When Amazon made its $13.7 billion purchase of Whole Foods in 2017, the Seattle e-commerce giant vowed to make the natural and organic grocer’s products “affordable for everyone.” But that promise still appears to be a work in progress.
Since Amazon in April installed its third round of price cuts at Whole Foods—which involved hundreds of items at an average price cut of 20%—prices at the supermarket chain have dropped an average of about 2.5% through August from a year earlier, according to Morgan Stanley’s monthly price checks at food retailers in different regions across the U.S.
The study, released Tuesday, found that the price premium gap Whole Foods commands over regional supermarket chains has fallen by almost half, to about 12% to 13%, from 20% before Amazon’s purchase. However, when compared with national supermarket chain Kroger, Whole Foods’ price premium gap remained a “still significant” 27% on average, despite declining from a difference of as much as 40% in the past, according to the study.
The basket of goods the investment bank studied cost $190 at Whole Foods, just $10 less, or 5% less, than the cost two years ago. And the new combined price tag was still about $40 more than what the batch would cost at Kroger, Morgan Stanley said.
“Whole Foods prices are falling modestly,” the report said, adding that prices at the grocer had picked up an average of 3% from January to March as suppliers reportedly passed on cost-inflation-related increases.
Kroger is the No. 2 U.S. brick-and-mortar grocery retailer, with a 9% share of the market in 2018, trailing No. 1 Walmart and its 26% share, according to Euromonitor data. Amazon, through Whole Foods, was No. 9.
Amazon reported flat quarterly physical store sales of $4.3 billion in July, mostly from Whole Foods and its roughly 500 stores.
“Despite significant efforts to boost sales with discounts at Whole Foods, Amazon has generated relatively little fizz in its growth,” Moody’s said in a report in June. “Amazon’s promotions have yet to catch hold.”
The credit ratings agency estimated that Amazon, thanks to Whole Foods, generated $18 billion to $20 billion in grocery-equivalent revenue in 2018, significantly shy of the $270 billion in U.S. grocery sales it estimated that Walmart, including Sam’s Club, posted.
Grocery is “an area where (Amazon) is still very much a newcomer in an industry heavily dominated by Walmart,” Moody’s said.
Date: August 29, 2019