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Amazon Is Improving the Whole Foods Experience

Adam Levy, The Motley Fool

It's been two years since Amazon (NASDAQ: AMZN) announced its acquisition of Whole Foods. There have been a lot of changes for the high-end grocery chain since Amazon took over, including integration with Amazon Prime for special discounts and online ordering. Amazon also put lockers in Whole Foods locations for customers to pick up online orders from its marketplace.

Overall, customers like the changes. Whole Foods saw its score increase 3.6 points on the annual Forrester Customer Experience Index. That's the biggest increase of any brand this year. The analysts note their numbers correlate well with Amazon's reported 6% increase in sales (combining both physical and digital) for Whole Foods in the fourth and first quarters.

Here are some of the key changes Amazon has made to improve the customer experience at Whole Foods.

A produce stand with a sign that says "New lower price."

Produce at Whole Foods. Image source: Amazon.

Digital plus physical

The biggest thing Amazon brought to Whole Foods is a better digital shopping experience. The online retailer added Whole Foods products to its online marketplace and made Whole Foods groceries available to Prime members through its Prime Now program. It currently offers Prime Now delivery of Whole Foods groceries in nearly 90 U.S. metropolitan areas, and a pickup option in 30 metros.

Combining Amazon's online presence with Whole Foods' physical locations has proven very valuable. Forrester's data suggests "customers who have an experience that spans both digital and physical channels have a better experience than those who use just a digital channel or just a physical channel to achieve a goal."

Both Walmart (NYSE: WMT) and Target (NYSE: TGT) have also taken steps to increase their omnichannel presence. Walmart's online grocery ordering platform has brought in new customers to the retailer and generated stronger loyalty. Target, meanwhile, has expanded its curbside pickup service, DriveUp, and recently integrated its Shipt same-day delivery service with its online platform. Walmart and Target have seen digital sales growth account for a significant portion of their same-store sales growth over the past couple of years.

Amazon's efforts also appear to be paying off in same-store sales growth for Whole Foods market. The company doesn't break out the metric, but CFO Brian Olsavsky noted combined digital and physical sales growth for its physical stores was about 6% in both the fourth and first quarters during Amazon's first-quarter earnings call. At the same time, the company isn't adding very many new stores. It's added just over 30 new Whole Foods locations over the last two years to bring its total to more than 500.

Giving customers a reason to come into the store

The addition of Amazon Lockers in some Whole Foods locations combined with other efforts to attract Amazon customers to Whole Foods appears to be paying off in a higher number of visits. The grocery chain saw a 16.5% increase in foot traffic last quarter, according to data from inMarket.

Importantly, it's not just online pickup orders from Amazon driving customer traffic. inMarket points out it saw a 10% increase in "micro visits" -- i.e. visits lasting less than 5 minutes. That's notably less than the overall increase in visits, suggesting Amazon's efforts to drive Prime members to its stores for in-store shopping more often are working as well. That said, the average time spent per shopping trip was down about 0.2%.

Amazon has given Prime members various incentives to switch their regular grocery shopping to Whole Foods. Those incentives include marking down items just for Prime members to extending its co-branded credit card to include 5% cash back at Whole Foods. The company is successfully stealing traffic from smaller, urban-focused grocers.

A better customer experience means more sales

A big piece of what's driven Amazon's success in retail over the last two decades is a focus on improving the customer experience. It's why the company continues to invest in Prime benefits and expanding its product selection.

Forrester says a one-point increase in its customer experience index translates into roughly a 2% gain in sales per customer. So, as long as Amazon continues to invest in Whole Foods, improving the availability of online delivery and pickup options and giving consumers more reasons to visit the store, Amazon should see its sales continue to climb despite intense competition from big retailers like Walmart and Target.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adam Levy owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.