Amazon and Whole Foods at odds in the grocery price war.
Whole Foods is more expensive than Amazon Fresh. Way more. Business Insider estimates Whole Foods is 15% more expensive than typical grocery, but it may be more. The chart below illustrates the gap with a sample product, Talenti Gelato (1 pint, or 16 oz), using the lowest prices I could find online. Whole Foods is by far the most expensive at $5.79, which is 29% more expensive than Walmart & Target, and 65% more expensive than Amazon Fresh’s price of $3.50 (Roman Raspberry flavor), most likely the result of its dynamic model finding a $1 off sale at a retailer such as Target.
Chart — Shelf Price of Talenti 1 Pint (16oz). Lowest priced flavor, excludes promotional prices
Source: Retailer websites and articles accessed 7/9/2017. Note some retailers vary pricing by region and channel.
Amazon Fresh will have to keep reducing price. Expect Amazon to continue price matching Walmart, who has just asked suppliers to reduce prices by 15%. They are likely preparing to fend off the German discounters Lidl and Aldi, who dominate traditional retailers in Western Europe with deep discounts on name brand products. These no-frill retailers have announced ambitious growth plans in the US. As Walmart prices decrease and Amazon Fresh keeps matching, Whole Foods’ pricing gap will widen.
Shoppers will increasingly notice the Whole Foods price gap, and shop elsewhere. As more products become available on Amazon Fresh, it will become easier and thus common to price check grocery items like we do with electronics and clothing. When Whole Foods shoppers (a big overlap with Amazon Prime) get wise to the big difference, Whole Foods will have to drastically change its pricing or lose customers even faster. As price gaps become more transparent, today’s prices are untenable. No matter what technology and supply chain improvements Amazon will bring.
- Whole Foods will eventually drop all prices to within 10–15% of Walmart. They will approach brands and ask for price cuts to help them be competitive (alongside their internal cost reduction efforts).
- Grocery retailers, looking to keep up with Walmart, Amazon Fresh, Aldi, and Lidl, will drop prices. They will squeeze brands for more money to support lower pricing and deep price promotions
- More brands will sell primarily through e-commerce because of mounting cost pressures from retailers.
Implications for small brands’ strategy
Price for Walmart, not Whole Foods: Can your brand be profitable if you have to decrease your prices by 20%? If not, and you plan to sell in both channels, be very careful about offering extra money to Walmart to support low pricing. Be conservative with your price promotions as well, or you will get a lot of calls from retailers to fund deeper and longer sales.
Offer different products to different retailers. Sell a 3 pack on Amazon, and a 4 pack at Walmart. Or only offer Costco your bulk size. Avoid direct price comparisons.
Prioritize your key retailers over full distribution. Often you can get a better return on investing your resources (people, time, and money) in your best retail partners rather than trying to sell your products everywhere. Develop specialty holiday products, displays and price promotions for the retailers you value most.
Contact the author: Daniel@consumerledpricing.com