Analyst: Whole Foods’ lower price claims are mostly ‘noise’

Discussion
Photo: RetailWire
Sep 13, 2018
George Anderson

Amazon.com and Whole Foods Market have certainly gone to great lengths from a marketing and public relations standpoint to give the impression that the grocery chain has shed its “Whole Paycheck” label. The reality, however, is quite a bit different than the hype, according to new market basket research.

The study conducted seven times with market baskets containing the same 108 items found that current pricing at Whole Foods was just 0.8 percent lower than when the chain was acquired by Amazon last year, according to Gordon Haskett analyst Chuck Grom. Compared to the period right after Amazon bought Whole Foods and dropped prices to make a splash, the cost of the baskets actually increased 1.3 percent.

Amazon Prime members did a little better in Mr. Grom’s research, saving an additional $1.54 on the market basket of over $400. The study did not factor in those customers who pay for their purchases at Whole Foods with the Amazon Rewards Visa card. These customers earn five percent cash back on purchases at the chain’s stores.

Regardless of the market basket reality, it seems that at least some customers have bought into the “noise” around Whole Foods’ pricing. A Forbes article points to a survey of more than 500 shoppers at the organic foods chain in June, which found that 49 percent believe Whole Foods’ prices “have improved” under Amazon’s ownership, while 46 percent say they have not seen a change and five percent say prices have gotten “worse.”

Research by Sense360 found that adding Whole Foods as a perk for Prime membership has drawn more of these Amazon subscribers to the grocer’s stores. The firm, which tracks data from smartphones, found that Whole Foods has grabbed two percent share from Trader Joe’s in markets where the chains are within a mile of one another. 

Research from Accompany found that 50 percent of Prime members plan to increase their visits to Whole Foods. Fifty-six percent indicated they were more likely to renew their subscriptions as a result of the Whole Foods perk.

DISCUSSION QUESTIONS: How effective has Whole Foods been in dispelling its image for high prices under Amazon’s ownership? Will the current benefits offered to Prime members be enough to sustain visits to Whole Foods?

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Braintrust
"What surprises me here is not that Whole Foods prices haven't dropped since the merger but that 49 percent of consumers have the perception that they have."
"Great proof that Amazon’s PR team has superb skills at creating belief in alternate reality."
"That old adage, “There’s no reality in retail, only perception” seems to be working for Whole Foods."

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22 Comments on "Analyst: Whole Foods’ lower price claims are mostly ‘noise’"


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Neil Saunders
BrainTrust

This analysis is spot on. Prices on some items have come down at Whole Foods, but the remainder of the range is ridiculously overpriced. Branded products are much more expensive than Walmart, Target and even Amazon itself.

Our analysis shows that more people are now shopping at Whole Foods, largely thanks to the marketing around the cuts and the Prime member deals. However, it also shows that the proportion doing “full shops” versus “top-up shops” has not changed much.

In other words, Whole Foods is not maximizing basket sizes and transaction values because many of its shoppers refuse to buy everyday staples and items there due to the overinflated prices.

Brandon Rael
BrainTrust

The typical Amazon Prime member is in all probability shopping at Whole Foods. As both a loyal Amazon Prime member, as well as a Whole Foods shopper, the long wait for all the loyalty benefits has been very disappointing to say the least. We are all becoming increasingly conscious of our food decisions, and it’s challenging to find a competing grocery store that provides the range, variety and depth of organically grown products.

Yet after a year of hype, anticipation and waiting for the significant savings, we find ourselves very underwhelmed during the checkout process, where the savings are around 1 percent to 2 percent off of the bill. The question that remains for Amazon and Whole Foods is how to truly capitalize on the synergies of both companies. Whole Foods has already won the hearts and minds of their loyal customer with quality foods. Now they have an opportunity to attract and retain new customers, who may also happen to be Amazon Prime members, with exclusive offers and meaningful savings.

Dr. Stephen Needel
BrainTrust

It’s not that Whole Foods is over-priced, it’s that it is high-priced with high quality products — there’s a key difference. If you’re not into the 365 product line a.) you should be because it’s pretty good stuff and b.) you are still paying the same or similar prices as before. Get over it — if you don’t like the prices, go shop at Trader Joe’s.

Ken Lonyai
BrainTrust

Stephen: not sure what your basis is, but we regularly see that SKU for SKU (exact product match) Whole Foods is as much as 20 percent to 25 percent higher than other places like Wegmans. It has nothing to do with perceived quality. We only buy organic produce and although they each have different suppliers, items with the same PLU’s are priced very differently. For example, organic avocados (same PLU) Trader Joe’s $1.99, Whole Foods $2.49. That’s 25 percent more. At the independent market in Princeton, NJ (an upscale town) they are $2.45–that from a one-off-market vs. the scale of Amazon.

