Kroger Stock Plunges 8 Percent On News of Amazon's Whole Foods Strategy

Posted August 26, 2017

Amazon and Whole foods announced that the online marketplace's acquisition of the specialty food retailer will officially close on August 28.

Amazon's $13.7 billion purchase of Whole Foods, which will be completed on Monday, has been hanging over a brick-and-mortar retail sector unsure of how to respond to the world's biggest online retailer. The company also said its Amazon Prime service subscribers will be eligible for Whole Foods customer rewards, giving them extra savings and in-store benefits that have yet to be announced. These include 365 Everyday Value, Whole Foods Market, Whole Catch, and Whole Paws. On Friday, a grocery bag of those items rang up at about $40.50 at Whole Foods - including the chicken on sale for $2 off - compared to under $34 at both Stew Leonard's and Stop & Shop, the former a local favorite and the latter the largest chain operating in southwestern CT.

In addition, Whole Food stores tend to be "in more affluent areas". The moves fit in Amazon's track record of keeping prices low to lock in customer loyalty. Amazon loves to add value to its Prime program in order to encourage as many people as possible to sign up, and it hopes that adding a Whole Foods component will lure new members to the program.

Amazon plans to slash prices immediately.

"We're determined to make healthy and organic food affordable for everyone", explained Jeff Wilke, chief executive of Amazon Worldwide Consumer. "We can't wait to start showing customers what's possible when Whole Foods Market and Amazon innovate together". By then, Amazon Prime could become a one-stop shop for all consumer needs, from groceries and clothes and home appliances to on-demand entertainment and concert tickets.

Amazon's willingness to take lower profit margins ups the ante in the increasingly costly grocery price war. Whole Foods Market Inc. was founded in 1978 and it is an established US supermarket chain that only features foods without artificial preservatives, colors, flavors, sweeteners, and hydrogenated fats.

Shares of Kroger, the biggest United States supermarket operator, closed down 8 percent, while Wal-Mart, the biggest USA food seller, closed down 2 percent. Amazon, the internet giant from the USA, announced that they would slash prices of food commodities in a move to solidify themselves in a market that they have dominated in the last five years.

Among other Whole Foods items getting discounts Monday: avocados, tilapia, baby kale, apples and rotisserie chicken - all organic, according to an Amazon press release.

Online retailer Amazon is to slash prices at United States supermarket chain Whole Foods Market Inc in a move which could threaten supermarket rivals.

To pull this off, Amazon and Whole Foods will first need to integrate their logistics and point-of-sale systems.

The acquisition also shows Amazon's continued expansion of Prime. The announcement by Amazon caused Walmart's share to drop by two percent.