Following the big news last year when Amazon.com, Inc. (NASDAQ:AMZN) purchased Whole Foods Market, a lot of investors have wondered what kind of changes we might see, and how Amazon stock will benefit from how it integrates Whole Foods.

The first stop for Amazon is to turn the operation around. Whole Foods was struggling when Amazon purchased it. This came as a surprise to me and many others because Whole Foods was the brand name in organics.

Indeed, margins were terrific because having that brand name allowed it to enjoy pricing power. If you wanted organic, you had to pay. For many people, paying extra was not a problem.

Whole Foods also had engineered a takeover of market share by not only expanding prudently, but buying out little chains here and there like Wild Oats Market. Whole Foods also enjoyed a kind of first-mover advantage. It did very well, made money, enjoyed robust cash flow and growth, and best of all, had no debt.

However, I made two critical errors in assessing its future. First of all, other chains like The Fresh Market and Sprouts Farmers Market Inc (NASDAQ:SFM) were actually rather large and growing. So there was some competition.

What I didn’t expect was that competition would also emerge from traditional grocery stores. I assumed Whole Foods was synonymous with organic, but I was wrong. People didn’t care how or where they got organics.

That turned Whole Foods into a store that offered a commodity. That’s when things turned south.

AMZN Making Changes at Whole Foods

Now that Amazon has come in, I can visibly see differences in several stores in my area. There is a clear intent to turn this business around.

First, they are making the stores brighter and roomier. New lighting has been installed that gives the place life. In one store with very tight corridors, they pushed the shelves back to give more room to customers.

The stores have all been reorganized, with additional emphasis and choices being offered for fresh fare, including juice bars.

Most of all, prices have been lowered.

The effect has been to create stores that feel almost like a central market in New York. There’s a vibrancy to the stores now — a freshness.

Bottom Line for Amazon Stock

The company has managed to do this, and Amazon stock should benefit, because AMZN has economy of scale, and it can use its weight to push around providers and get better deals. Then it can pass these savings on to consumers. Amazon was already benefiting from about $780 million in annual free cash flow from Whole Foods. Now it should benefit more.

I suspect, once the store turnarounds are complete, Amazon will see even more benefit by dovetailing its Amazon Fresh service with Whole Foods. That should really put the squeeze on virtually every food delivery service out there.

Meanwhile, Amazon should be able to woo new consumers into Whole Foods, now that its pricing is more reasonable. Add in the fact that Amazon can create a Whole Foods loyalty program that interfaces with Amazon Prime, and there’s yet another incentive for consumers who never went to Whole Foods to give it a try.

With phase one now in play, I eagerly await more developments.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance, and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.