Dive Brief:

• During Amazon’s Q2 earnings call last week, CFO Brian Olsavsky said Prime members have adopted Whole Foods benefits into their personal habits at “one of the fastest rates we’ve ever seen for a Prime benefit.” 
• J.P. Morgan analysts estimate that Whole Foods revenue accelerated 7% year-over-year, writing: “We believe Amazon continues to show strong ability to take share of overall e-commerce, and its flexibility in pushing first-party versus third-party inventory and its Prime offering both serve as major advantages.” 
• This year's Prime Day was the first to include Whole Foods promotions, with delivery discounts and up to 40% off of seasonal food items among the savings the chain offered to members.

Dive Insight:

All signs so far show that Amazon’s jump into the grocery space is – at the very least – exciting Amazon’s most loyal Prime customers. Data firm inMarket found that Whole Foods experienced an 18.6% increase in store traffic on Independence Day this year versus last year. The year before, Whole Foods saw a decrease in foot traffic on the holiday.

Additionally, market research from Field Agent shows that 14% of Amazon Prime members who shop at Whole Foods participated in Whole Foods’ Prime Day promotions, and 71% were “extremely or very satisfied” with the quality of deals. 

Since its acquisition of Whole Foods last fall, one of Amazon’s biggest priorities has been turning around the "whole paycheck" image that has historically deterred some customers. The e-tailer's price cuts have been selective and increasingly tied to its Prime membership program and, as communicated during last week’s earnings call, they are quickly bringing new or infrequent shoppers into stores more. Amazon has more work to do, however, as studies have shown that overall prices on typical Whole Foods shopping trips have decreased only slightly. If the company wants these Prime customers to return to Whole Foods beyond Prime Day, it will have to continue to create attractive promotions year-round.

Amazon can, and does, leverage Whole Foods’ brick-and-mortar presence to promote its Prime membership perks in-store and the company has a big incentive to continue to do so. A 2017 report by Consumer Intelligence Research shows that customers who spend $99 for annual Prime memberships spend on average $1,300 per year with Amazon, nearly twice the amount spent by non-member customers. 

Loyalty is hard to come by in the grocery space and having an “exclusive” connection via Prime membership may provide shoppers with an incentive to commit to Whole Foods as a primary grocer. Time will tell if Prime membership rewards will translate to long-term loyalty, but with the continued rollout of two-hour delivery for Whole Foods orders via Prime, the momentum should continue through that channel at least. 

According to Kantar Media’s January 2018 report, 45% of all U.S. households belong to Amazon Prime, which means there is still plenty of untapped audience potential. Amazon is leveraging its relatively new footprint in the grocery space to sign up non-Prime members. Perks aside, access remains the biggest question for Amazon’s Whole Foods consolidation. Are people willing to go out of their way for brick-and-mortar Prime perks that have typically been reserved for Amazon’s more convenient online business when there are only about 460 Whole Foods locations in the U.S.? 

For Amazon, the Whole Foods component is simply a piece of its bigger puzzle. As online grocery business continues to grow – predicted to generate $100 billion in annual revenue by 2024 – Amazon and its Prime members are well-positioned. Whole Foods' in-store deals are just an added bonus.