Dive Brief:

• Whole Foods’ store traffic jumped 25% in the first two days after Amazon took ownership, driven by the chain’s highly publicized discounts, according to Bloomberg. Similarly, inMarket found that the retailer's stake of total grocery traffic — or “share of visits” — rose 17% over the first week of Amazon’s ownership.
• inMarket also found that during Whole Foods’ first week under Amazon, share of visits at competitors Trader Joe’s dropped 1.12%, while Kroger’s fell 2.67%.
• Meanwhile, according to One Click Retail, Amazon sold Whole Foods private label products online at three times the rate of most new items added to Amazon, according to One Click Retail CEO Spencer Millerberg, in an interview with Food Navigator. Amazon actually underestimated demand, according to Millerberg, and had some inventory issues on its way to selling nearly $500,000 worth of Whole Foods store brand products in a week.

Dive Insight:

This massive bump in traffic will do little to dissuade those who are convinced Amazon is about to turn the industry on its head. But keep in mind that an early sales swing was bound to happen when these two companies finally combined forces. What really matters is what happens next.

Further price cuts are on the agenda, as Amazon has reminded consumers and members of the media. But will these cuts actually move the needle on average prices at Whole Foods? According to numerous studies, Amazon’s opening discounts did little to change overall pricing. Many high-velocity items remained unchanged or even increased in price, while some studies comparing Whole Foods to Walmart found the discount retailer was as much as 50% cheaper on average than the specialty grocer.

Of course, what matters is price perception rather than actual pricing. Millions of consumers had the impression that Whole Foods became a cheaper grocer under Amazon, even if the price cuts were selective. Amazon will need to bring overall prices down at Whole Foods, but it may not need to lower them as much as 15%, which is what many analysts tab as the specialty retailer’s average mark-up.

If Amazon continues to deliver on price, expect other retailers to feel the heat as Trader Joe’s and Kroger did during the first week. Indeed, Whole Foods quality and specialty product selection stands to draw shoppers away from not just traditional retailers but from natural and organic competitors as well.

Amazon’s e-commerce performance may be the biggest reason for worry. One Click Retail’s research shows that demand outstripped supply for many Whole Foods private label products. And best-selling items included grocery staples like canned beans, frozen berries, water and tomato paste, indicating a high level of interest in inexpensive center store items. As Amazon builds up its stock of 365 and other Whole Foods brands, it may steal market share away from supermarkets on everyday grocery items while also gathering valuable data that will inform its store operations.

A lingering question is how, exactly, Amazon will approach online order fulfillment through its stores. Right now, Whole Foods stores still feature home delivery through Instacart, but that will no doubt change at some point in the near future. Amazon is a logistics guru, but it’s hard to say how it might tackle the inefficiencies of last-mile delivery and click-and-collect. The company faces growing competition from Kroger, Walmart and numerous other retailers that have ramped up their e-commerce platforms in recent months, in anticipation of Amazon’s arrival. It also lacks many of the dedicated facilities that are needed to store and route fresh products.

Will the online retailer eventually deliver a game-changer here? As its price discounts show, Amazon likes to make a splash. The company also has a track record of sacrificing profitability for market share, meaning it could eat some of the costs exacted by online order fulfillment in exchange for customer loyalty.