Grocery stores practically invented the "loss leader."
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Good morning. Aaron in for Adam today.
From a peak of over $65 a share back in the fall of 2013, Whole Foods Market’s stock went on a long, bumpy slide for the next few years. Before Jeff Bezos came along in June, the stock was languishing in the $30s, analysts were questioning the company’s ability to compete and an activist hedge fund was prodding for a shake up from CEO and co-founder John Mackey.
“Competition has caught up to Whole Foods,” the Wall Street Journal observed in a lengthy April 12 feature. “And Mr. Mackey is being forced to try conventional grocery-store pricing and other supermarket tactics to reverse his company’s flagging fortunes.”
Then came Jeff.
Amazon’s amzn $42 a share takeover, now completed, was a boon for recent investors but a loss for longer-term shareholders.
Now its feels like Whole Foods’ history of struggling and failing is being erased, with breathless depictions of the much-needed price cutting that took effect on Monday. “Amazon Doesn’t Need to Make Money on Groceries,” the Journal wrote. “Amazon slashes prices at Whole Foods to kill off Walmart and Kroger,” tech news site the Next Web offered.
But a quick visit to the local Whole Foods showed those takes are probably way off-base. Yes, there are signs around the store about Amazon-mandated price cuts on items like organic avocados and peanut butter. But I’d estimate something like 99.9% of the prices on items remain the same as they were on Sunday. The fancy sourdough bread we like was still $6 a loaf, a big bag of Kettle Krinkle Cut chips remained $5.39 and, dare I admit it, our new puppy’s favorite all-natural dog treats were still $11.99 a bag.
Less some brilliant, Amazon-only retailing strategy, the move is a staple of the grocery business. Suburban supermarkets practically invented the loss leader as a tactic to bring in more shoppers who would then fill their carts mostly with full priced items. It’s a smart strategy that still works–and exactly the kind of “conventional grocery-store pricing and other supermarket tactics” that Mackey failed to appreciate.