Again, Amazon attempts to shed Whole Foods’ high price image

Discussion
Photo: RetailWire
Apr 02, 2019
George Anderson

John Mackey may believe that Amazon’s acquisition of Whole Foods saved the organic grocery chain from being “trapped” in the “Whole Paycheck” image that has hung around the company’s figurative neck for years. Yesterday’s announcement that Whole Foods is again cutting prices, its third and biggest investment round to date, is an indication that the chain still has a way to go before its perceived advantages in quality, selection and service offset the price tags attached to the products it sells. This is particularly true in a market in which consumers have plenty of choices to buy the same or similar items at lower prices than those found at Whole Foods.

Beginning tomorrow, Whole Foods will lower prices on fresh produce items and offer more weekly deals to Amazon Prime members in departments across the store. Whole Foods claims it will lower prices by an average of 20 percent on selected items.

“Whole Foods Market continues to maintain the high-quality standards that we’ve championed for nearly 40 years and, with Amazon, we will lower more prices in the future, building on the positive momentum from previous price investments,” said Mr. Mackey, co-founder and CEO of the grocery chain, in a statement.

Whole Foods has also promised to double the number of exclusive weekly deals for Prime members in the months to come. The chain announced that discounts will be deeper and that it will offer more than 300 deals exclusively for Prime members.

“When Whole Foods Market joined the Amazon family, we set out to make healthy and organic food more accessible. Over the last year, we’ve been working together tirelessly to pass on savings to customers,” said Jeff Wilke, CEO of Amazon Worldwide Consumer. “Every time a customer walks into a Whole Foods Market, they expect and trust industry-leading quality standards across aisles. And now they will experience that same Whole Foods Market quality with even more savings across departments.”

Amazon is also looking to bring in new Prime members with its latest Whole Foods promotion. Customers who try Prime will get $10 off a $20 purchase at the grocery chain’s stores by going to amazon.com/WholeFoods10.

While Amazon continues to emphasize savings, evidence suggests that grocery prices continue to face inflationary pressures. A number of prominent CPG brands have announced price increases and many economists and companies are also concerned that trade actions such as closing the U.S. southern border could dramatically reduce supplies and raise prices on items such as avocados — a big seller at Whole Foods.

Whole Foods, according to a Wall Street Journal report in February, has raised prices on items anywhere from 10 cents to several dollars following manufacturer price hikes. The retailer has maintained that it intends to pass along some price increases while absorbing others.

DISCUSSION QUESTIONS: What effect, if any, do you expect Whole Foods to feel from its most recent price decreases? Is product quality and customer service enough by themselves to keep most Whole Foods customers shopping at the chain or does it need to do more price-wise?

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Braintrust
"Amazon needs to sell off Whole Foods and focus on its own supermarkets with a sincere approach to being the Amazon of food."
"Amazon is simply taking some early actions as it works to find its sea legs in an evolving store-based grocery strategy."
"The mistake Amazon cannot make is to downgrade the quality in an effort to chase profits."

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28 Comments on "Again, Amazon attempts to shed Whole Foods’ high price image"


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Tom Dougherty
BrainTrust

I would hope Amazon can bring the value of scale to Whole Foods.

However, chasing lower prices does come at a cost. I worry about something I call brand-drift. Will Whole Foods’ desire to compete on price cause some organic and fresh foods to suffer dilution?

Despite claims to the opposite, keep your eyes open. Amazon’s skill is appealing to the masses. Whole Foods is not Amazon.

Mark Ryski
BrainTrust

The price decreases announced may produce a modest, short-term lift in sales, but I doubt that this will have any lasting effect. Whole Foods has a loyal following, and the extra incentives for Prime customers may encourage a few more to give Whole Foods a try, but grocery is a battle, and Amazon/Whole Foods still have a long way to go to become a significant player in the market. Top quality and low prices is a difficult formula to sustain in the long run.

Neil Saunders
BrainTrust

Beyond the headline grabbing, I do not expect this to have much impact. Cutting prices on a handful of produce items will not disabuse customers of the view that Whole Foods is expensive. Charging less for produce will be beneficial for consumers, but what about the thousands of other non-produce items like household or dairy where Whole Foods charges way above Target, Walmart and even Amazon? Many of these brand-name products are directly comparable and Whole Foods’ prices are massively out of kilter. And there is no justification for higher prices: service isn’t better, range isn’t better, the shopping environment isn’t better. In short, the latest move is another drop in the ocean when what’s needed is a sea change!

