Amazon gives Prime members another reason to shop at Whole Foods

Discussion
Photo: RetailWire
Feb 20, 2018
George Anderson

Amazon.com’s assimilation of Whole Foods continues, this time with the news that holders of the Amazon Rewards Visa card will earn five percent cash back on purchases they make at the organic grocery chain’s stores starting today.

The five percent cash back rewards are available to eligible members of Amazon Prime. Those who have the card, but are not Prime members, will receive a three percent discount when shopping at Whole Foods.

The new cash back rewards plays into Amazon’s plan to put an end to the “Whole Paycheck” image that has hung over Whole Foods for years. Amazon moved quickly to lower prices at the chain on key items when it was acquired last year.

The new rewards perk can also been seen as an initiative by Amazon to further engage existing Prime members while attracting new ones. Prime members are some of Whole Foods’ best customers, spending an average of $1,371 at the grocer on an annual basis, according to 1010data. That’s $306 more than shoppers who are not Prime subscribers.

Today’s move follows the launch of Prime Now deliveries from Whole Foods stores in Austin, Cincinnati, Dallas and Virginia Beach less than two weeks ago. Prime members in those markets are eligible to place online orders from local stores for free home delivery in two hours. They can also receive their orders in an hour if they are willing to pay the $7.99 delivery fee. While plans have not been announced, Amazon has been clear that it intends to expand the Prime Now service from Whole Foods to other cities in 2018.

Amazon has looked to find as many links with Whole Foods as possible since acquiring the chain. The grocer’s 365 private label has become a big seller on Amazon. The e-tailer has set up Amazon shops selling items such as its Echo voice-activated speakers inside Whole Foods.

DISCUSSION QUESTIONS: How will offering cash back rewards at Whole Foods affect Amazon and the grocery chain? Will added sales, data or something else prove to be the biggest benefit to Amazon and Whole Foods from this offer?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"The biggest benefit will be new customers in-store and on Amazon.com."
"...the biggest wow factor we are waiting for is the incremental Amazon Prime promotions, discounts and exclusive offerings."
"Over time, Amazon will be able to modify Whole Foods’ perception to one combining both value and upscale healthy foods in an ecosystem."

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27 Comments on "Amazon gives Prime members another reason to shop at Whole Foods"


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Ken Lonyai
BrainTrust

Not exactly an unexpected move. Despite all the predictions of what Amazon might do with Whole Foods, to date, the little that has been implemented has been modest and conservative. This offer fits the pattern.

I would expect a moderate uptick in sales, but not anything that will significantly grow customer acquisition. The reality is that the product mix at Whole Foods is quite different than common grocery stores. Despite the sound bites, until Americans change their food consumption/brand habits, there is no mass growth opportunity at Whole Foods even with significantly lower prices — which this isn’t.

Max Goldberg
Guest

Offering cash back at Whole Foods is another way for Amazon to attract and keep Prime members and drive use of their branded credit card. I wonder whether this will be enough motivation for consumers to shop there. Phasing out most of Whole Foods’ local programs, while having prices that are higher than competitors, may not win over many Amazon customers who are used to lower prices.

Bob Amster
BrainTrust

I want to know from where the 3 percent or the 5 percent are going to come. Under Amazon’s ownership, Whole Foods already has lowered its prices. Now it is adding to the erosion of gross margin by returning 3 percent to 5 percent of purchases. The money has to come from somewhere or it will hurt the business. Does Amazon believe that Whole Foods, too, can do business at a loss? And if it does believe it, how long can it keep up this strategy?

Richard Layman
Guest
7 months 4 days ago

Whole Foods has hardly reduced its prices. On some items, yes, on more than 95% of their items, no. The point is to build the Amazon Prime platform. This is yet another benefit. Certainly not something that Barnes & Noble can do….

Gene Detroyer
BrainTrust

“Does Amazon believe that Whole Foods, too, can do business at a loss? And if it does believe it, how long can it keep up this strategy?” Isn’t that similar to what we said 20 years ago, 15 years ago, 10 years ago and even five years ago?

Zel Bianco
BrainTrust

It will be both sales and data. I don’t see a downside to this. I will sign up for the card as we are Prime members but why not get the 5 percent vs. the 3 percent? It will also go a long way in helping to balance the price gap that most people still believe is there. I am somewhat surprised that Prime members only spend an average of $1,371 annually. That seems quite low and may suggest that many shoppers do not buy all their groceries at Whole Foods and look to other retailers to fill in categories like personal products and paper goods. I know we do.

