Dive Brief:

• Whole Foods will discontinue its current rewards program beginning May 2, according to an email sent to members and obtained by MarketWatch. This includes all discounts, digital coupons and online accounts associated with the loyalty service, which launched one year ago and was not available in every Whole Foods location.
• Members will not be able to roll over any benefits they earned into a new loyalty program. Those who belong to the company’s subscription-based Whole Body Rewards, which offered 20% savings on Whole Body products and is also being discontinued, may be eligible for a refund.
• The move clears the way for Amazon Prime to become the default loyalty platform for Whole Foods Market — just as it promised when it took over the company last August. The e-tailer has rolled out several integrations over the past few months, from a discount on Thanksgiving turkeys to free two-hour home delivery. A Whole Foods store in Texas recently advertised 10% savings for Prime members on select items, according to reports.

Dive Insight:

Making Prime the loyalty program for Whole Foods stores is one of the most lethal weapons Amazon holds in its formidable arsenal. This is a program that’s 100 million members strong, and offers everything from exclusive television shows to free two-day shipping. No other grocer comes close to matching the service and its potential to drive customers to stores.

Prime helps convey a value message that Whole Foods desperately needs, and when connected to the grocers’ sales systems it will “allow for Amazon to obtain greater purchasing insights,” Jefferies analyst Christopher Mandeville wrote in a recent note to investors.

This one-two punch, Mandeville notes, “heightens competitive pressures for all grocers.”

What will Prime loyalty will look like at Whole Foods, exactly, is still very much a work in progress. Amazon has mainly focused on discounts so far, including 5% cash back on purchases through its Prime credit card.

These will likely continue, but looking down the road it wouldn’t be surprising to see the company leverage Prime in other ways. Perhaps it will offer members-only cooking classes, access to exclusive products or special events like wine tastings. The creative possibilities with a lively natural and organic brand are numerous, and Prime has so many additional enticements, it’s able to pull consumers in any number of directions.

Struggles with suppliers and growing sentiment that Whole Foods is losing its identity as a haven for small brands and strict product standards could challenge Amazon’s grocery development. The e-tailer needs to strike a delicate balance in order to make Whole Foods more efficient while also maintaining the strength of its brand.

But Amazon is supremely confident in Prime. Even if Whole Foods does drift further towards the mainstream, it can still differentiate itself with discounts and other promotions through the membership service. 

Ultimately, Amazon’s Whole Foods acquisition is about accelerating its online grocery capabilities and boosting the value of Prime. The membership program can drive millions of new customers to visit stores and buy Whole Foods groceries online. At the same time, it gives non-members another reason to join, bolstering the program and bringing shoppers deeper into the Amazon ecosystem.

“Amazon’s overall customer-facing strategy, at least related to consumer products, is to find more ways to reinforce the value of becoming and remaining a Prime member,” writes David Bishop, partner at e-commerce consulting firm Brick Meets Click, in a recent post on the firm’s website. “In doing so, it creates a stronger connection with customers, one that’s harder to attack because it’s a multi-faceted approach.”