Whole Foods battled its “Whole Paycheck” reputation in vain for more than a decade before Amazon.com Inc.’s acquisition of the natural and organic grocer. Now it has a chance to shake that rep once and for all, but it must be strategic or risk losing the thing that customers liked best about the company in the first place.
“Amazon is walking that fine line between doing away with ‘Whole Paycheck’ without removing the caché, and that’s a pretty thin line,” said Jeff Inman, president of the Society for Consumer Psychology and associate dean for research and faculty at the University of Pittsburgh’s business school.
Shoppers, Inman said, are always pitting what they’re paying against what they’re getting. For Whole Foods, some of the things they’re considering as they wander the aisles are whether items are unique or high-quality enough to justify their price tags. Shoppers have proven themselves willing to pay a little more when the “value equation” turns in their favor.
Still, according to Inman, American shoppers have a “particularly price sensitive” attitude toward groceries. Data show that the price-cut announcement from Amazon AMZN, +0.30% and Whole Foods did drive traffic to stores.
Analysis from InMarket, which uses location data, GPS, beacons and other technologies to understand business visits, found that Whole Foods’ stake of total grocery traffic was up 17% on a week-over-week basis on Aug. 28, the day that price cuts went into effect. On Aug. 29 and 30, the grocer’s traffic share was up 16% on a week-over-week basis.
Foursquare Labs also showed a spike in traffic when looking at mobile activity. And One Click Retail, a company that provides insight on sales trends, competitive opportunities and other information, found that online sales of Whole Foods products totaled $500,000 when made available on Prime Pantry and Amazon Fresh, according to the New York Post.
“The deal finalizes, and people rush to see what’s changed,” said Inman. “Consumer interest is at a high right now, and Amazon needs to take advantage of that while they can.”
According to Todd Dipaola, the chief executive and co-founder of inMarket, a spike in Whole Foods traffic actually kicked off a day earlier, suggesting consumer curiosity over what might change at a Whole Foods under the Amazon umbrella.
“The key test is if Whole Foods can maintain this momentum,” he said, noting indications that the traffic has fallen off.
To lock in momentum, Dipaola believes convenience, something Amazon has excelled at, and market-share grab will be critical, he said. And Inman said he believes Whole Foods has the advantage of providing convenience with “upscale items.”
InMarket found that during the time period for which it analyzed foot traffic at Whole Foods, between Aug. 24 and Sept. 4, the share of visits to Trader Joe’s fell about 1.1%, while at Kroger KR, +0.94% stores, the decline was 2.7%, according to Dipaola.
“We didn’t see them stealing from other grocers just yet,” he said. “It seems like customers made an extra trip” in order to give Whole Foods a try as the Amazon deal closed. “For long-term growth, they’re going to have to get customers to give up their other visits,” he said.
But Stephen Beck, founder and managing partner of the consultancy cg42, is bullish about the prospect. Amazon’s business model, focused on getting to know customers and delivering value through things like the Amazon Prime membership program, will be applied to Whole Foods quickly, he predicted.
“We’re going to see the ebbs and flows with traffic as people go in and try,” he said. “It goes back to the value of Prime and how they create opportunity to get more value out of that membership.”
That opportunity will come as promotions are increasingly tied to Prime membership, he said, and Amazon gains entry into this new piece of shopping behavior.
“There will be incremental value gained in this part of the business, and as it’s used as a lever for more Prime subscribers, you’ll see [Whole Foods’ ‘Whole Paycheck’ reputation] shed pretty quickly,” Beck said.
Still, it the early days since the takeover was finalized, and Amazon and Whole Foods have announced other changes besides price cuts, including Amazon lockers at select Whole Foods locations, and the ability to have products purchased on Amazon shipped to a Whole Foods store.
“Things are going back to normal a bit,” said inMarket’s Dipaola, but, he added, “this is the first inkling of change.”
Amazon shares are up 30.5% so far in 2017, outpacing the S&P 500 index SPX, +0.20% , which is up 11.4% for that period.