Has Amazon really saved Whole Foods from its ‘Whole Paycheck’ trap?
Photo: RetailWire

Has Amazon really saved Whole Foods from its ‘Whole Paycheck’ trap?

Amazon.com made clear from the outset of its acquisition of Whole Foods that it planned to lower the chain’s prices. Whole Foods has used the publicity around its lower prices to attract customers from a wide variety of rivals. But are Whole Foods’ lower prices legit? Is it really time to retire its “Whole Paycheck” label or does it still apply?

John Mackey, co-founder and CEO of Whole Foods, recently told Food Business News that Amazon has saved the grocery chain from the “trap” of its high-priced reputation.

Mr. Mackey said Whole Foods has “embraced” Amazon’s pricing narrative, but that speculation by analysts and press reports have fueled the perception that it is now a lot cheaper to shop at the chain’s stores. On its first day under the Amazon umbrella, Whole Foods’ 57th Street store in Manhattan reduced its prices on organic Fuji apples, baby kale, 365 Everyday Value organic butter and other select items between 33 and 48 percent, according to Bloomberg.

The perception of lower prices has helped attract more shoppers to Whole Foods. For example, 10 percent of Trader Joe’s regular customers visited Whole Foods between Aug. 28 and Sept. 16, according to Thasos Group. Eight percent of Sprouts customers did the same as did three percent of Target shoppers and two percent of Costco and Safeway customers.

Kroger and Walmart shoppers have been the biggest sources of new customers for Whole Foods. Twenty-four percent of new customers to Whole Foods came from Walmart while 16 percent were from Kroger. The next biggest sources of new customers were from Costco (15 percent), Target (11 percent) and Sam’s Club (five percent).

Despite the perception, new research from Gordon Haskett fails to find much change in Whole Foods’ pricing. The research firm tracked the price of 110 items sold at a Whole Foods in Princeton, NJ and found that pricing on these items declined only 1.2 percent over a five-week period following Amazon’s acquisition of the grocery chain in August.

BrainTrust

"There is a quality perception for the products at Whole Foods and that is equally, if not more, important than broad price reductions. "

Mohamed Amer, PhD

Independent Board Member, Investor and Startup Advisor


"The prices of items may not be down across the board but this is another case of perception being reality. We are irrational creatures after all."

Kiri Masters

Founder and CEO, Bobsled Marketing


"Customers are smart, so they’ll measure for themselves the price differences, the quality and the overall experience..."

Art Suriano

Chief Executive Officer, The TSi Company


Discussion Questions

DISCUSSION QUESTIONS: Do you expect that Amazon’s ownership will result in a real change in Whole Foods’ pricing model? Has Whole Foods put its Whole Paycheck label in the rearview mirror or does the company risk a backlash should customers decide that prices are largely unchanged?

Poll

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Mark Ryski
Noble Member
6 years ago

The shopper switching survey shows just how powerful the Amazon low price perception is. Marking down some select items to create proof was a well-played tactic by Amazon. However, perceptions ultimately need to be backed-up by reality. In order to truly win over the new switchers, Amazon/Whole Foods will need to deliver on the promise of lower pricing. Shoppers won’t tolerate price games in the long run.

Min-Jee Hwang
Member
Reply to  Mark Ryski
6 years ago

I agree with you on the price perception front. Amazon is doing what it does best: luring in shoppers with the promise of low prices on a few attractive products and making up margins on the average or above average priced additional items they end up buying while at Whole Foods. But Amazon didn’t try to pretend that they were lowering all prices. They were very up front about the limited items they would lower prices on. So maybe this is much more of a PR stunt than an overhaul of the “Whole Paycheck” image. Only time will tell if Amazon will make Whole Foods into a more competitively priced grocer or if they have other tricks up their sleeves to get more shoppers in-store.

Phil Chang
Member
6 years ago

I want Whole Foods pricing to come down. That way I can afford it on a weekly basis too. As it stands, I don’t shop there — I can’t afford it. As a family of five, we simply can’t dedicate a whole paycheck to Whole Foods.

Why did I disclose that? because I wanted to say that, if there were an Amazon Locker in my local Whole Foods, I’d be inclined to buy items here and there when I went in to get my products I ordered from Amazon.

Dropping prices is a classic grocer response. Amazon isn’t a classic anything — would the more prudent and profitable way to run the business be to cherry pick loss-leader items and then drive profit on the incremental traffic coming in to get products in Amazon Lockers? They’ve got the right mix of products and consumers to be able to pull this off, while still improving their consumers’ quality of shop.

Brandon Rael
Active Member
6 years ago

To put things simply, there is a long way to go before Whole Foods loses the “Whole Paycheck” perception. The Amazon/Whole Foods signage and discounted prices narrative are now posted throughout the store yet, at checkout time, the bill is still pretty significant. Perception is one thing, but the reality is that only a very small percentage of products have been discounted. Typically the higher profile products such as avocados and gala apples have been reduced, but otherwise everything remains the same from a pricing perspective.

