockers in certain Whole Foods stores in a bid to reduce its last-mile delivery costs. This means that customers will be able to collect their e-commerce deliveries while shopping for organic groceries at Whole Foods.
Analyst reaction to the changes has largely been positive. In an interview with The Wall Street Journal, Rupesh Parikh, senior equity research analyst at Oppenheimer & Co. Inc., said that "moderate drops" in prices for Whole Foods inventory could hurt traditional grocery chains' bottom lines, considering the already high quality of products at Whole Foods. (See also: Kroger and Other Food Retailers Fall on Amazon News.)
James Thomson, a brand strategist who formerly worked for Amazon, said that the price cuts indicated a long-term strategy in which the e-commerce site was willing to forgo margins in favor of gaining market share. According to Greg Portell, head partner at retail consultancy A.T. Kearney, Amazon's moves could erode the differentiation between retail channels. "Real value for Amazon will emerge when their consumer profiles stretch beyond the screen and into the physical aisle," he said, adding that the deal signified an end "to the typical view of retail being delineated by channels."