Lee Peterson
BrainTrust

Wait, did you just say that the shopping environment in Whole Foods isn’t better than Walmart or Target? You’ve been to them all, right? Just checking.

Neil Saunders
BrainTrust

Some Whole Foods stores are exceptionally nice (and in fairness they are refurbishing more). Most are just OK, and nothing more. Quite a few older ones (especially in cities) are abysmal. Overall, they certainly don’t justify the higher price points on everyday items. That’s the central point — you can’t charge higher prices without justifying it in some way. And Whole Foods struggles with its point of justification and differentiation.

Lee Peterson
BrainTrust

They struggle with justification because in general, price is more important than quality to the American consumer, hands down. The quality of every single product in a WF’s store is simply better than every comp to a traditional grocer, hence the upcharge. Read the ingredients.

PS: I haven’t been in an abysmal Whole Foods yet, but I’ve been in a lot of abysmal Krogers. But they’re cheaper so I guess they’re better?

Neil Saunders
BrainTrust
I completely agree that, statistically, price is a more powerful determinant of where people shop and what they buy. However, such a sanitized numeric view does not reflect the reality on the ground. Consumers make tradeoffs all the time, balancing price against other factors; if they didn’t, everyone would shop at Dollar General and Aldi. That they don’t underlines that many are willing to spend more than a rock-bottom budget if they feel it is justified. That justification can only be secured by adding value. While I accept that of Whole Foods’ added value proposition is quality, I don’t accept that it is particularly differentiated, nor do I believe it is sufficiently powerful enough to create a high-growth business. First of all, not every single product in Whole Foods is unique. Many are sold elsewhere. Go to the household goods department and you can find Mrs. Meyers cleaning products. Go to bakery section and you’ll find Sweet Sam’s cakes. Go to drinks aisle and you’ll find Vitamin Water. All of those brands are available at… Read more »
Brandon Rael
BrainTrust

While Whole Foods remains the leader of the organic and holistic living grocery segment, its been a challenging proposition to remove the “Whole Paycheck” perception. The prestige factor of shopping in a Whole Foods Market wore off years ago. Consumers expected significant savings when Whole Foods joined the Amazon ecosystem. Especially as Prime members were promised additional significant savings throughout the store.

Yes there are plenty of Amazon Prime members who frequent Whole Foods, however, they leave a bit underwhelmed during the checkout process, as they only save a couple of dollars on a large order. With all of that said, it’s “prime time” for the Amazon and Whole Foods team to step up their value and savings strategies.

While no other grocery could completely replicate the marketplace organic offerings that Whole Foods has, the competition is gaining traction, and customers will seek value elsewhere if the Prime savings don’t live up to their promise.

Jeff Sward
BrainTrust

I’ll need to do more homework to better understand the context of this whole dynamic. What is happening to market share in the grocery market? Is Whole Foods stable? Is Whole Foods losing share to Trader Joe’s, Aldi, Lidl or regional chains? They are perceived as expensive, but they are also perceived by many to be worth it. Yes, of course they have to be competitive. But part of their brand promise is to be better — and worth it. They do stand apart. They don’t want to lose that.

Ken Lonyai
BrainTrust

Not holding my breath for yet more Amazon/Whole Foods hype. To date, it’s all been nothing but hot air. That on top of the failed Order-To-Shelf program that still has stores out of inventory EVERY day. Discounting produce is nice, but offering quality is better. I’ve previously commented on that here and compared Whole Foods to an independent grocer in Princeton, New Jersey and that store has immensely superior produce at, very often, lower prices and they are in a very upscale town.

Add to that the fact that Whole Foods now sells Cheerios in-store, which is documented as one of the most heavily glyphosate polluted name brand cereals on the market and the Whole Foods “mission” amounts to nothing these days.

Amazon needs to sell off Whole Foods and focus on its own supermarkets with a sincere approach to being the Amazon of food. This acquisition just doesn’t work and based on performance to date, never is likely to.

