When Amazon (NASDAQ:AMZN) bought Whole Foods a bit over a year ago, the online retailer asserted that it was going to make the grocery chain’s vision of offering “high-quality, natural and organic food affordable for everyone.” The e-commerce leader also offered what it called “a down payment on that vision” by announcing it would cut prices on a selection of its best-selling grocery staples on the day the deal closed “with more to come,” according to a press release.
The promise of lower prices at a chain that some customers jokingly call “Whole Paycheck” made sense, since Amazon could theoretically use its enormous buying power and supply chain expertise to make better deals with vendors. That may be happening, but prices have not fallen in a meaningful way, according to a new study by Gordon Haskett analyst Chuck Grom, which was reported on by RetailWire.
What does the survey say?
Grom has compared the prices on a basket of groceries containing the same 108 items seven times since just before Amazon bought the chain. He found that now, the total cost of the items in that basket is only 0.8% lower than last June when Amazon announced it was acquiring the chain. And the cost is actually 1.3% higher than it was after the online retailer closed the deal and made its initial series of targeted price cuts.
Prime members did fare a little bit better, according to Grom. They would save an additional $1.54 on the basket of groceries, which had a total cost over $400. The research did not factor in the 5% cash-back rewards that some customers earn by paying for their Whole Foods purchases with an Amazon Rewards Visa card.
“This analysis is spot on,” wrote GlobalData Managing Director Neil Saunders on RetailWire’s discussion board. “Prices on some items have come down at Whole Foods, but the remainder of the range is ridiculously overpriced. Branded products are much more expensive than Walmart, Target and even Amazon itself.”
Perception becomes reality
Grocery chains often lower prices on some items to attract customers to their stores, and it’s not uncommon for them to raise prices on others to compensate. In addition, during the past year, higher fuel prices have pushed grocery prices slightly higher in general.
Amazon, however, appears to have succeeded in creating a fairly broad perception among consumers that Whole Foods’ prices are lower than they used to be, based on a survey conducted by Field Agent a year after the acquisition. While only 6% of respondents described the prices as “much better,” 12% found them “better,” and 30% said they were a little better.” Among the 516 Whole Foods customers across 45 states surveyed, 46% said they believed the prices were neither better nor worse.
That’s nearly half of Whole Foods customers who think prices are at least somewhat improved (which they are, but only in a minuscule way). It’s hard to not see that as a win for Amazon, because in grocery shopping, perception matters a lot. Most customers aren’t specifically price-checking tomatoes and ground beef before they decide where to shop — they’re going with their gut. And right now, those instincts are leading quite a few of them through the doors of Whole Foods.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool owns shares of Visa. The Motley Fool has a disclosure policy.