Amazon-Whole-Foods Already Rattling the Grocery Sector

Here are the numbers since the August 28 price cuts.

When Amazon’s deal to acquire Whole Foods Market closed on August 28, the first thing that happened was a panoply of strategic and massive price cuts on some items at Whole Foods. The second thing that happened was that the media jumped on it, creating enormous hoopla, so that every consumer in the US would know about it. No advertising needed. It was ingenious marketing. The media fell for it. And consumers flocked to Whole Foods to see for themselves.

Whole Foods used to be known as “whole paycheck” based on the prices it charged for even mundane items. So price cuts of this type were a shift in strategy – and a sign of how Amazon would be shaking things up.

Now we have some numbers, gathered by data intelligence firm Thasos Group via real-time location data from smartphones (yup, that spy device in your pocket that never stops giving). It used its technology to “quantify the competitive impact of the price reduction.”

Here are the key nuggets from its report (PDF) about how it turned out for Whole Foods:

  • Average daily foot traffic of new and regular customers (those who shop at a given Whole Foods at least twice per month) jumped 17% year-over-year during the week starting on August 28, the day of the price reduction.
  • This foot traffic of new and regular customers peaked on the first day with a 31% year-over-year increase. That was August 28, when the phenomenal media blitz exploded across the US.
  • Average daily foot traffic of just new customers jumped 33% during the first week of the price cuts, compared to the prior week before the price cuts.
  • This foot traffic of new customers peaked on Sep 2, two days after the peak of total foot traffic, with regular customers having been the first big surge.
  • Foot traffic of all customers has tapered off since the media hype ended. As of the week ending September 16, foot traffic decelerated to 4% year-over-year, but remained elevated relative to the three weeks preceding August 28.
  • But foot traffic of new customers remained at elevated levels through September 16. On that day – a Saturday – the index of foot traffic spiked to one of its highest levels since the price cuts.




So where did these new customers come from?

During the week of price cuts, Walmart’s regular customers accounted for nearly a quarter of Whole Foods’ new customers:

  • Walmart:         24%
  • Kroger:            16%
  • Costco:            15%
  • Target:             11%
  • Sam’s Club:     5%
  • Trader Joe’s:    3%
  • Safeway:         3%

Who suffered the most customer “defections”:

The size of each retailer’s customer base varies enormously, with Walmart being by far the largest. So in terms of “defections” in relationship to each retailer’s customer base, the picture changes.

Trader Joe’s saw the highest rate of customer defections. The number of its regular customers shopping at Whole Foods during the week after the price cuts (August 28 – September 3) jumped by nearly 10% (the “average daily Defection Rate”), compared to the week before the price cuts.

The “average daily defection rates” during the first week:

  • Trader Joe’s: nearly 10%
  • Sprouts: 8%
  • Target: 3%
  • Costco: 2%
  • Safeway: 2%
  • Aldi: 2%
  • Kroger: 0.7%
  • Walmart: 0.6%

Trader Joe’s defections were still elevated by the third week after the price cuts (September 11 – September 16), with an average daily Defection Rate at 6%. Defection rates by other competitors remained elevated as well, with the average daily Defection Rate at Walmart declining from 0.6% during the first week to 0.4% during the third week.

The low percentage of Walmart’s average daily defection rate needs to be multiplied by millions of daily customers shopping at Walmart. This is not small change for Whole Foods, as 24% of Whole Foods new customers had defected from Walmart, though for Walmart, given it size, they barely made a ripple.

Distance matters.

Whole Foods stores aren’t everywhere, and distance to the nearest store matters. Trader Joe’s is once again in the pickle:

As expected, nearly all stores had higher rates of defection the closer they were located to a Whole Foods.

However, Defection Rates for Trader Joe’s stores remained strong even when they were located up to 20 miles away from the nearest Whole Foods.

The defection rates were highest within the 0-3 mile range. By the 10-20 mile range, defection rates for most competitors dropped to nearly nothing, except for Trader Joe’s, whose defection rate was still at 5%.

