Joe Heller noticed Monday morning that the price of the organic avocado he had just purchased at the Whole Foods in Philadelphia’s Art Museum neighborhood was down to $1.99 from two for $5, thanks to a yellow sign informing him of the change.
He welcomed the price cut, but said he did not expect Amazon’s $13.7 billion purchase of Whole Foods Markets Inc., which closed Monday, to change his habits.
“I don’t assume it will affect our day-to-day experience here,” Heller, who lives in the neighborhood and had just purchased a growler of kombucha and an avocado, said of the deal.
As to the business troubles that pushed Whole Foods into Amazon’s arms, Heller said he was unaware of that until very recently. “I just figured Amazon is a massive conglomerate that can do whatever it wants,” he said.
What Amazon.com Inc. hopes to do at Whole Foods is expand the customer base of the natural and organic foods supermarket chain to people who are scared off by its prices.
In a first step, Amazon on Monday reduced prices on a dozen or so items, Whole Foods items, including bananas, organic Fuji and Gala apples, on-the-vine tomatoes, almond butter, ground beef, and rotisserie chickens, as part of a bid “to make healthy and organic food affordable for everyone,” in Amazon chief executive Jeff Bezos’ words on Friday.
It is significant that Amazon is making a very public display of lower prices, said Ernest Baskin, an assistant professor of food marketing at St. Joseph’s University.
“Whole Foods has always struggled with the perception that they are a store which charges a lot of money for certain products, so Amazon is trying very hard to change the public perception that Whole Foods is a very expensive place to shop,” Baskin said.
There is a chance it will work, Baskin said.
“It will definitely attract a lot of people into the store because the public items they are lowering their prices on are products that people generally can’t stockpile,” he said. “If people see that those items are very cheap they can go into the store and while they are in the store they can potentially buy other items.”
The question is how many consumers will consider $3.99 for a dozen large organic eggs, down from $4.79, a good deal.
Z. John Zhang, a professor of marketing at the University of Pennsylvania’s Wharton School, highlighted two aspects of Amazon’s Whole Foods acquisition.
First, the deal takes the integration of online and bricks-and-mortar retail to a new level. “You’re going to have a seamless shopping experience for customers buying all kinds of different goods. If you go to the store and you don’t want to carry a bag home, you just go there and order it, and they are going to deliver it to your home,” Zhang said.
Second, integrating Amazon Prime into the Whole Foods Market point-of-sale system is huge because of the customer loyalty that Amazon Prime generates, Zhang said.
“If you lock in those customers, this is almost like a gold mine for you,” Zhang said. “If you want to mine the gold mine, obviously you want to give them more options, more stuff to buy. Whole Foods has a lot of stuff they can buy.”
There are risks to the deal, the professors said. Whole Foods is upscale. If Amazon succeeds in attracting many new customers with lower prices, traditional Whole Foods customers could go elsewhere or be siphoned off by a new competitor, Zhang said.
Baskin pointed out the difficulty of successfully integrating the Amazon and Whole Foods supply chains.
Seal Turnbull and Harriet Evans, visiting Philadelphia from England and staying in an Airbnb near the Whole Foods on Pennsylvania Avenue, said they were pleased by the prospect of Amazon expanding the Whole Foods customer base beyond the relatively well-off.
But Turnbull’s first reaction was: “All I think about is drones delivering things like this,” he said, pointing to the bag of groceries at his feet.