Dave Bruno
BrainTrust

I may be one of the few people who think this way, but I am not convinced that simply shedding prices across the board is the way to go for Whole Foods. I think they have a greater opportunity within the thus far underserved Amazon Prime clientele. When news broke of Amazon’s acquisition of Whole Foods, I was extremely bullish on the strategic alignment between Amazon Prime customers and Whole Foods shoppers. I fully expected to see significant efforts to encourage Prime customers to spend more time and money with Whole Foods. And while there certainly have been some efforts to steer more share of wallet from Prime customers toward Whole Foods, overall the efforts to truly integrate the Amazon Prime experience into the Whole Foods experience have been anemic. Given all that Amazon has done in other areas to reward and entice Prime customers, the lack of similar creativity inside the Whole Foods ecosystem has really shocked me.

Paula Rosenblum
BrainTrust

What I believe is that it is completely insane that every time Amazon lowers prices by a bit at Whole Foods, it gets acres of free press on it. I got a WSJ alert about it last night, summaries in other media this morning and now this.

Frankly, all other questions pale next to this core question: Why does the media feel compelled to give Amazon so much free advertising? I mean, seriously — if Publix or Kroger decided to lower prices a bit on products would we see the same response? I feel like it’s somewhat irresponsible, to be honest. I get that it’s click bait. So what? There’s a standard that is rapidly being lost.

And don’t get me started on the whole HQ2 debacle. What an embarrassment!

I think it’s time that Amazon earns its reportage. We are becoming a nation of media creations — and they are a bit gargoyle-like.

Paula Rosenblum
BrainTrust

P.S. Present company is obviously excluded. It’s our industry. These kinds of debates make sense here.

David Weinand
BrainTrust

For loyalists, the price decreases will be an added bonus. I’ve always thought tying Prime benefits into the physical Whole Foods environment was smart – but again, for their loyalists. I don’t necessarily think the price decreases will bring a large number of new customers. It’s still super premium no matter where prices go.

Joy Chen
BrainTrust

Reduced pricing is a short-term strategy that will require other strengths like unique product assortment and product quality to keep Whole Foods differentiated. Price reduction is a good move at Whole Foods as it will increase the penetration of Whole Foods among other grocery outlets.

Rich Kizer
BrainTrust

The way I see it is that this is not enough. Competition is heating up with Kroger, Walmart and other competitors are fighting hard in the perception game of pricing. And really, to me, I don’t think this excites Prime growth. I know that Amazon is making a move in the grocery industry with the acquisition of more stores. It’s tough out there, and anything that smells close to “we’ve been priced too high” followed by some adjustments as a positioning statement can be very dangerous, or at least only somewhat successful.

Phil Masiello
BrainTrust

Certainly Amazon has the data on their customers to incent them to shop at Whole Foods through these Prime deals. I would expect that consumers who have never shopped at Whole Foods before, because of the high price image, would take advantage of these promotions because they trust Amazon.

The mistake Amazon cannot make is to downgrade the quality in an effort to chase profits. In my eyes, the key for Amazon is to get more volume through the stores to leverage down the operating costs, maintain quality and be more flexible on price. Targeting the Prime customers seems like a good strategy with a big payoff potential.

Dick Seesel
BrainTrust

The price cuts signal a desire to drive trial and traffic (partly through free publicity) rather than a meaningful change in the Whole Foods pricing strategy. But does a brand with a premium image need to worry about lowest-common-denominator competitors like Walmart and Aldi? Or is there bigger share opportunity in “traditional” grocers like Kroger? Amazon has to walk a fine line between the “overpriced” and “high quality” perceptions of Whole Foods, and the ongoing TV ad campaign does nothing to enhance the value positioning.

Lee Peterson
BrainTrust

This is a great strategy that only a few “parent” companies can pull off. But with the AWS engine among other vehicles, it can be done. My biggest trepidation is that they also start to source lower quality, which would ruin the Whole Foods brand. If Amazon is going to do that, they should just acquire another grocer, like Safeway.

Mohamed Amer
BrainTrust

When customers enter Whole Foods, they are greeted by the fresh produce area. I’m a regular shopper for their fish selection and have to walk through the fruits and vegetables displays as I wonder why would one pay a premium compared to Trader Joe’s or Sprouts.

When it comes to fresh items, your margins are highly influenced by waste – what you throw away because of inherent perishability. Pricing is a marker of quality but competitors today do offer an equivalent proposition with higher value.

