A few weeks after the Amazon deal, New York City shoppers say price cuts at Whole Foods piqued their interest, but had not changed the way they shop. Well, not yet at least.
But the newly merged companies have their sights set on urban areas— and smaller chains and independent supermarkets in New York City know this means trouble.
Metropolitan centers are home to higher numbers of Amazon Prime members, and customers who are accustomed to home delivery services, the grocery industry’s next big frontier. Unlike their small and midsize competitors, Amazon-owned Whole Foods will also be able to weather market pressures currently threatening the city’s cutthroat grocery market, such as increasing rents and low grocery prices.
Amazon announced its plan to buy Whole Foods had been approved on August 24, 2017. Four days later, in a public relations flurry, the newly merged companies cut prices on select items in Whole Foods’ 448 locations nationwide.
“They kind of fired a shot across the bow,” said Brian Todd of the Food Institute, an industry research group.
For other grocers in the city, the entrance of Amazon is yet another challenge. The grocery industry plays on razor-thin margins, and the last few years have only seen prices drop at the same time as rents in the city increase.
Avi Kaner, owner of 15-store supermarket chain Morton Williams, recounted his shock during a Bloomberg Television appearance after he saw a tweet comparing the price of an avocado at Morton Williams, $4.49, with the newly-reduced Whole Foods price, $1.99.
“This was a real wake-up call for us,” said Kaner, who subsequently asked their suppliers to lower prices.
And Kaner is not alone, independent and mid-size grocers will need to keep their prices low and their offerings innovative to compete as Amazon works to capitalize on the popularity of both the Whole Foods and Amazon brands in New York City.
As of July 2017, an estimated 85 million Americans held Amazon Prime memberships. And although an exact New York City figure is unknown, Prime membership skews towards well-educated, high income individuals — characteristics that suggest large urban membership, according to Consumer Intelligence Research Partners. In addition, analysts have estimated that 63 percent of current Whole Foods customers are already Prime members.
These memberships could be used to offer special deals in-store and as a tool to entice more grocery shoppers to begin getting their groceries delivered.
Outside of the Whole Foods location at Bryant Park, Upper West Side residents Anthony and Winny Palcic said so far, they didn’t think the merger would change their in-person shopping routine.
“I don’t like the idea of the box sitting there,” said Anthony Palcic as he picked up his Whole Foods bags.
And Palcic is not alone in his lack of interest in delivery, currently only about a quarter of Americans shop for food online, but percentages are expected to grow rapidly in the next few decades, especially amongst millennials.
Time-starved New Yorkers already rely on delivery services for shopping, laundry and prepared food. Grocery delivery requires additional logistical sophistication to make sure that fresh, quality products arrive at the customer’s door in a timely and cost-effective manner.
“What the Whole Foods stores do is become local distribution centers,” said David Sprinkle, research director at Packaged Facts. “So they won’t just be retail stores anymore, they’ll also be distribution centers from where Amazon can ship out grocery orders.”
And New York City’s geographical density and comfort with delivery provides an ideal staging ground for experimentation.