American e-commerce giant Amazon.com Inc. (AMZN, Financial) looks all set to compete against arch-rival Wal-Mart Stores Inc. (WMT, Financial). Amazon acquired Whole Foods in June for $13.7 billion. From the start, the online retailer announced it would be slashing prices for various grocery items, including bananas, organic avocados, organic large brown eggs, kale and ground beef. This means an intensified price war will break out among other grocery businesses. If the Amazon-Whole Foods combination works, it can well and truly shake the grocery industry.
This strategized move suggests Amazon is preparing to engulf a greater chunk of the market while compromising on the bottom line. While it has not cut prices on all of Whole Foods' products, it has very tactfully identified popular items grocery shoppers put into their carts frequently.
Here’s what to expect from the Amazon-Whole Foods combination.
Amazon is ruthless
Amazon has a history of offering more discounts to customers. Therefore, the company’s latest pricing policy should not come as a surprise. Whole Foods currently has more than 400 outlets in the U.S., U.K. and Canada, which gives Amazon a vast physical delivery network to reach a large number of consumers.
The company is also looking to give some in-store benefits and other special concessions to Amazon Prime members. The e-commerce giant plans to install Amazon Locker, a self-service parcel delivery system, in select Whole Foods locations. Customers will be able to ship Amazon orders to their local Whole Foods stores as well as return products.
Amazon will also begin selling select Whole Foods products through its website, AmazonFresh, PrimeNow and Prime Pantry.
Last word
So far, Amazon and Whole Foods appear to be amazing partners. Amazon is already an e-commerce king and bringing the upscale grocer under its umbrella was definitely a smart move. Whole Foods co-founder John Mackey said he wants more and more customers to enjoy their high-quality natural and organic food:
“As part of our commitment to quality, we’ll continue to expand our efforts to support and promote local products and suppliers. We can’t wait to start showing customers what’s possible when Whole Foods Market and Amazon innovate together.”
Even after Amazon and Whole Foods’ combination, however, big-box retailer Walmart will remain the largest company in the grocery business. Walmart’s main revenue-generator is groceries as they account for 56% of total annual sales. The company began a strategic multibillion-dollar investment last year to slash grocery prices. Moreover, the company’s list of recent e-commerce acquisitions put Amazon in a tight spot. It was time for Amazon to act, which resulted in its acquisition of Whole Foods.
While the two companies' price war has existed for years, it will be interesting to see how Walmart defends its turf and how Amazon plans to outmanuever its grocery rival in the long run.
Disclosure: I do not hold any positions in the stocks mentioned in this article.