Amazon is simply taking some early actions as it works to find its sea legs in an evolving store-based grocery strategy.

Mark Heckman
BrainTrust

As President Ronald Reagan once famously said, “well, there you go again.” It appears that Amazon is going to take another crack at a remedy for stagnant sales at Whole Foods. Certainly the higher prices found at Whole Foods are a problem with the rank and file grocer shopper. However lowering prices does not change the fact the Whole Foods is not really a grocery store. It is a specialty food store and the differences between the two are significant in that mainstream grocery shoppers will never see Whole Foods as a viable place to go and buy center store groceries, even with lower prices. This matters because Amazon is a mainstream brand and if there is to ever be clear synergy between Amazon users and its grocery brick-and-mortar outlet, their physical grocery stores must be branded and priced as mainstream and their offerings must be aligned with Kroger, Albertsons, Publix, etc., not Sprouts, Fresh Thyme, and Fresh Market.

Harley Feldman
BrainTrust

Lowering prices will drive sales up. However, consumer perception of Whole Foods being high priced will take some time to accept. If they are only lowering produce prices, then the perception will not change. This is the problem for Amazon – they are known as the low priced online provider. Buying the highest priced grocer does not fit well with their other image.

Zach Zalowitz
BrainTrust

The simple answer is that service, selection and freshness of product is enough for the vast majority. The price drop just reinforces the brand and shores up what would have been a second trip elsewhere. I still think Prime is grossly un-tapped in their stores, but I can see they’re trying there.

Shep Hyken
BrainTrust

Amazon is no longer known for the being the least expensive retailer. However, they are always competitive and their model offers the consumer tremendous value in the form of selection, transparency (showing the customer there is a lower price and linking to it), competitive pricing (again, not lowest, but very competitive), shipping options, and most important, confidence. Their goal should be to mirror the Amazon model of value, transparency and confidence for Whole Foods. That will take time as Whole Foods has to shed the reputation of high prices (Whole Paycheck reputation).

Joan Treistman
BrainTrust

It would be interesting for me to know the content of typical Whole Foods shopping carts, especially those that derive the most out of lower prices and discounts. That’s how we can discern the possible impact at the cash register. So far as a Prime shopper the most I see is about 40 cents off and I have to look again to make sure it doesn’t include the bag I brought into the store.

But I don’t shop in Whole Foods for the prices, at least not mostly. I look for quality items and pick and choose. So if I’m to generalize from a sample of one (of course I shouldn’t) lower prices may get more trial, but the assessment shoppers make regarding price/value may be the more telling variable for long term revenue growth.

Brent Biddulph
BrainTrust
Agree with Paula on the PR Amazon garners on this topic. May I suggest a couple observations? Being the first physical retail endeavor at scale in Whole Foods, Amazon may be quickly learning that running a brick and mortar enterprise requires substantially different skill sets. At the same time, unlike other retailers, they can afford to treat WFM as a “lab at scale” to keep learning and improving. Secondly, let’s keep in mind that Amazon is very proficient at dynamic pricing, giving them a distinct advantage to keep testing pricing strategies — even at intra-day/item/location. While easy enough and transparent to track intra-day price changes on Amazon.com across thousands of products, it would be a near impossible feat to effectively track and understand prices (as a competitor or third-party data provider) at their brick and mortar operations like they are using via ESLs at the 4-Star store. I don’t expect the WFM experiment is anywhere near complete. Will be interesting to see if they decide to introduce dynamic pricing (intra-day) at scale as the next… Read more »
Cathy Hotka
BrainTrust

Not only are Whole Foods’ prices high, but many daily specials are available only to Prime customers. If this paradigm remains, Whole Foods will continue to occupy only a niche market.

Steve Montgomery
BrainTrust

Customers’ perception is the reality retailers have to deal with. The Whole Foods brand has always been associated with quality products and high prices. The issue for Amazon is how to change the price perception without endangering the brand perception. I am not sure that is possible.

wpDiscuz
Braintrust
"Amazon needs to sell off Whole Foods and focus on its own supermarkets with a sincere approach to being the Amazon of food."
"Amazon is simply taking some early actions as it works to find its sea legs in an evolving store-based grocery strategy."
"The mistake Amazon cannot make is to downgrade the quality in an effort to chase profits."

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