Amazon.com (NASDAQ: AMZN) won't be opening any more Whole Foods 365 discount stores. The grocery store chain's CEO, John Mackey, said the price gap between the value chain and the full-price Whole Foods Market stores has narrowed enough since Amazon bought the company that there is no longer a need for two separate chains.
Whole lotta nothing
Whole Foods has been plagued with a reputation as an overpriced organic grocer since its beginning, a perception reflected in the "Whole Paycheck" moniker many people give it. The 365 concept was opened to counter that perception, and focused on Whole Foods' private-label brand, which sometimes carried items priced lower than you could find at Walmart. There are a dozen 365 stores now.
Image source: Whole Foods Market.
When Amazon bought the supermarket, it put up for sale on its online grocery platform thousands of 365 goods, most of which sold out almost immediately. Subsequent surveys, however, found the price discounts offered by Amazon for Whole Foods goods were fleeting at best.
As recently as last September, market researchers at Gordon Haskett Research Advisors found that although consumers expected Amazon to cut Whole Foods prices by an average of 15%, a basket of 108 items that would have cost $409.37 on Aug. 17, 2017 -- the day Amazon's acquisition of Whole Foods closed -- cost $407.83 one year later, a savings of just $1.54. As the report noted, "But to save the $1.54, customer had to fork over the $119 annual Prime membership fee." Though many of them may already have had a Prime membership, as the company says there are more than 100 million Prime members.
Yet Amazon has rolled out a number of benefits to its Prime members who shop at Whole Foods. Members get an additional 10% off hundreds of sale items in the store, as well as exclusive access to weekly deals.
Amazon has also expanded to eight the number of cities where, through its Prime Now service, customers can enjoy one-hour pickup of the groceries they purchased from Whole Foods. There is also one-hour delivery for Prime Now customers in 63 cities, and customers can also receive 5% back on Whole Foods purchases if they shop using Amazon's Prime Rewards Visa Card, all of which has helped Amazon own the online grocery market.
So Whole Foods shoppers do receive several benefits from Amazon's ownership, and though most consumers have to pay for a Prime membership to receive them, they're also getting a lot of other benefits included in their Prime membership, such as free shipping and streaming videos and music. The Whole Foods discounts are an added perk, and Amazon is expanding the number of Whole Foods stores across the country.
One step back, two steps forward
But the answer to the question of whether Amazon has convinced consumers Whole Foods is no longer Whole Paycheck would seem to be a no. A Yahoo! Finance survey last August found that while half of the 2,000 people it queried thought Amazon had brought positive change to Whole Foods, 40% believed Whole Foods prices weren't any lower.
That may not be much of an impediment as Amazon can still win over consumers by adding more value. That's exactly what it's been doing with the addition of Prime benefits, and by connecting Whole Foods to the loyalty program, it makes the membership itself more valuable.
So Amazon focusing its energy on one grocery chain instead of two that have diminishing price differences ought to allow it the opportunity to gain more grocery market share while also making the Prime member program an even more sought after benefit.
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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. Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.