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Whole Foods Wins By Basking In The Glow Of Amazon's Halo: Gadfly

Published on Nov 16 2017 11:19 AM in Retail tagged: Amazon / Price Cuts / Whole Foods / Prime Now

Whole Foods Wins By Basking In The Glow Of Amazon's Halo: Gadfly

The cash registers at Whole Foods seem to be ringing like they haven't in years. Why? Because of articles like this one.

The news about Amazon.com Inc.'s purchase of Whole Foods this summer was inescapable, including in these Gadfly digital pages. Amazon has made a big deal about its new toy and has boasted about chopping prices at the grocery chain known as "Whole Paycheck" for its not so low-low prices.

Those price cuts were highly selective and carefully chosen for maximum attention. And Amazon doubled down on Wednesday by disclosing more price chopping in time for Thanksgiving on dozens of items like Fage yogurt, canned pumpkin and Eden Foods organic beans. Members of Amazon's Prime shopping club will even get a discount on Thanksgiving turkeys -- the first time that Amazon has bridged its e-commerce empire with its new groceries business.

Halo Effect

Yet the biggest reason Whole Foods seems to be doing well isn't so much the low prices. It's the halo effect from those selective low prices and from the very appearance of Amazon in the grocery aisle. A minuscule amount of Amazon CEO Jeff Bezos's magic fairy dust has been sprinkled on Whole Foods so far, but the attention has made Whole Foods seem fresh and exciting again.

Whatever the reason, Whole Foods appears to be getting a nice lift. Based on the quarterly revenue forecasts Amazon issued for the fourth quarter, Morgan Stanley analysts estimate Whole Foods sales will increase by about 8 percent in the December quarter compared with a year earlier. If that pace of revenue pans out, it would be the fastest sales jump for Whole Foods since early 2015.

Morgan Stanley noted that on a comparable store sales basis -- that is, stripping out the artificial boost from new store openings -- Whole Foods might be on track to increase revenue at the best rate since 2013.

 

The price cuts help attract attention, even though Whole Foods shoppers aren't seeing much of a discount on the total items in their carts, and the store's prices are still high compared with those of other grocery chains. The attention does seem to be driving more foot traffic, though. Morgan Stanley estimates the number of Whole Foods shoppers will increase 15 percent next year, even as prices will creep down only about 3 percent across the board.

Been There, Done That

The halo of low prices is a common Amazon technique. On its e-commerce mall, Amazon doesn't tend to have the lowest prices on everything, but it has become an expert at selecting some popular or highly visible products and cutting those prices to the bone. And as Amazon does, it is applying that blueprint to Whole Foods as well.

It's worth noting that the Amazon-Whole Foods marriage is in its early stages, and it's not completely clear how the two will unite forces. Amazon executives have talked vaguely about trying to bridge the company's myriad food offerings -- which include Whole Foods, the Amazon Fresh grocery delivery business, food sales through the fast-delivery Prime Now and experiments in physical stores and pickup kiosks.

So far the cooperation has been baby steps, such as Amazon's push to sell Whole Foods brand products on its website. It's all a bit of a disjointed mess, but if Amazon figures out how to merge online and physical-store food shopping in a way that appeals to consumers, things are going to get interesting.

In the meantime, just the idea that Amazon is going to do something magical to Whole Foods has made people re-energized about Whole Foods. Jeff Bezos wins just by being Jeff Bezos.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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