Is an organic price war on the horizon?
Thursday, October 12, 2017
Texas-based Whole Foods Market Inc. is not only known for its organic produce but also for the distinctive local offers in each of its branches. Loyal shoppers who believe in clean eating have happily paid more for these services. Even though other grocery chains upped their organic produce sections and at a competitive cost, they found it hard to beat Whole Foods.
But the $13.7 billion acquisition by Amazon may change all that. Within the first week, price cuts were noticeable. Amazon was clear on its strategy of making Whole Foods affordable for everyone while maintaining the same quality and authenticity of the natural and organic food that it is known for.
The slashed prices may be good to draw in more shoppers, but experts are not so sure whether it will benefit the grocery industry overall. Agricultural economists point out that the price war may harm businesses, especially the organic tree fruit growers in the Northwest. Organic produce and related industries are worried since display and availability will now be decided and controlled centrally instead of locally like before.
To fight a juggernaut like Amazon, they may have to shore up more debt, which is frankly worrisome in this economic climate. Amazon, on the other hand, is not worried about debt. Its stocks are soaring since the 456-store acquisition went through. This has catapulted them into fifth place in the national grocery retail industry.
Some experts are baffled by Amazon's business strategy. They think it's acting too fast in an area it's not yet familiar with — the retail food business can be tricky and a quite a gamble.
Organic produce and the whole process associated with it are not cheap. Walmart tried to make organics affordable, but they failed. Moreover, by making them cheap and attracting more shoppers, they may alienate the core Whole Foods consumers who prefer to pay more for exclusivity, quality and superior products.
Others think the powerhouse that Amazon has become today may be the right catalyst for change. Everyone should have access to clean eating, and it now may be a reality. A recent Harvard Business Review article provides deeper insights to Amazon's experiments.
It has dubbed Whole Foods as Amazon's brick-and-mortar pricing lab. Known for its relentless price testing in the online realm, Amazon is now going to use the "456 customer-friendly testing facilities" to do the same in the offline retail world.
Amazon is going to study that part of the business closely, apply its insights to beat the competition and change the consumer retail business in the United States. Via Whole Foods, the online giant will now enjoy limitless possibilities to test products, prices, processes and services.
Amazon is keen to test home delivery or store pickup further, perhaps merge offline and online shopping experiences and, more importantly, redefine the price perception for organic and healthier foods. Fueled by this constant testing and experimentation, Amazon will soon apply their insights to other offline retail sectors and services and propel the growth for healthy foods market.
So, the predictions of the upcoming price wars are not too far out. But Amazon is looking for more. It wants to exploit the vast cross-selling opportunities, gain instant access to its brick-and-mortar stores and stop Walmart in its tracks — the retail giant has shown progress in the online grocery ordering sector recently. Taking on Amazon's challenge, Walmart-owned Jet.com is planning to launch a high-end grocery line soon.
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