James Tenser
BrainTrust

Excellent observation. I think the average spend data is an indicator that Whole Food shoppers’ loyalty is very much “split.”

Amazon’s latest cash-back scheme is a nice incentive to attract new Prime members and start earning some interest. Maybe even more important is the data it will begin to collect on shopping behavior.

Charles Dimov
BrainTrust

Amazon is doing the right thing. Acquire a company, then start expanding programs to embrace the brand and its customers into the “brand family.” However, cash-back rewards are available from every credit card, so I doubt this will have a significant impact on the business. Will there be an uptick? Yes. A major bonus for Whole Foods/Amazon? No.

Pushing more in-store pickup of Amazon products will have a much more significant bump to their business. I’m not convinced that Amazon is pushing this envelope enough — yet.

Chris Petersen, PhD.
BrainTrust

Amazon is not a retailer — it is a distributor, logistics provider, cloud provider, marketplace and e-commerce retailer that owns stores. Amazon is an ecosystem and a path to profitability is through Prime.

Prime members create lifetime value with the Amazon ecosystem, and they purchase more. They are the most profitable segment. It makes perfect sense that Amazon would incent them to use Whole Foods.

What many forget is that customers don’t separate channels. Customers who regularly shop in stores also purchase more online, and vice versa. This is all about leveraging the best of Prime everywhere. And we haven’t even seen click and collect options for Prime in Whole Foods yet.

Gene Detroyer
BrainTrust
Phil Masiello
BrainTrust

Amazon has had a reward card for many years. It provides cash back or credits for use on Amazon.com. So it makes sense that they would incorporate this benefit into Whole Foods.

Separately, Amazon is determined to increase the value proposition of shopping at Whole Foods vs just lowering prices. Amazon has proven over the years that creating value creates retained customers.

Cynthia Holcomb
BrainTrust

If prices at Whole Foods continue to go down and are not inflated by 5 percent, just as with air mile reward credit cards, new Prime and current Prime members will be incentivized to shop at Whole Foods.

Possibly Amazon will team up with an airline and offer miles instead of 5 percent cash back — or both?

The biggest benefit will be new customers in-store and on Amazon.com.

Nir Manor
BrainTrust

This is a good move from Amazon that will benefit both Whole Foods and Amazon with more loyal customers and more data. The only downside is the high cost of this move that sacrifices significant parts of the margin. There may be a cheaper way to achieve the same objectives — to personalize discounts based on shopper profile, purchase history and tier.

Lyle Bunn (Ph.D. Hon)
BrainTrust

Loyalty benefits move the relationship needle closer to a club mentality, the slippery slope being that membership must have its rewards.

Neil Saunders
BrainTrust

This is a nice little perk. It may persuade some people to get an Amazon credit card, and it may encourage existing cardholders to always use their card at Whole Foods. That’s helpful for Amazon, not least because it will give them more data on shopper behavior.

However, I can’t see this making an enormous difference to Whole Foods. Despite Amazon’s investments, prices are still very inflated, and the proposition is sub-par for the amount charged. Those are the levers to pull to make a difference.

Brandon Rael
BrainTrust

The already loyal Amazon Prime and Whole Foods members will benefit from the cash-back advantages, however, it’s not clear yet if there will be incremental business or new consumers that will come out of this. It’s certainly the right strategic business decision for Amazon to extend these benefits, but it does seem to be a conservative move.

Considering Whole Foods’ premium pricing organic food strategies, the biggest wow factor we are waiting for is the incremental Amazon Prime promotions, discounts and exclusive offerings. This move is yet another step in the right direction, and we should expect more announcements to come.

Lisa Goller
Guest

Prime keeps getting more enticing (and addictive). Amazon’s cash back rewards directly address Whole Foods’s “whole paycheck” reputation, making the grocery brand more accessible to more consumers. Savings will also motivate Prime members to make online grocery shopping a habit because it makes loyalty more lucrative. Meanwhile, Amazon has its eyes on the prize: a jackpot of personal data, especially on urban, upscale Whole Foods shoppers. Amazon wants this data to enhance personalized marketing and cross-selling opportunities to acquire more happy, loyal Prime members.

Shep Hyken
BrainTrust

I see several things going on here. First is that Amazon is, as they stated in the article, eliminating the “Whole Paycheck” reputation Whole Foods has earned. Second, they are acting like a competitive grocery store. Cash back for using their credit card, free delivery, etc., are tactics that any other savvy retailer would use to be competitive. They want to play in the brick-and mortar world, and are doing a good job of it.

