Whole Foods: One Year after Amazon

Remember the excitement when Amazon acquired Whole Foods a year ago? There were huge expectations. So what’s happened so far?

First, to understand where Whole Foods is today, we need to remember that Whole Foods had been struggling before Amazon bought the company. In fact, Whole Foods had suffered two straight years of declines in same store sales as customers began to find lower priced organic and natural food products at traditional grocery stores.

Wasn’t Amazon going to slash prices at Whole Foods?

Many signature items have decreased and additional discounts are given to Prime members, but matching traditional grocery store prices will continue to be a major challenge. U.S. grocery giants Walmart, Kroger and Target have been waging fierce price battles that have only intensified with the low-price leader Aldi expanding and the arrival of their German counterpart Lidl.

Analyst Joseph Feldman, who closely follows Amazon was somewhat surprised, “I would have thought they would have lowered prices more broadly at Whole Foods. I don’t feel like they just went across the board and took prices down 20%.”

As Amazon streamlines Whole Foods operations, there will be more room to lower prices. It has already begun to centralize purchasing for its suppliers which will make it easier for new products to grow faster — although small brands may be more challenged to gain a foothold.

Traffic is up, but only slightly.

Customer traffic at Whole Foods is up 2.4% for the first half of the year. That may not seem like a lot, but for a chain that was losing customers, stopping the bleeding is a big first step. However, sales have been sluggish as customers are spending less, according to a report from Second Measure. Lower sales per customer could mean many of these new shoppers are first time tryers and not the return of regular customers lost over the past two years.

Amazon is adding Amazon Lockers to many Whole Food locations, which could drive more store visits. Customers will also find kiosks displaying Amazon gadgets such as Echo, which may trigger more impulse sales than actually drive traffic into the store.

What about online?

Surely Amazon will lead the way for online grocery shopping. The problem is that less than 4% of groceries are bought online. Consumers are slow to change their grocery buying habits due in large part to a reluctance of having someone else choose their fresh meat and produce. Whole Foods should have an edge here as their customers may have more confidence they can get consistent quality in these categories.

Another hurdle for all online grocers is the added cost of delivery which will always be a problem with the razor thin profit margin for food products.

One solution is curbside pickup known as “click and collect,” where customers order online and it’s ready for pickup when they arrive at the store. But Walmart and Kroger have a huge advantage with store pickup—far more store locations. Walmart has more than 5,000 stores nationwide, while Kroger has over 2,500 supermarkets. Whole Foods has 464 stores in the U.S.

Stay tuned.