Dive Brief:

• Amazon announced that it will assume ownership of Whole Foods Monday, August 28, according to a news release. The company also outlined a series of ambitious first steps, including lowering prices on a collection of grocery staples like organic bananas, farm-raised salmon, organic brown eggs and lean ground beef. “We’re determined to make healthy and organic food affordable for everyone,” Jeff Wilke, CEO of Amazon Worldwide Consumer, said in the release.
• In addition, Amazon said that it will make Whole Foods' private-label products, including 365 Everyday Value, available on Amazon.com, AmazonFresh Prime Pantry and Prime Now. The mega-online retailer also announced Amazon Prime will eventually become the customer loyalty program for Whole Foods stores; and that it will install Amazon Lockers in select Whole Foods locations.
• “This is just the beginning,” the release stated. “Amazon and Whole Foods Market plan to offer more in-store benefits and lower prices for customers over time as the two companies integrate logistics and point-of-sale and merchandising systems.”

Dive Insight:

And so it begins.

Amazon, the online company that massively disrupted all other major retail sectors is wasting no time implementing an ambitious plan for its first brick-and-mortar grocery acquisition. There are numerous steps to its initial Whole Foods agenda, but they all seem to point toward two goals: Reforming Whole Foods’ price image, and integrating strengths from both businesses to drive traffic to Amazon.com as well as to stores.

Prior to this point, industry analysts were in agreement that Amazon would lower Whole Foods’ prices, though some expressed skepticism that it could do so with the many niche products that distinguish Whole Foods from other grocers. In any case, Amazon’s deep pockets mean it can absorb early losses in order to drive traffic. The announced price drops include a selection of items that, beyond just being grocery staples, reinforce the natural and organic grocer’s fresh appeal and ethical standards.

Indeed, amid all the commotion, Amazon seems laser-focused on maintaining Whole Foods’ pristine image as a place where organic, fair trade, all-natural and sustainable ideals permeate every category. It will be interesting to see whether Amazon can keep that promise and even expand upon it — or if, as many fear, the company will squeeze suppliers and dilute product standards.

Beyond price drops, Amazon is focused on integrating the two companies in ways that should benefit both. Industry observers for weeks have talked about the value of Whole Foods’ private label selection. Despite the grocer's weaknesses right now — and there are many — its 365 brand remains one of the best store brands in the business. Offering products online should give Amazon’s grocery sales a boost, and could drive traffic to Whole Foods stores. Amazon Lockers, which will be installed in select locations, will also nudge online customers into Whole Foods stores by offering order pickup and returns.

The most impactful move, however — the one that could draw the most high-value customers into Whole Foods stores — is the implementation of Amazon Prime as the grocer’s rewards program. With this, Amazon has a built-in marketing vehicle for Whole Foods that reaches around 70 million U.S consumers. According to Morgan Stanley, 62% of Whole Foods’ 30 million customers are Prime members. Amazon can entice customers to spend more with Whole Foods through special offers, and could potentially rope in millions of other shoppers through the platform.

Amazon could also get creative with its Prime offers. Along with price discounts, it could offer things like free cooking classes, special events and first access to limited-edition products.

For Amazon, the main benefit of this nexus will likely be the data it gains. By joining its in-store and online shopper knowledge, the company will be able to better predict demand, hone its assortment and offer promotions in the physical and e-commerce space.

In a note e-mailed to Food Dive, Greg Portell, lead partner in the retail practice of A.T. Kearney, wrote that Amazon could shake up the industry if it brings capabilities like dynamic pricing and online profiles to bear at Whole Foods stores.

“If Amazon is able to translate their dynamic pricing capability to the physical stores, traditional grocers will be under pressure to match that ability – regardless of whether they match prices,” he noted.

Questions still remain on Amazon’s plans for home delivery and store pickup, as well as how the company plans to proceed with store development. Will it build more stores, close down locations, focus on building more small-format 365 stores — or some combination? As Amazon notes, this is just the beginning. And what a beginning it is. Early indications are that Amazon is serious about becoming a dominant player in grocery, and that this acquisition is as much about building the Amazon brand as it is about building the Whole Foods brand.