So now we know what Amazon.com (AMZN) had in mind when it said in June it was buying Whole Foods Market in a $13.7 billion deal.
The online retailer, whose purchase of Whole Foods will close on Monday, said in a press release on Thursday that it would immediately cut prices on a selection of best-selling basic items, with more to follow, and down the line will make Amazon Prime the loyalty program for Whole Foods, offering members special deal and other perks in stores. What’s more, Amazon plans to install Amazon Lockers in a few Whole Foods stores to allow customers to pick up and return Amazon orders at the grocer’s locations. The physical locations should help Amazon speed up its grocery delivery capability.
“There is significant work and opportunity ahead, and we’re thrilled to get started,” Jeff Wilke, CEO of Amazon Worldwide Consumer, said in a statement.
Some of the items to see the first price cuts include Whole Trade bananas, organic avocados, organic large brown eggs, and kale and other organic food.
The news sent the shares of grocers like Kroger (KR), Supervalu (SVU)Sprouts Farmers Market (SFM) and even Walmart, the largest U.S. grocer, and Target (TGT), down on fears of an intensification of the price wars among the food retailers and that fact that Amazon will instantly have 450 new physical locations.
Amazon’s moves should help Whole Foods, long derided as “Whole Paycheck” for its high prices, to woo customers beyond its upper middle class clientele, as well as counter the discount chains such as Walmart and even Aldi as they vie for more of the organic and natural foods markets. Amazon, which has long had designs on the grocery industry, will also sell Whole Foods’ private-label brands, including 365 Everyday Value and Whole Foods Market, on its site and via the Prime Pantry, Prime Fresh and Prime Now delivery program.
A Piper Jaffray survey last spring found that 365 is customers’ favorite organic-food brand, ahead of premium names like Kellogg’s-owned Kashi and General Mills’ Annie’s. The 365 brand has been unavailable online, and that is about to change. And as Fortune’s Beth Kowitt recently noted, Amazon has tried to develop its own private label in food for years, something this deal finally addresses convincingly.
The company said Whole Foods Market will continue to operate under that brand name and pledged to “preserve its high standards and commitment to providing the finest natural and organic foods,” and John Mackey will stay on as CEO of Whole Foods, which will remain based in Austin, Texas, where it was founded in 1978.