How Whole Foods' lower prices will affect you

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Amazon officially takes control of Whole Foods on Monday, and as promised it immediately slashed prices on a wide range of popular consumer products.

The e-commerce giant celebrated the close of its Whole Foods acquisition with an Amazon Echo display inside the high-end grocery stores and price cuts on produce of as much as 43 percent. "These are also all likely private-label products, which we believe gives Amazon significant pricing flexibility".

Walmart, the largest retailer in the world, has invested billions in lowering its prices of all its products over the previous year or more, and revamped its produce sections at US locations, improving the sight lines, adding additional fresh fruits and creating its own sweeter cantaloupe.

"That's been the biggest boondoggle around Whole Food's neck for years", Lempert said of the supermarket's high-price reputation.

The company aims to make Amazon Prime the rewards program for Whole Foods customers, and offer members special discounts.

Wanting to emerge as market leader in the sector, Amazon wasted no time dictating food prices and, in the process, hinting at its long-term strategy for Whole Foods, which Amazon sees as a way to broaden its Prime shopper base. "I paid $13 for this oatmeal - how can anyone say that's not expensive?"

So either Amazon is taking on more than it can handle by acquiring Whole Foods, or it has a trick up its sleeve.

But Whole Foods is a different story, because Whole Foods is a different business model, with revenue growth plateauing and net income falling, which has all impacted gross margins and operating margins.

Amazon executives said last week that the goal is to make healthy and organic food "affordable for everyone". If the prices stay consistently lower, she said, "I'll definitely shop more here".

The analyst said Whole Foods' average food item price is approximately 14 percent higher than the average grocery store. The moves fit in Amazon's track record of keeping prices low to lock in customer loyalty.

Amazon vowed last week to slash prices at the organic grocery chain beginning Monday "on a selection of best-selling grocery staples", including selections of fruit, vegetables, dairy and meat. The company also hopes to start selling Whole Foods brand products on their website that sent down shares of packaged food sellers such as Kellogg Co.

So although Amazon may have room to slash prices at Whole Foods, it may not be as much as some think, or it may have a much steeper impact on the bottom line.

By expanding the Echo to more locations, it could be very beneficial for Amazon, as it seeks to generate more revenue from its Alexa-enabled devices.

According to industry research, the largest barrier to Whole Foods' customers was price.

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