Amazon Cutting Grocery Prices at Whole Foods -- 3rd Update

By Heather Haddon and Sarah Nassauer

Amazon.com Inc. marked its takeover of Whole Foods Market Inc. by cutting grocery prices and advertising its Amazon Echo devices at a steep discount in many of the natural grocer's stores nationwide.

At a Whole Foods in Brooklyn, 2 pounds of Atlantic salmon fillets were about $2 cheaper at $19.98 and a 1-pound bag of brown rice was selling for 20 cents less at $2.49, according to labels Amazon and Whole Foods affixed to products on Monday to advertise the shift. At a store in Chicago, organic avocados and bananas were also marked down and a big sign advertised the voice-activated Amazon Echo device on sale for $99.99 rather than the list price of $179.99.

"This is a little much," Diana Bradford, a 39-year-old stay-at-home mom, said of the Echo ad. Still, Ms. Bradford, an Amazon Prime member, said cheaper Whole Foods prices after the merger could "only could be a good thing."

"I do all my grocery shopping here," she said.

Amazon.com Inc. doesn't need to make money from Whole Foods yet. The grocer's $16 billion in annual revenue is roughly 12% of Amazon's $136 billion in yearly sales. And Amazon has a history of prioritizing gains in market share over profit as it enters a business, from bookselling to streaming video content.

Meanwhile, food sales are essential for grocer Kroger Co. and catchall retailers Wal-Mart Stores Inc. and Target Corp. Amazon is hoping to compete with them by inching close to their prices on high-volume staples like bananas, eggs and ground beef in 470 Whole Foods stores. Deeper price cuts on Monday appeared focused on organic goods that attract a narrower band of shoppers.

Dina Cruz stopped at a Whole Foods in Central Los Angeles on her way to work Monday morning to check for lower prices. The 33-year-old teacher shops at Whole Foods about once a week for baby food but tends to buy the rest of her groceries at Trader Joe's.

On Monday Ms. Cruz noticed cheaper prices on baby food as well as fruits, vegetables and some meats. If the prices stay consistently lower, she said, "I'll definitely shop more here."

Melissa Golden, an elementary school teacher shopping on Monday at the Brooklyn Whole Foods, was disappointed the cuts didn't extend to a wider variety of items.

"We waited until Monday to come shopping," said the 41-year-old, who shops at Whole Foods about once a week for most of her groceries. "I was expecting price cuts across the board."

Even at the lower prices, Whole Foods products were often more expensive than similar good sold by competitors. At a Target in Brooklyn products often sold for less than at the Whole Foods a mile away. A dozen Target store-brand organic eggs were $3.99, whole Whole Food's eggs sold for $4.19 off a shelf with a promotional sticker advertising lower prices after the Amazon deal. Both Target and Whole Foods sold five boxes of Annie's Macaroni & Cheese for $5, but a single box at Target cost $1.79 per box and $2.19 at Whole Foods.

Concerns over their readiness to withstand Amazon's advance have weighed on Kroger and Target shares since Amazon said it was buying Whole Foods in June. Wal-Mart shares have fared better, in part because of the discount giant's own e-commerce efforts. Kroger and Wal-Mart's shares were down slightly on Monday.

Wal-Mart has said it would invest billions of dollars to compete with Amazon and discount grocers. Whole Foods hasn't historically been a price threat to Wal-Mart. Many Wal-Mart stores are in rural and low-income neighborhoods, while many Whole Foods stores are situated in more affluent areas and often have higher prices.

"We feel great about out position with our network of stores around the country and fast-growing e-commerce and online grocery business," a Wal-Mart spokesman said.

Shares in Whole Foods were no longer trading on Monday and the company's board was dissolved as Amazon's takeover took effect. In a regulatory filing, Whole Foods said 72% of its shareholders approved the deal, and that Amazon paid former investors about $13.55 billion, or $42 a share.

Erica E. Phillips contributed to this article.

Write to Heather Haddon at heather.haddon@wsj.com and Sarah Nassauer at sarah.nassauer@wsj.com

(END) Dow Jones Newswires

August 28, 2017 14:37 ET (18:37 GMT)

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