Regarding produce quality, most often Wegmans is a little fresher than Whole Foods, yet the independent markets are the freshest.

Dr. Stephen Needel
BrainTrust

Ken, yes, Whole Foods’s produce is about 20% more here (just got back from Publix) in Atlanta. But I was looking at grapes, tomatoes, and celery and Whole Foods’s quality was much better. Also, I wouldn’t expect much of an economy of scale for produce to the extent that stores are trying as much as possible to source locally. I also looked at the meats, which are easily 40% higher on a per pound basis, but look significantly better. 40% more better? Probably not. My point was simply that nobody shops at Whole Foods for the good prices and at least here in Atlanta they are pushing quality, not price.

Mike Osorio
BrainTrust

I’m skeptical that the Whole Foods customer is really expecting “low prices.” In the area of organic and high-end grocery shopping, the customer is not typically a Walmart shopper and I question the focus on low prices as a long-term growth strategy. Amazon/Whole Foods needs to maintain and modestly grow the existing base (meaning growth is necessary to offset attrition) and the use of Prime membership rewards (as modest as they may be) will be enough to do so.
I don’t want Whole Foods to become Kroger or Target/Walmart. Its success will be in its differentiation as an upscale shopping experience with yes, higher prices.

Ron Margulis
BrainTrust

Very few people go to Whole Foods for their total food/HBC shop. Even the benefits of Prime aren’t going to change that dramatically and they don’t have to because Amazon’s plans for the retail stores go way beyond food and pricing. What it is likely to do is grab a bit bigger share of wallet away from competitors and even other retail channels (I’m thinking health and homeopathic). That is something for those companies to act to negate.

Mel Kleiman
BrainTrust

You can fool some of the people some of the time. But over the long run even those who you fool will find out and when they do you will never get their trust back. Consumers may give you a chance but over the long run the actions will speak louder than the words.

Jon Polin
BrainTrust

Whole Foods has always been premium priced, and that never seemed to hurt its customer loyalty. Amazon, while amazing in many areas, is also rarely the cheapest buying option. What surprises me here is not that Whole Foods prices haven’t dropped since the merger but that 49 percent of consumers have the perception that they have.

Paula Rosenblum
BrainTrust

Noise was always the operative word … The media gave Amazon an excited pass and posted what for me is the now-infamous 44 price reductions the day Amazon took over, on its front pages the stock markets punished other food companies, and pundits expected Whole Foods to change overnight.

I am not surprised none of this happened, and I’m further willing to bet that Amazon Fresh is a less desirable alternative to Instacart for home delivery — much more ecologically sensible.

Whole Foods ran into a string of bad luck and got caught doing some lame things, which damaged consumer trust and market valuation. But I believe the business model was always fundamentally sound and, in fact, I worry that Amazon’s dictate to end “local” will hurt the top line more than it will help the bottom line.

Bottom line, I don’t think Amazon has helped Whole Foods very much at all — I think that the passing of time has dulled the memory of Scalegate and $14 asparagus water.

Phil Rubin
BrainTrust
2 months 29 days ago

Whole Foods has certainly won some business, even if not “full shops,” due to its acquisition by Amazon and the integration with Prime. Whole Foods has never been a price leader nor has it ever been the “full shop” destination, but rather its focus is on quality.

Retail pricing is important but at a certain point, and for some customers, it’s not the silver bullet merchants and marketers think it is. You can’t really compare the shopping experience or the quality of Walmart with Whole Foods but it’s easy to compare prices. Customer loyalty is increasingly not driven by pricing but by the experience and that, not ironically, has been catalyzed by Amazon.

The better question is how Whole Foods’ business has grown, on a same customer basis since the acquisition, and how that has impacted its bottom line.

Ken Lonyai
BrainTrust

Finally some reality. We’ve shopped Whole Foods twice a week for years and don’t need research to know that prices have not really changed for the better.

Wegmans and Trader Joe’s are often 20 percent to 25 percent cheaper than Whole Foods on EXACTLY the same items. Where are all the believers now — the ones that said Amazon’s scale and logistics would bring sweeping change to benefit consumers?

Nevertheless, Amazon has mastered the hype machine and the press that is too lazy to investigate on their own, so for now, they have fooled “some of the people all of the time.”

Georganne Bender
BrainTrust

Wait. My Prime membership will save me an additional $1.54 on a purchase of $400 plus? Let me get right on that.