Key to Whole Foods and Amazon’s partnership, and evolution, will be leveraging the power of your Amazon Prime membership. Once that is unleashed, the mobile app will be a critical part of the shopping experience, as Amazon Prime members would have ample opportunities for exclusive members-only savings, a robust loyalty program, mobile payments, etc. The current Whole Foods shopping app does not provide any loyalty incentives or discounts upon checkout.

So it appears that this is very much in progress. Let’s see how things play out in a few months, once things are in motion.

Max Goldberg
6 years ago

Amazon ownership will cause some change in Whole Foods pricing. But this is more a case of wishful thinking by consumers, who equate anything touched by Amazon with lower prices. It will take some time and more effort for Whole Foods to lose its Whole Paycheck label.

Mark Heckman
6 years ago

While Amazon has experimented with brick-and-mortar stores with limited inventory and offerings, the Whole Foods operation (450 stores) represents Amazon’s first real encounter with the vagaries of operating labor and inventory intensive stores. With that said, as long as Amazon is willing to subsidize lower margins at Whole Foods, prices will indeed be more attractive to a broader range of shoppers and sales should benefit.

However at some point, the balancing act of operating a “fresh” format with a full delivery operation will likely push against keeping margins artificially low, unless volumes are so robust that the economies of scale will generate sufficient profit dollars on low margins.

To date, Amazon’s amazing growth has been predicated not upon its ability to generate profit, but rather its unprecedented market share grab. If that formula changes, so will its pricing strategies.

Art Suriano
Member
6 years ago

I think Amazon will continue to make Whole Foods as competitive as possible because Amazon is an aggressive company that will do whatever it can to win. However, you can only lower prices to a point and for a period before it severely impacts your business. Right now we are still on the honeymoon with a lot of press and customer curiosity. In time that will change, and unless those first customers find the Whole Foods experience to be completely satisfying, they will soon return to their former grocer. Even the existing Whole Foods customer may in time shop someplace else if the changes Amazon is making drives them away. Customers are smart, so they’ll measure for themselves the price differences, the quality and the overall experience and choose where they wish to shop.

Ken Lonyai
Member
6 years ago

This hype really needs to end. Now! The Amazon spin machine has motivated the media to parrot reports of price reductions. For the official merger, 14 price reductions out of what — about 10,000 SKUs (don’t know Whole Foods won’t confirm) which effectively amounts to huge benefits for the PR team and truly nothing for shoppers.

We shop Whole Foods at least twice every week, so I can confirm that Gordon Haskett is correct. Not only have there been no broad price reductions, produce quality has absolutely diminished. Whole Foods was already moving to centralized buying which affected produce freshness/quality, but for some reason, it’s now worse. Transition? Disenchanted vendors/buyers? Who knows. Why doesn’t matter, only shopper experience matters.

The Amazon cachet will only go so far. Bezos, Mackey, and the PR team can spin anything they want to, but unless they put substance behind their words, they are going to disenfranchise the potential converts that were willing to give the store a chance.

Ian Percy
Member
Reply to  Ken Lonyai
6 years ago

You said it SO much better than I did, Ken. Spin isn’t the magic it used to be, we all know the trick.

HY Louis
6 years ago

Of course Kroger and Walmart were the biggest sources of new customers. Those are the two largest grocers in the U.S. Lower prices will increase sales a little but overall Whole Foods will be very expensive to shop. This is mostly a publicity stunt. Whole Foods is successful for providing an experience, not being competitive on prices. Imagine if Amazon bought Disney World and lowered the day pass to $29. Amazon needs to keep prices high or it would ruin the shopping experience.

Dick Seesel
Trusted Member
6 years ago

I teach a college-level class in retail management. When I surveyed the class about where they shopped most answered Aldi, or Trader Joe’s or Metro Market (the Milwaukee brand of Kroger-owned Mariano’s). None of them shops at Whole Foods even though the store is in the neighborhood where most of them live.

There is no doubt that Whole Foods’ “premium price” reputation has kept many shoppers away as they face more competition in the “organic” arena. I believe the first round of price cuts is just the start, and it simply moved some overpriced key items to the “market price.” Expect more of this from Amazon in the future, but also expect Amazon to build Whole Foods’ base on its potential e-commerce and home delivery upsides.

Mohamed Amer
Mohamed Amer
Active Member
6 years ago

Price perception is difficult to change overnight. Over the long term, I fully expect Whole Foods’ pricing model to moderate somewhat but never be set as a low-price competitor. Some grocery items will come down to being relatively comparable with other chains, but the entire basket will remain higher than average (but not at pre-acquisition levels).