Who’s defecting the most?

The analysis found that Whole Foods’ new customers after the price cuts “overwhelmingly belonged to the same upper income demographic” as Whole Food’s traditional customer base.

  • Defecting customers in the week of the price cuts came from the wealthiest segment of each competing store’s customer base.
  • The price reduction did not attract a lower income demographic or incentivize longer driving times to reach Whole Foods’ stores.

For Amazon-Whole-Foods, this was an experiment to find out what it would take to get customers to defect from competitors. All it took was enormous and free media hoopla and some strategic price cuts. All competitors suffered defections. Trader Joe’s, proportionally, lost the most. In absolute terms, Walmart lost the most.

Amazon is in a unique position where Wall Street does not demand big earnings per share. Instead, it demands that Amazon crushes its competition, even if it loses money doing so. Other retailers don’t have that privilege.

So Amazon does not have to make money with Whole Foods. It just needs to crush the competition. Thus freed from any earnings discipline, Amazon will roll out other initiatives to power its way into the grocery sector, with the ultimate goal of shifting much of it online, though this has proven to be devilishly difficult in the US, even for Amazon (hence its purchase of a brick-and-mortar grocery chain). But the biggest retailers that sell groceries have taken notice. And the price war is likely to continue – which would, over the short term, be a good thing for consumers, though not for the industry which is already embroiled in the brick and mortar meltdown.

The bonds issued by The Fresh Market have plunged as Cerberus and other private equity firms are circling. Read…  Is This the Next Supermarket Chain to Melt Down?




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  41 comments for “Amazon-Whole-Foods Already Rattling the Grocery Sector

  1. Guido
    Oct 4, 2017 at 1:43 pm

    I was one of the people who checked out the new Whole Foods after the hoopla. I am also a Costco customer. Both these stores are with in 2 miles of each other.

    Here’s what I found.

    The prices at Whole Foods are still at unrealistic levels. For example, their organic bananas on sale are still more expensive than that at Costco’s regular prices. We walked through the aisles and concluded that the hoopla was fake news. As I said, Costco beats them hands down on most things we use in our household.

    Also, I know how a lot of people use Costco as their go-to store, especially if they have big households or have children. That is how Costco captures even day to day usage revenues. Did people really defect? I doubt it. Costco gives money back and if you are a member, you get your membership worth back in cash at the end of the year, if you spend enough. If you are relying on Costco for days to day usage, you will usually get your money’s worth back.

    The defections you mention are correctly in quotes. The defection to Whole Foods is as much of a defection as a guy ogling at a new girl. Doesn’t mean he’s leaving his wife. He checks her out, has some fanatasies, but won’t even talk to her in real life. This might explain why the foot traffic fell off once the ads (oops news reports) were over. We realized that we have seen this movie before and while the character is trying to be more titillating, the plot is still bad and nothing has changed.

    To capture our imaginations, Bezos needs to do more. Give away household items freely for a year, may be? After all, he doesn’t need to worry about economics like the other retailers, so why not give away things freely? May be, we will ‘defect’ for the time he’s offering free goodies.

    Bezos will need to wine and dine us too the way he’s dining the reporters. That will cut out the middle men (the reporters) and give him more bang for the buck. In fact, this should be the model for everything from retail business to election business. Bribe the end user directly.

    • Lars
      Oct 4, 2017 at 10:19 pm

      I regularly shop at Whole Foods and notice very little change in overall store prices outside of the few items that are hyped (avocados and salmon for example). Now I accept that it will take a great deal of time for Amazon to change how WF sources it’s products etc., but I would have thought the hyped discounts would have had a greater impact.

      I shop more frequently at my Massachusetts HQ’d Big Y chain and find the quality and product range to be of equal caliber to WF with less of the price premium. Moreover, people go head over heels for Wegman’s which is expanding throughout the Northeast with a combination of vast selection at reasonable prices that somehow outguns every market far and wide.

