Any lingering doubt about whether Amazon.com (NASDAQ: AMZN) is committed to refuting Whole Foods image as "Whole Paycheck" ought to be dispelled after the e-commerce giant announced a new round of price cuts on hundreds of items throughout the organic grocer.
Amazon has cut prices twice before at Whole Foods. But surveys of a basket of regular grocery items found that there was never much difference in price for very long. And as consumer food companies were pressured by rising costs for commodities, packaging, and transportation, Whole Foods was reportedly going to be raising prices on hundreds of products.
Amazon also scrapped the discount 365 chain and is reportedly planning an entirely new grocery store concept completely separate from Whole Foods. Therefore, many suspected the e-commerce company was giving up on ever changing anyone's mind about Whole Foods' high-priced image. This latest round of price cuts, however, suggests otherwise.
Earlier this month, Whole Foods began lowering prices on hundreds of items, with a particular emphasis on produce, including greens, tomatoes, and tropical fruit. It said consumers would save an average of 20% on the products that were being discounted.
At the same time, Amazon was further extending the number of exclusive weekly deals and discounts that Prime members receive at Whole Foods. It was doubling to more than 300 the number of deals offered above the 10% discount they already enjoyed at the supermarket.
Since Amazon acquired Whole Foods in 2017, it says consumers have saved hundreds of millions of dollars through the combination of lower prices and Prime member deals.
But we've been down this road before
Immediately after the acquisition, one of the first things Amazon did was slash prices -- by as much as 43%, in some estimates. But a survey shortly thereafter found that those prices had crept higher once more.
Amazon reportedly cut prices a second time, but market research firm Gordon Haskett found that customers were saving only $1.54 on a basket of goods bought one year after the acquisition versus the price before that.
And despite the hoopla surrounding the purchase and the potential to drive prices lower, consumers haven't really changed their view of the grocer. A Yahoo! Finance survey last year found that while half of the 2,000 people it queried thought Amazon had an effect on Whole Foods, 40% believed Whole Foods prices weren't any lower.
While the latest price cuts are garnering the most headlines, it may be the Prime member angle that's most important.
Regaining its competitive edge
Consumers who shop Amazon's website and those who are Whole Foods customers aren't exactly the same. Morgan Stanley estimated as many as 80% of Prime members didn't shop at Whole Foods at the time of the acquisition. That may have declined some over the past year and a half, but probably not by much. However, Amazon has begun extending Prime benefits to Whole Foods shoppers, as well as promising to open up more stores in the suburbs, and testing out new store layouts for urban markets.
By getting the grocery store closer to a broader base of customers, Amazon can use the leverage of Whole Foods' physical footprint to push more online sales, for both groceries and general merchandise.
It's one of the primary advantages Walmart (NYSE: WMT) has over Amazon: The vast number of Walmart stores allows it to meet consumers' preferences on how they want to shop and get their orders. With Walmart, you can shop at the store or buy online, and you can pick up the order in the store or at curbside, or have it delivered.
The key takeaway
Getting more Prime customers into Whole Foods will give Amazon a greater opportunity to similarly meet consumer expectations on how, when, and where they shop, making the price cuts a piece of the whole.
By pushing to finally change consumer perceptions about Whole Foods' pricey image, Amazon can get more people into the stores, get them to become Prime members to earn extra discounts, and leverage its e-commerce sales, too.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.