There is a quality perception for the products at Whole Foods and that is equally, if not more, important than broad price reductions. What Amazon needs to do is increase the foot traffic inside of the store and to further blend the physical experience with the digital one. The upshot is the eventual use of all the data across grocery visits and Amazon purchases. That’s the real prize and value of the combination.

Ken Lonyai
Member
Reply to  Mohamed Amer
6 years ago

Yeah, quality perception from a regular Whole Foods customer: quality is declining at Whole Foods + Amazon. Hopefully, at least today’s Prime delivery will be on-time.

Ian Percy
Member
6 years ago

We’re talking like the Amazon/Whole Foods marketing team are actually in control of the enshrined “Whole Paycheck” image in the food world. There’s no switch that can be instantly flipped in the consumer’s mind.

My conclusion so far is that the minuscule reductions on very few items that I’ve never purchased before (organic Fuji apples?) don’t come anywhere close to justifying the trip. Whole Foods’ claim of having had a conversion experience via the Church of Amazon won’t do it.

Bob Phibbs
Trusted Member
6 years ago

Whole Foods was never a price brand. They lost focus on that when they offered Groupons five years ago. “Whole Paycheck” is a way for thrifty consumers to somehow say they won’t fall for higher prices — that Walmart or whoever are “just as good.” Chasing these customers is a net lose. Do a better job of being Whole Foods.

Neil Saunders
Famed Member
6 years ago

The change at Whole Foods will be less radical that often assumed – not because Amazon cannot afford to make cuts, but because Whole Foods’ proposition is premium and that’s what its customer base expects and wants. In some ways, this isn’t even about individual prices, it is about the skew towards tempting expensive higher-end products which inflate cost of shopping.

What Amazon will do is take the edges off some of the stupidly high prices on things like everyday household items and grocery essentials. That will draw in more shoppers and increase basket sizes without sacrificing quality perceptions. It will also push Whole Foods’ own-brand products heavily on its own sites, likely at very competitive price points.

Lee Peterson
Member
6 years ago

I will tell you this much: our local Whole Foods is crazy busy now — crazy busy. Obviously that single store doesn’t a chain make but, if it’s any indication, it’s working. Having said that, I think proof of concept will come with time. For example: in recent surveys we’ve done, most consumers think Abercrombie’s old CEO is still there and that they’re still way too expensive and elitist, none of which has been true for at least two years now.

It takes time to reset consumer impressions, especially deep ones like “Whole Paycheck.” But if anyone can do it …

Kiri Masters
6 years ago

The data does the talking. These figures don’t represent an insignificant number of shoppers switching (or at least trialing) Whole Foods instead of competitors. The prices of items may not be down across the board but this is another case of perception being reality. We are irrational creatures after all.

Roy White
6 years ago

We don’t know yet what Amazon is going to do with Whole Foods, and the pricing moves (and media reporting) to a degree mask the long-term potential of this acquisition. Over the next couple of years, we will see if Amazon just lets this chain sit (an unlikely outcome) or if it will transform it into a different kind of retailers that integrates digital and brick-and-mortar selling and in the process change the way a physical store interacts with shoppers.

Craig Sundstrom
Craig Sundstrom
Noble Member
6 years ago

At IIRC there were a number of studies that showed, when comparing like for like, WF’s prices were competitive. I also seem to recall they were a successful business, unsolicited amateur advice and complaints notwithstanding.
But who knows what Amazon’s (short or long term) plans are … actually being profitable has always seemed to be a goal with an infinite timeframe.

Doug Garnett
Active Member
6 years ago

I’m quite skeptical of the press Amazon has received here. Looking for balance, The Washington Post (owned by Bezos) just this week reported that the price drops are pretty minor.

Once again, Amazon has leveraged its ability to have a sneeze reported in 100 point type to make a statement. And they’ve done it brilliantly — smartly leveraging their ability to get headlines to try to build the Whole Foods business.

What about Whole Paycheck? Amazon may be able to make a significant change but not in just a few weeks. We need to hold this question and look at it again in a few years. Then we’ll be able to see if the change is substantive and long term or just some sweet headlines that brought more shoppers into their stores.

Seth Nagle
6 years ago

We’ve actually been doing some of our own analysis on Pre to Post acquisition and finding similar results as Gordon Haskett and it makes sense. WF has a high operating cost so the revenue has to come from somewhere.

If Amazon can carefully select their SSIs and lower their prices then they can continue to be perceived as lowering their costs. From some of the data I’ve seen on Reuters though, it appears foot traffic is already beginning to slow so Whole Foods needs to keep up with their messaging and continue to build excitement.

Alex Levashov
6 years ago

I am not sure if Whole Foods should really drop their prices and if they do, what happens with their brand? Yes, they may lure some new customers who preferred to shop elsewhere, but in the process they risk to lose others, who value premium quality and are OK with paying premium prices. Whole Foods also risks sacrificing their margin and/or lose suppliers who are not ready to pay their part of a price reduction bill.