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As merger gets going, Amazon to cut prices on popular goods at Whole Foods

The price cut on selected in-store goods will start Monday

Reuters 

Whole Foods, store
An employee checks prices of lemons at a Whole Foods store

com Inc said on Thursday it will cut prices on a range of popular goods as it completes its of Market Inc , sending shares of rival grocers tumbling over fears of even more brutal market share battles.

Amazon's $13.7 billion purchase of Whole Foods, which won antitrust approval from U.S. regulators on Wednesday, has been a shadow hanging over an ailing brick-and-mortar retail sector unsure of how to respond to the world's biggest online retailer.

Shares in Kroger Co and Sprouts Farmers Market Inc each shed around 7 percent of their value in after-hours trade, while Wal-Mart Stores Inc stock was down almost 2 percent.

The price cut on selected in-store goods will start Monday.

also said that it will start selling brand products on its website, a move that sent down shares of packaged food sellers such as Kellogg Co and General Mills Inc down roughly 3 percent.

"There was never any doubt that would lower prices, and even offer further discounts in-store to Prime members," Baird Equity Research analyst Colin Sebastian said.

said starting Monday it will cut prices on Whole Trade bananas, organic avocados, organic large brown eggs, organic farmed salmon and tilapia, organic baby kale and baby lettuce, some apples, butter, and other products.

"They will lower prices on consequential items to drive traffic and sales but not do a whole store price reduction which could really damage gross margin and potentially wipe out operating margin," said Roger Davidson, a former executive at Wal-Mart, and Supervalu and current president of consultancy firm Oakton Advisory Group LLC.

"It does not look like they will go kamikaze on pricing," said Davidson.

Scott Mushkin, who covers grocery stores at Wolfe Research, recently said Whole Foods, on average, can be 15 percent to 20 percent higher than some rival grocers and is as much as 25 percent more expensive at the extreme.

Lowering prices could help the stem the defections by price-sensitive shoppers and bring in new consumers who can then be urged to visit

"It's ultimately a nice land grab" as well as a way to get those customers "thinking about buying healthy food from Amazon," said Bill Bishop of retail consultancy Brick Meets Click.

But the move could come with a high price tag.

"In some cases grocery retailers have had to invest between $500 million to $1 billion in order to reduce prices to a level that retained customers and resulted in a net increase in customers," said Brittain Ladd, who until earlier this year was a senior manager working to roll out AmazonFresh, Amazon's grocery delivery service, globally.

"is more focused on driving volume and improving service at the expense of profit margins. Long-term, this strategy works because the absolute profit dollars can still be significant," Sebastian said.

said its Prime members will eventually become part of Market's customer rewards program.

already has rolled out a loyalty program at its smaller, lower-priced 365 by chain, which offers members 10 percent off more than 100 items in the store.

said John Mackey will remain chief executive of and the company will operate as a subsidiary and continue to be headquartered in Austin, Texas.

 

(Reporting by David Shepardson in Washington, Lisa Baertlein in Los Angeles; Additional reporting by Jeffrey Dastin in San Francisco; Editing by Bill Rigby and Lisa Shumaker)

First Published: Fri, August 25 2017. 09:00 IST
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