      To me, the grocers that succeed in this price war will own their real estate and have low debt so that they can weather the good times and bad. Whole Foods is a different beast, but it’s such a small player at present that one wonders if it really can have much of an impact on the overall market?

    • John M
      Oct 5, 2017 at 11:52 am

      Guido, analysis is mostly right. I went to our local WF and I saw all of two candy bars that were worth shopping for. I’ve not been back since. I’ll give it one more try but after that I’ll go back to re-naming it “Whole-Paycheck” all over again..

      FWIW, I emailed Bezos to get into breaking up the healthcare cartel and that he’d have more success in that endeavor than food retailing. Healthcare costs are out of control. Walmart and their competitors are big players but, while one rarely spends $45,000 for a two days hospital stay with a surgery thrown in. There’s a good deal more money to be coined than over $150-$200/week’s worth of groceries..

      • alex in san jose AKA digital Detroit
        Oct 5, 2017 at 7:14 pm

        I’ve been seeing ads online for a thingie that lets you do your own eye exam using your smart phone.

        And there are things I’m hearing about on NPR about how, in impoverished places in Africa, say, they can’t afford stethascopes so they’re finding ways to do that with a smart phone.

        Bezos getting into healthcare, that could be interesting. Assassination of Jeff Bezos on the news, film at 10….

        Meanwhile, I might consider that CostCo membership after all, because of the high crime around my local Sprouts I’m avoiding the place these days but the CostCo doesn’t seem to have much of a hobo problem at all. And I want to get new eyeglasses sooner or later and I could get ’em at CostCo.

  2. Oct 4, 2017 at 1:49 pm

    This one is for all those preppers who canned their own food and stored it in their new basement (how much did that cost you?) Food shortages and famines are part of the prehistoric past. Like selling all your stocks when Trump was elected, what foolish things we do out of fear.

  3. SquarePeg
    Oct 4, 2017 at 1:52 pm

    I wonder if Amazon will come under scrutiny for monopolization at some point if their objective of crushing the competition, profits be damned, continues this way.
    I thought Microsoft’s violations back in 2000 were far less egregious than this. They were at least making money first.

    • kam
      Oct 5, 2017 at 10:59 am

      I worked for Georgia-Pacific in the 1970’s. They were the largest wholesale distributor of building materials. It was unwritten policy to set up a new warehouse in a new city and cut pricing on everything, lose money hand-over-fist, until enough of the competition died off and then, voila, raise prices.

      Bezos is no genius. His empire depends on his stock price. And a lot of his competition won’t be easily squashed.

      He’s leaking out that he is going to build his own trucking/delivery systems. He might be good at click bait, but rubber, fuel and truck drivers will teach him a lesson that his brain is still contained by the size of his skull.

  4. Sarducci
    Oct 4, 2017 at 2:16 pm

    Guido is spot on re: price reductions. A few items are being used as loss leaders but the net result is pretty much the same – business as usual at Whole Paycheck. Thankfully I have access to TJ’S as well.

  5. Steve M
    Oct 4, 2017 at 2:26 pm

    I wonder if the study contained an age demographic to the shifting traffic. I’d expect older shoppers to be more loyal to their usual store and younger shoppers keener for a change in scenery.
    If that showed any difference from the cliche I nust noted, then I’d be impressed.

  6. pedestrian shopper
    Oct 4, 2017 at 2:26 pm

    Walked to Whole Foods today [it’s my only remaining walkable grocery store, thanks to the neighborhood NIMBYs] with a list of 6 items. They were out of two, they did finally have Naan after being out the last two visits, and the avocados were size Petite — not worth the low price. The low price hoopla is a bit of a scam

  7. tony
    Oct 4, 2017 at 2:45 pm

    There is no such thing as a monopoly in this country any more.If you are in with the big guy’s you are okay. No one ever said, did whole foods fix their scales or are we still on the special weight program.