That old adage, “There’s no reality in retail, only perception” seems to be working for Whole Foods. Still, I haven’t seen enough of a shift at Whole Foods to change my shopping habits.

Rich Kizer
BrainTrust

There’s an interesting thing about customers: When they join a retailer’s tribe, they become disciples and can utter many reasons for their membership. That has always been true of Whole Foods, as evidenced even by our BrainTrust’s comments here today about the quality of the items at Whole Foods. Now we join the Whole Foods disciples with Amazon disciples and form a larger tribe that buys what their perceptions or actual facts dictate to be better quality, priced accordingly. I don’t think that prices are that much of an issue at Whole Foods with this tribe.

Anne Howe
BrainTrust

For the most part, I’m willing to pay more for better and more choices of organic foods. But I want my Prime discounts on more than just sale items. If Whole Foods wants to earn regular shoppers for the bigger trips, it might need to demonstrate the savings potential in real ways. Like a basket-to-basket price comparison of quality organic foods versus regular grocers. Bring it!

Lee Peterson
BrainTrust

As an avid Whole Foods customer, I can say with some authority: not much. I’m always asked if I’m a Prime member when I check out, then they tell me how much I’ve saved and it’s like, 6 bucks, 4 bucks, 5 bucks — never a lot. So yeah, so far, just a lot of noise IMO. I’ll let you guys know when a better effort kicks in.

Doug Garnett
BrainTrust

Great proof that Amazon’s PR team has superb skills at creating belief in alternate reality.

The prices are pretty much what I predicted would happen. Saving $1.54 on a $400 basket is indistinguishable for shoppers.

These prices makes sense. Whole Foods has a business structure and Amazon wants to run it to make money. There can’t be any fast, across the board price cutting because it was already struggling. The business structure has to change first – and that takes considerably more time than we want to believe.

Ed Rosenbaum
BrainTrust

Isn’t it amazing that the name Amazon has people believing it is synonymous with lower prices? As Mel so well said “you can fool some of the people some of the time.” It will be those prople who will scream the loudest when they realize they are not paying lower prices.

Shep Hyken
BrainTrust

I’m actually surprised at the findings. My wife and I shop at Whole Foods. We knew they were more expensive. Because we are prime members, we saw a discount on some, but not all items. We noticed that “staples” were more competitively priced. Whole Foods has a reputation for quality — and that comes with a price. For them to shake the reputation of high price, if that is what they want, it will take time and effort. This type of press may be a “wake up call” to suggest their efforts are not as effective as they could or should be.

Ricardo Belmar
BrainTrust

“50 percent of Prime members plan to increase their visits to Whole Foods. Fifty-six percent indicated they were more likely to renew their subscriptions as a result of the Whole Foods perk.”

I think that is the key finding from Amazon’s perspective, not an expectation of low prices. This isn’t about how quickly Amazon will cut Whole Foods prices. Whole Foods customers aren’t shopping on price, they shop on quality and have high expectations for that quality. Do other brands have the same quality at a lower price? Quite possibly, but, Whole Foods shoppers likely don’t expect that to be true across the board and therefore stay with Whole Foods.

The real question is, has Amazon changed total basket size, or, are Whole Foods customers just shopping for a few items at a time rather than for a complete grocery run? Changing this behavior will require a lot more than $1.54 off of $400 for Prime members.

Craig Sundstrom
Guest

My question would be why Whole Foods — either under Amazon or even before that — wanted to dispel its “high price” image in the first place. Presumably someone somewhere thought they could be more profitable with a broader reach, or maybe the rise of competing “natural”ish grocers offering better prices posed a real challenge, but there are plenty of “high price” merchants around and like Whole Foods itself, they seem to do just fine.

But back to “noise”: I would posit that much like Amazon itself, the goal isn’t actually to have lowest prices, it’s to make people think so … and based on the limited data of this survey, it seems to be working.

Min-Jee Hwang
BrainTrust

Whole Foods still has a ways to go to dispel its image as overpriced. Prime benefits are certainly helpful in driving traffic, but it appears to be for smaller items rather than than full meals. We recently sent mystery shoppers into Whole Foods and found most buy cheese, salty snacks, cookies and the like as opposed to full meals.

wpDiscuz
Braintrust
"What surprises me here is not that Whole Foods prices haven't dropped since the merger but that 49 percent of consumers have the perception that they have."
"Great proof that Amazon’s PR team has superb skills at creating belief in alternate reality."
"That old adage, “There’s no reality in retail, only perception” seems to be working for Whole Foods."

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