Dive Brief:

• Amazon may struggle to lower prices at Whole Foods’ stores due to the higher standards and steeper operational costs inherent for many natural and organic product companies, according to Supermarket News.
• Sources interviewed by SN say Amazon may learn how to streamline natural and organic product costs. One area it will likely address is Whole Foods’ distribution, which currently relies on third-party wholesalers United Natural Foods and KeHe Distributors.  
• Since the announced acquisition, many retailers and CPG companies have innovated their e-commerce platforms and offered more outlets for natural and organic companies. Thrive Market, for one, offers online-only sales of healthful products at low prices.

Dive Insight:

Whole Foods desperately needs to lower its prices, and many industry analysts say that’s the first major initiative Amazon will likely undertake once it assumes ownership of the natural and organic chain. But the question is, can it lower prices enough to drive traffic back to stores?

Sources interviewed by Supermarket News say that the many small brands that Whole Foods offers carry high operational costs, mainly due to their lack of scale and stringent product standards. Lowering these prices while still maintaining margins will be a challenge.

This is an issue Whole Foods had been trying to address even before Amazon stepped in. As part of its plan to cut costs, the grocer centralized its buying operations. The effect has been increased efficiency, but according to numerous sources, Whole Foods now stocks fewer niche and local products. These items are a big part of what made the retailer so popular in the first place, so reducing them jeopardizes Whole Foods’ differentiated position in the marketplace.

Balancing its local, small stakeholder roots and the realities of operating a large grocery chain has been a point of tension for Whole Foods for some time, and that may not abate under Amazon’s leadership. At the same time, Amazon is an expert at efficiency and could very well push suppliers to cut out costs. Discount natural and organic retailers like Lucky’s Market and Sprouts Farmers Market offer a model for selling all-natural goods at competitive prices.

In the acquisition announcement issued back in June, Amazon CEO Jeff Bezos extolled the strength of the Whole Foods brand and its identity as a health food store. He and his team may find ways to preserve the grocer’s focus on small and emerging brands while searching for efficiencies further down the road.