  8. TJ Martin
    Oct 4, 2017 at 3:23 pm

    An interesting anecdote in light of todays article ;

    This week when shopping at my local King Soopers ( Kroegers ) I ran across the store manager telling him I’d love to pose the question to Kroegers upper management as tp just why is it they seem to be insisting that I take my business over to Whole Foods in light of lower prices etc in light of the fact that KS/Kroegers selections diminish by the week ? * Which they gradually are despite my despising anything having to do with the BORG ( Amazon )

    Aint it just amazing in this world of diminishing finances among ever increasing competition how so may seem intent on shooting themselves directly in the foot ?

    * As just one example as of this week they no longer carry unsweetened shredded coconut or buttermilk for my bakeaholic wife about to embark upon her favorite cake recipe . So high ho … high ho … off to Whole Foods I go … damn it !

  9. Johnny A
    Oct 4, 2017 at 3:25 pm

    We have a very fancy Whole Foods in our designer town geared to the wealthy and tourists. I went in to see how it had changed….the smell was an industrial cleaner, with a very nasty odor. I couldn’t stand the smell and left promptly.

    The store had never smelled this way before, so they’re cutting costs. Its about a half mile from Trader Joe’s, which seems busy as usual.

    I won’t be back-

  10. California Bob
    Oct 4, 2017 at 4:00 pm

    Costco shoppers are loyal; at least, I am (they have the best prices on booze). Here’s some evidence (pay no attention to the fast-talking bald man with a goatee):

    https://www.thestreet.com/story/14330149/1/costco-is-amazon-s-biggest-grocery-competitor-but-its-holding-up-ok.html

  11. Iggles
    Oct 4, 2017 at 5:55 pm

    The average price reduction at WF is only 1.2% since Amzn. Typical of how Amazon operates is through smart news releases of how kale or avocado prices have been reduced by 20%. The news media picks up and runs with their propaganda.

  12. Lee
    Oct 4, 2017 at 6:21 pm

    Didn’t see the supermarket SuperValu chain mentioned.

    Any impact on them or don’t they operate in the same areas as Whole Foods?

    Last time I visited the USA I shopped there and bought some fresh Walleye Pike (imported from Canada , of course) for a ridiculous price.

    • Oct 4, 2017 at 6:49 pm

      SuperValu wasn’t listed in the study.

  13. Mike Earussi
    Oct 4, 2017 at 7:05 pm

    It’s almost a given that the first thing a company does when they take over another is to lower the quality. It’s too soon for Amazon to have done that to Whole Foods but in a year we’ll see.

    • Wilbur58
      Oct 4, 2017 at 9:33 pm

      An interesting exception would be Volvo.

      When Ford took them over, things did get worse. But since getting taken over by Chinese, the Swedes were actually given more autonomy and the products have gotten better. Go figure. Making China great again.

  14. RangerOne
    Oct 4, 2017 at 7:19 pm

    Its hard to lump Costco into a group like this. I generally expect Costco to have the best prices on certain bulk items and consistent quality. That makes them generally a goto store for bulk purchases.

    The keep their prices down by only stocking certain items and carrying one size fits all bulk versions uncommon at standard grocery stores.

    That at least for our family only covers a portion of our food and household shopping. Some items are to find at Costco or we don’t need an industrial size version.

    • Markar
      Oct 5, 2017 at 12:36 pm

      It’s not only the limited selection and bulk sizes, but the $billions in annual membership fees allow them to sell at razor thin margins across the board.

  15. pete
    Oct 4, 2017 at 7:54 pm

    will they soon be a distribution point for amazon, too?…pjs

  16. Mary
    Oct 4, 2017 at 8:20 pm

    I was absolutely creeped out by your mention that all of this very specific analytical information was collected ” via real-time location data from smartphones”.

    Granted I’m techno-ignorant, but how can someone “spying” on my iPhone come up with such detailed conclusions about me: whether I’m a new or old customer of WF, how far my local TJ is from a WF, my economic/class status, my sexual preference (okay, joke) etc. Most important, how can I shut down this stream of info other than beating my phone up with a claw hammer?

    • Oct 4, 2017 at 11:29 pm

      The smartphone is the best spy device ever invented, and people are actually paying a lot of money to carry it around :-]

      There are a lot of useful applications of this spying. For example, the Google maps that show you how traffic is moving or not moving — that’s all gathered via the millions of smartphones driving around. Google and the like know if you’re speeding, making an illegal left turn, etc. For now, they’re not connected to the police department, so you won’t receive an instant text message with a ticket attached…

  17. Oct 4, 2017 at 9:37 pm

    Put your phone in airplane mode before you enter the store. Or at the very least turn off Wi-fi,and Bluetooth.

  18. Oct 4, 2017 at 10:01 pm

    Mary,
    Here is a link that explains how this tracking works.
    https://lifehacker.com/how-retail-stores-track-you-using-your-smartphone-and-827512308

  19. alex in san jose AKA digital Detroit
    Oct 4, 2017 at 10:30 pm

    Some hilarious reading here … “I am a manager at Safeway, ask me anything”

    https://www.reddit.com/r/bayarea/comments/73nbm4/im_a_mid_level_manager_at_safeway_ama/?utm_term=dda7e51f-b497-40f7-980f-77d334c15787&utm_medium=search&utm_source=reddit&utm_name=SanJose&utm_content=1

    The crime rate is too damn high in the shopping center where my local Sprouts is so I’m trying to avoid them. Instead, I go another flat mile up the way to 99 Ranch, where I’m generally the only round-eye in the place. It’s actually a pretty fun place to shop. And they have a dim sum “bar” right there, a hot food fill-your-container department, plus they’re selling ducks whose goose is cooked, I haven’t tried one of those yet but I swear I will. I generally grab a Mr. Brown canned coffee and get a couple tea eggs (hard boiled eggs soaked in a tea and soy sauce marinade) that’s about as typically Chinese as a corn dog or a donut is American. Eat and drink those then I’m set for some shoppin’.

    Whole Foods’ fruit and veg department is really lame. Overpriced, and I don’t care if you have purple lilikoi there, those mangoes are GREEN and you should know that. However their scoop-your-own nuts and seeds are solid, and the prices often better than Safeway.

    What we really need is evening markets like they have in Asia. Imagine a farmer’s market but at night, you stop there after work.

    Farmer’s markets in general are awesome. Even if you’re really poor, you can get so many “ground scores” (dropped fruit and veg.) at those and you’ll get heaped with stuff if you help people pack up at the end of the day. In fact I used to do that quite a bit, find a swap meet, antique show, etc and help people pack, quick way to earn a $20 spot.

  20. T Bone
    Oct 4, 2017 at 11:07 pm

    I grocery shop for my wife/me and my mother -the wife and I do the bulk of our shopping at Whole Paycheck. I do all my mothers at Safeway – wholepaycheck has better prices on all most everything we buy (we are vegetarians) seriously organic beans are $.99 a can ( they had just gone up to $1.29 then the amazon buy and they went back down to .99$) safeway sells the same can at $1.89 non organic. My personal experience says that wholepaycheck is not more expensive than safeway at all and I spend well north of a G every month on three people and three cats
    I think that maybe wholepaycheck has a lot more really good products that do cost more than the stuff safeway has. I have like 9 different vinegar’s and 5 different olive oils on my counter – whole paycheck is the better market for people who cook a lot. I am in Sonoma county ca.

  21. matt Brandley
    Oct 4, 2017 at 11:41 pm

    Glad I could help with this Wolf and this is why I will never own a smart phone unless it becomes society demanding

  22. steve
    Oct 5, 2017 at 1:36 am

    We only have a few whole foods in London, and I don’t live there so my first visit was in San Francisco last week.

    It was hilarious, its like some kind of parody on how the stupid rich live, overpaying for every single item in some odd belief that the expensive potato is somehow different to the one everyone else eats. Back to normality in my local Aldi thankfully now, who of course did another 20% growth last year.

