Grocery wars intensify anew as Whole Foods to cut prices on hundreds of items by 20% starting tomorrow
Amazon bought high-end grocery chain in 2017 and is starting to make some changes
Whole Foods, the high-end grocery store bought by Amazon in 2017, plans to cut prices on hundreds of items by as much as 20 per cent as of Wednesday, including at locations in Canada.
Amazon says most of the cuts will come in produce and other fresh items and will amount, on average, to about 20 per cent in savings where they are in effect.
It's the third such round of widespread cost cutting since Amazon bought the chain in the fall of 2017.
The takeover at the time came as a bit of a surprise, since it was the marriage of two companies with vastly different strategies and markets.
Amazon started as an online bookstore and soon grew to become the largest online retailer of just about everything else by focusing on cutting costs while expanding selection and offering delivery speeds that other sellers struggled to match.
Its Amazon Prime service, where customers can get same-day delivery on millions of products for an annual fee in Canada of $79, has helped them cement customer loyalty even more.
Whole Foods, meanwhile, began as a health food store in Austin, Texas, in 1980 that steadily grew across the U.S. and then into Canada by catering to health-conscious shoppers who didn't mind paying more for items they deemed to be healthier.
When Amazon bought the chain, many wondered what the long-term plan was, and Wednesday's move seems to suggest the company may bring its ruthless approach to cost cutting to the bricks-and-mortar world of retail. And the company claims it can do that without sacrificing the quality that won the grocer fans in the first place.
"Whole Foods Market continues to maintain the high-quality standards that we've championed for nearly 40 years, and with Amazon, we will lower more prices in the future, building on the positive momentum from previous price investments," Whole Foods co-founder and CEO John Mackey said. "We will continue to focus on both lowering prices and bringing customers the quality they trust and the innovative assortment they expect from our brand."
Whole Foods has about 300 U.S. locations and 14 in Canada — mainly in and around Toronto and Vancouver, but also one location in Victoria and one in Ottawa.
Strategy adviser Mark Satov, with Satov Consultants, says it's less likely the decision will kick off a move to turn Whole Foods into a discount grocery chain, and more likely Amazon is simply using the chain to figure out how a new business works. "They bought it to learn how to be in the food business," he said.
"I think they're just experimenting and marketing to draw a few more people into the store," he added. The store's price point is still out of reach for most Canadians, but by targeting items that people tend to benchmark prices on — things like fresh vegetables — the chain is hoping to win a few more customers for its more expensive items, too.
"Once you are inside the store, a couple of things happen," Satov said. "You go and say the milk is $3.69 ... I can afford that, and then you'll buy the freshly ground peanut butter for $18 a tub."
But Bruce Winder, co-founder and partner at Retail Advisors Network, says the move is a much bigger deal for the hyper-competitive world of Canadian grocery.
"It's going to cause a fairly seismic impact," he said in an interview. While he acknowledges the Whole Foods footprint is relatively small in Canada, "it fires a shot over the bow of traditional grocery," he said.
The move likely won't cause a flood of people to change their grocery store, he said, but "it's going to wake up some people to consider a switch."
If it gets enough of them through the door — and possibly buying new Prime memberships — Winder says it's worth it.
That's because most people shop one or two times a week, "and if they can get that customer coming in, invite them into the ecosystem, get them to use Prime — and suddenly you've got a strong rewards system there that keeps the customer within the Amazon world," he said.
And ultimately, anything that causes the rest of the industry to take a look at its own businesses is a good thing for everyone.
"The consumer wins," Winder said.
With files from the CBC's Meegan Read