Amazon may cut Whole Foods prices more to beat Wal-Mart

Bloomberg

Jeff Bezos will have to trade in his potato peeler for a meat cleaver if he wants to fight a price war with Wal-Mart Stores Inc., his biggest grocery competitor.
Despite price reductions on
kale, bananas and more after Amazon.com Inc. officially took control of Whole Foods recently, the grocer has long touted the superior quality of its food and retains an upscale vibe. So for the time being, shoppers are likely to find better deals elsewhere, including at industry giants Wal-Mart and Kroger Co. In a survey of 18 items, Bloomberg found Whole Foods was 50 percent more pricey on average than Wal-Mart.
Amazon put the grocery industry on notice in June, when it announced it had agreed to buy Whole Foods for $13.7 billion. And with the deal now complete, attention has turned to how the e-commerce giant will operate its newly acquired grocery stores as it tries to convince more shoppers to buy food online. Fears of a profit-crushing price war have weighed on stocks in the cutthroat grocery industry, which survives on famously thin margins.
While Amazon is expected to bring down prices as it tries to move beyond Whole Foods’ rarefied reputation, so far the reductions have been more about generating buzz than changing the perception that the chain caters to wealthy shoppers, said Mikey Vu, a grocery expert at Bain & Co.
“Unless they slash prices, they’re not going to dramatically expand the income band of customers they go after,” Vu said.
The biggest price difference was for boneless, skinless chicken breasts, which cost $1.99 per pound at Wal-Mart and $5.19 per pound at Whole Foods.
Whole Foods sells only natural products that are fully compliant with animal-welfare standards, while Wal-Mart sells a range of groceries that don’t all meet Whole Foods’ lofty standards. Still, it could be tough to persuade cost-conscious shoppers to pay $1.99 for a can of Whole Foods corn that they can get at Wal-Mart for 68 cents.
Two other independent surveys found that prices at Whole Foods had barely budged since the Amazon takeover. A Whole Foods in Princeton, New Jersey, reduced prices by an average of 1.2 percent compared to a week earlier, according to a Gordon Haskett Research Advisors review of 115 items. A separate review of prices at a New York City Whole Foods by Telsey Advisory Group determined Whole Foods prices remained higher than those at Wal-Mart and Kroger despite Amazon’s cuts. And Amazon has also raised prices: the cost of the salad bar at least one location in Manhattan jumped from $8.99 a pound to $9.99 a pound.
It’s easy to understand the grocery industry’s pessimism. After all, Amazon has disrupted much of the retail landscape and made clear that it has groceries in its sights. The company offers Amazon Fresh grocery delivery in many cities and has even been testing out a convenience store concept. The Whole Foods acquisition gives it the brick-and-mortar presence it lacks to make a stronger play in the grocery market.
Even with Whole Foods, Amazon remains a small player, controlling less than 2 percent of of an $800 billion market dominated
by Wal-Mart, Kroger and Albertsons Cos. According to Moody’s, combined sales for Amazon and Whole Foods will be well below $20 billion, or less than one-tenth that of Wal-Mart.