  23. worried
    Oct 5, 2017 at 8:25 am

    stupid question: WF is advertised as organic only. My bf will only shop there. We don’t care about prices, makes no difference in our budget. So the question is : are the product really organic? or is it a scam?

    • Gershon
      Oct 5, 2017 at 9:45 am

      Google “organic scam.” Tons of misleading or outright fraudulent marketing in the food biz. Best to establish a relationship with venders at the local farmers’ market, food cooperative, or local producers where you can see first-hand how they’re raising their produce, birds, or animals. You may not care about prices, but you should care about getting ripped off and doing business with unscrupulous suppliers.

      • Lee
        Oct 5, 2017 at 3:02 pm

        100% certified organic: grown in your own backyard.

        Others…………….

        Well………………

        Just like the ‘free range eggs’ that aren’t…………….

    • Anonymous.1
      Oct 8, 2017 at 5:51 am

      “So the question is : are the product really organic? or is it a scam?”

      The ratio was getting to be more and more conventional products before the purchase, but now it appears that it flipping back to more organics. You have to read the numbers that start with 9 or read the labels.

  24. Gershon
    Oct 5, 2017 at 8:32 am

    The abandoned malls littering the landscape paint a very different picture than the Fed’s “Everything is Awesome!” narrative depicts.

    http://www.deadanddyingretail.com

  25. Gershon
    Oct 5, 2017 at 8:45 am

    While the oligarch-pillaged real economy continues its decline, our Ponzi markets, juiced by $200B a month in central bank financial crack cocaine mainlined to their bankster partners in crime and with 70-80% of volume being HFT algos buying and selling to each other in miliseconds, keep hitting new highs regardless of the abysmal underlying fundamentals.

    http://www.marketwatch.com/story/sp-500-set-to-log-longest-streak-of-records-in-20-years-as-stock-market-opens-at-all-time-highs-2017-10-05

  26. prepalaw
    Oct 5, 2017 at 8:49 am

    Wolf,

    you might consider writing a follow-up article to your comment, and possibly find one or more historical examples of companies that had the same privilege:

    “Amazon is in a unique position where Wall Street does not demand big earnings per share. Instead, it demands that Amazon crushes its competition, even if it loses money doing so.”

    Regards, peter

  27. DK
    Oct 5, 2017 at 9:21 am

    I use Amazon prime a lot and I’ve noticed Amazon now has a service called “pantry” which charges about $6 for a box that you can fill with supermarket items under about $5 each. But you can fill a box with a few items. I declined because I can pick up these items when I buy produce at brick and Mortar. But it appears as though they are trying to get a handle on the supermarket business as an on line market. This has proven to be pretty tough for everyone else. We will see.

  28. Lotz
    Oct 5, 2017 at 12:19 pm

    Be sure to watch the southpark episode of whole foods for great laughs.

    Guido nailed it with the mistress wife analogy. Whole food just has lipstick on the snout.

  29. R Cohn
    Oct 5, 2017 at 3:55 pm

    I have shopped at my local Whole Foods about once a week for 10 years
    Their seafood is VERY high quality,but still high priced .I often purchase their weekly fish specials
    Their produce is high quality ,but still high priced .However I was able to buy pints of blueberries at lower prices than at other supermarkets during the last 2 weeks
    I am not fond of their meat ,but it the only place that I can buy Neiman Ranch ribs
    If you are careful you can sometimes find dairy products and high quality ice creams at very good prices
    Their hot takeout items are usually good,but I have not noticed any reduction in prices.
    Their bakery section is very good ,but I try to avoid it for health reasons.
    I now longer am a member at Costco,but any comparison between the two is ridiculous .The same with Trader Joes and Whole Foods.

    I hope that the Amazon does not go crazy in reducing costs by eliminating store personnel

    • Anonymous.1
      Oct 8, 2017 at 5:55 am

      “If you are careful you can sometimes find dairy products and high quality ice creams at very good prices”

      Yummy, Cool Haus ice cream sandwiches.

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