Amazon.com, Inc. (NASDAQ:AMZN) just showed off how it can leverage its ownership of Whole Foods to increase its market share in the grocery industry, and boost membership in Amazon Prime — all in one move. The company announced that Amazon Prime members will receive a 10% discount on sale items at Whole Foods stores, plus exclusive weekly deep discounts on best-selling products. It’s a grocery war, just in time for the summer cookout season.
Although the new Prime perk means some lower margins for Whole Foods, this grocery war has plenty of upside for AMZN stock if it boosts overall sales at the Amazon-owned grocery stores. And we’ve already established that each new Amazon Prime member spends an average of $1,300 yearly at Amazon.com, further boosting revenue and AMZN stock.
Whole Foods Discounts for Amazon Prime Members
This morning, Amazon issued a press release announcing a new benefit for Prime members who shop at its Whole Foods market.
Amazon Prime members will receive an additional 10% discount on sale items throughout the stores. In addition, Prime members get exclusive, weekly deep discounts on select items. And those discounts can be substantial: the initial offering includes $10 per pound off wild-caught halibut steaks and 2-for-1 packs of sparkling water.
The company described the win/win for consumers:
“This new Prime benefit at Whole Foods Market is a perfect pairing of healthy and delicious food at even more affordable prices. Our vision is that every day Prime makes your life better, easier and more fun, and shopping at Whole Foods Market with exclusive deals and savings is all of this and more.”
The new Prime discounts start today at Florida locations, and roll out nationwide to all Whole Foods Market locations through the summer.
Amazon Kicks off a Grocery War
This is the sort of synergy that competitors like Walmart Inc (NYSE:WMT) have feared.
Amazon has already made inroads in the U.S. grocery market, capturing an estimated 18% of the growing online sales segment. With its purchase of Whole Foods, Amazon immediately gained a 1.2% toehold in the $800 billion retail grocery market that’s led by Walmart with 14.5% and Kroger Co (NYSE:KR) with 7.2%.
Early moves by AMZN to leverage its Whole Foods ownership were relatively low-key. Prime members could get 5% back on purchases made using an Amazon Prime Rewards credit card. And in limited markets, Prime Now offered free two-hour delivery on Whole Foods orders. The latest move by AMZN is much more aggressive.
By leveraging Amazon Prime membership — with an estimated 90 million members in the U.S. — to offer additional discounts on top of Whole Foods regular sale prices, AMZN has finally launched its plan to disrupt the grocery industry in a big way. It will make shopping at Whole foods cheaper for existing customers who already have a Prime membership, helping to retain them. More importantly to Walmart, Kroger and other grocery stores, it will likely convince tens of millions of Prime members who don’t regularly shop at Whole Foods to take advantage of their new perk and give it a try. And as an added bonus for AMZN, the new perk is likely to help sell additional Amazon Prime memberships.
Higher sales for Whole Foods and more Prime Memberships would both be wins for AMZN stock.
On top of the Whole Foods discounts for Prime members, add the reports yesterday that the company is expanding its Amazon Go cashier-less convenience stores to additional cities. It’s clear that Amazon is not content to dominate online retail. It’s intent on disrupting the grocery industry as well.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