Brian Kelly
Guest
7 months 4 days ago

This is a proprietary credit card promotion. Another thread of Amazon’s tangled woven web.

Amazon is borrowing from the old Sears benefit bundle. Once upon a time there weren’t bank cards, but there was the Sears charge. With it, those of challenged credit worthiness were able to outfit a family or a home or both.

Are Whole Foods prices just 5% above the local competition? Nope.

But for those Prime members who aren’t shopping at Whole Foods, maybe they’ll give it a try. Or for those Prime members who don’t hold an Amazon card, maybe the deal at WF will motivate them to get a card. Which is really what Amazon and Visa want.

Mohamed Amer
BrainTrust

This is another smart move by Amazon to add value to being a Prime member, increase credit card issuance, and boost traffic in Whole Foods.

Amazon has made a significant investment in acquiring Whole Foods. As an asset, they are executing on ways to increase the revenue streams to which Whole Foods can contribute. It’s a long term strategic play with each move helping to amplify prior ones — including the amassing of valuable cross-channel customer behavior data.

Over time, Amazon will be able to modify Whole Foods’ perception to one combining both value and upscale healthy foods in an ecosystem that extends well beyond the immediate physical store.

Ricardo Belmar
BrainTrust

This is all about added value to the consumer — something Amazon excels at delivering to its Prime customers. Now Amazon has provided an incentive to sign up for their branded credit card via cash back rewards, from purchases at Whole Foods. Yes, Amazon will also gain benefit from the data collected as well, but it’s still all about convenience for the customer by providing a relatively small new capability. I believe we have yet to see anything really advanced from the acquisition. We can be sure this is only the tip of the iceberg!

Ken Morris
BrainTrust

Offering 5% cash back at Whole Foods for Amazon Prime members is an enticing offer. With an estimated 90 million Amazon Prime members in the U.S. this offer should encourage non-traditional Whole Foods shoppers to visit their stores. Amazon and Whole Foods will be able to link their customers, understand a 360 degree view of that customer across a much wider universe than ever before.

When consumers feel they are getting a special discount from a membership they pay for, they want to get their money’s worth from their investment. The significant discount percent will also help make the notoriously high-priced Whole Foods products more affordable to middle-class shoppers … now if they could only do something about their paper products!

Min-Jee Hwang
BrainTrust

Loyalty programs are huge in the grocery space and these cash back rewards are one form of that. It’s a nice benefit for customers, but as others have questioned, will the uptick in sales offset the lower margins gained? Ultimately, data may prove to be the biggest benefit in the long run — everyone knows Amazon loves data and knows what to do with it.

Michael La Kier
BrainTrust

The biggest benefit of this new combination between Whole Foods and Amazon will be tighter connection between the shopper and the retailer … and, as a result, better data on their shoppers’ omnichannel behavior. While the success of this initiative will indeed come down to execution, it does set a precedent of increasing discounting by Amazon. Something that will be interesting to keep an eye on.

Jeff Miller
BrainTrust

I can see how many Prime members and Whole Foods shoppers like me will go out and get the credit card even if we don’t need another one in our wallet. 5% is a solid incentive for something that I am already doing. Not sure it will get me or others to shop more at Whole Foods but it could. Even if it does not, they now have a great way to connect data points on a true Amazon and Whole Foods shopper. I seriously think aside from surfboards and gasoline they have about 80% share of my wallet.

I would be interested to see the data and business terms on the Amazon/Visa card for Amazon and Visa. Why not own the entire process and give more back for using a straight Amazon payment source like how Alibaba uses AliPay? Why do they even need Visa?

Gene Detroyer
BrainTrust

We know Prime is a big deal!
5 percent is a big deal!
This is a big deal!

Joel Goldstein
BrainTrust

At the end of the day, incentivizing people with extra cash in their pocket will allow Amazon to grow their market share. The long term reward of being able to take the mindshare of those customers using the platform rather than shopping around will vastly outweigh any short term gains.

This is a strategic play for a share of the retail purchases and the margins in whole foods can take more than a 5% cut before they touch what traditional grocery retailers mark-up their items.

wpDiscuz
Braintrust
"The biggest benefit will be new customers in-store and on Amazon.com."
"...the biggest wow factor we are waiting for is the incremental Amazon Prime promotions, discounts and exclusive offerings."
"Over time, Amazon will be able to modify Whole Foods’ perception to one combining both value and upscale healthy foods in an ecosystem."

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