Published on: September 27, 2017by Kate McMahon
Amazon’s much-ballyhooed $13.7 billion takeover of Whole Foods promised to slash prices at the upscale supermarket chain, which has long been saddled with the sobriquet “whole paycheck.”
It only has been a month since the deal has been closed, and there has been a lot of debate - and media coverage - about the degree to which that promise has been delivered upon.
Foodies and analysts across the country have been tracking the price cuts, posting cash register receipts and comparison charts online. For example, Business Insider zeroed in on 15 of the “best- selling grocery staples” targeted for price reduction at a Whole Foods in Brooklyn on Aug. 25. The total was $97.76. Three days later, when Amazon took over and implemented changes, the same grocery cart cost $75.85, an almost 23 percent savings.
Across the East River in Manhattan, a New York Times comparison of five items rang up at $28.02 on Aug. 24 and $24.04 four days later. A Bloomberg spin through the aisles in midtown showed an enormous swing - from a whopping 43% drop in the per pound price of organic Fuji apples (from $3.49 to $1.99) and a lesser 7% dip in the cost of a dozen organic large brown eggs (from $4.29 to $3.99).
The website Eater sent editors in New York City, Chicago, San Francisco and Austin to Whole Foods with comparable shopping lists featuring the staples on sale. Prices in New York dropped 25% on average. In Austin, home to Whole Foods corporate headquarters, prices were already lower to begin with, so shoppers saw a 22% average decrease.
The website Refinery29.com opted to compare the Whole Foods prices with competitors Trader Joe’s and Target. Their grocery basket included five items: One dozen eggs, one Hass avocado, two Gala apples, two pounds of fresh chicken breast and a one-quart carton of Blue Diamond Almond Milk. Whole Foods was the most expensive at $22.64, followed by Target at $16.11 and Trader Joe’s at $14.80. That’s a whole lot of difference.
From my own research at Whole Foods, for every product highlighted by the bright yellow sale sign there were scores more that were still more expensive than at other stores. In fact, CNBC reported that retail analyst Chuck Grom of Gordon Haskett wrote that the 114 products he tracked week-over-week declined by only 1.2% at a Whole Foods in Princeton, N.J. after the Amazon takeover. In fact, some 78% of the 114 arbitrarily chosen products didn’t see any discounts, leading Grom to find “our initial checks suggest that Amazon's bark may be greater than its bite.”
Amazon has said there will be further price cuts, and it will work to wrap Whole Foods into its existing ecosystem, with special in-store benefits for Amazon Prime members and Whole Foods private label lines such as 365 Everyday Value available online.
It will be interesting to see if the reported increase in traffic at Whole Foods is sustainable, and just how much pressure the price cuts put on competitors. One price change that caught my attention was the Whole Foods Organic Rotisserie Chicken, which had sold for what I considered a stratospheric $13.99, now has been reduced by 29% to $9.99.
So, we assembled a panel of MNB taste testers for rotisserie chickens sold at Whole Foods, Stop & Shop and Costco, all located within a 2.3-mile radius in suburban Connecticut. The three-pound Costco chicken sold for $4.99 and the price of the one-pound, 14 ounce Stop & Shop chicken had been reduced from $5.99 to $4.99. In addition to the one-pound, 12-ounce Whole Foods organic rotisserie chicken ($13.99 to $9.99) we also sampled the Whole Foods simple two-pound rotisserie chicken, $8.99 reduced to $7.99.
Based on visual appearance and skin color/doneness, we ranked the chickens in this order = Costco, Whole Foods Simple, Stop & Shop and in last place the Whole Foods Organic, with one panelist saying the skin “looked diseased.” (It did.)
Based on taste, Costco was again No. 1, followed by Stop & Shop, the Whole Foods Organic and then the Whole Foods simple chicken, which tasted dry compared to the others.
I’ve long been a fan of the Costco chicken, which clearly had the best taste and price pound-for-pound. We were pleasantly surprised by the Stop & Shop bird, and agreed that Whole Foods needs to up its rotisserie game in order to compete, particularly at those prices.
I also found the answer to the pressing question: How the heck can Costco sell a three-pound chicken for $4.99? In a 2015 conference call with analysts, Costco CFO Richard Galanti said the wholesale club made a determined decision to keep chickens at $4.99 even when others were raising prices to $5.99 and above. “We were willing to eat, if you will, $30 to $40 million a year by keeping it at $4.99” to keep customers satisfied and coming back.
The approach works. Like many, I have zipped into Costco to pick up a chicken for dinner and left with a best-selling novel, a fleece jacket, 36-pack of Charmin Ultra and a 12-pack of toothbrushes. Fortunately, not a 78-inch TV. (At least, not yet.)
It seems pretty clear that there are some holes in the ability of Amazon/Whole Foods to deliver on their promise. However, that is no reason to be complacent or reassured. After all, it only has been a month.
Comments? As always, send them to me at firstname.lastname@example.org .
- KC's View: