Dive Brief:

• Amazon will assume ownership of Whole Foods Market on Monday, according to a press release. The company also outlined a series of ambitious first steps, including lowering prices on a collection of grocery staples like organic bananas, avocados, farm-raised salmon, organic brown eggs and lean ground beef. "We’re determined to make healthy and organic food affordable for everyone," Jeff Wilke, CEO of Amazon Worldwide Consumer, said in the release.
• In addition, Amazon said it will make Whole Foods' private-label products, including 365 Everyday Value, available on Amazon.com, AmazonFresh Prime Pantry and Prime Now. The company also announced Amazon Prime will eventually become the customer loyalty program for Whole Foods stores; and that it will install Amazon Lockers in select Whole Foods locations.
• "This is just the beginning," the release stated. "Amazon and Whole Foods Market plan to offer more in-store benefits and lower prices for customers over time as the two companies integrate logistics and point-of-sale and merchandising systems."

Dive Insight:

And so it begins.

Amazon, the online company that has massively disrupted nearly all other major retail sectors is wasting no time implementing an ambitious plan for its first brick-and-mortar grocery acquisition. There are numerous steps to its initial Whole Foods agenda, but they all seem to point toward two goals: Reforming Whole Foods’ price image, and integrating strengths from both businesses to drive traffic to Amazon.com as well as to stores.

Prior to this point, industry analysts were generally in agreement that Amazon would lower Whole Foods’ prices, though some expressed skepticism that it could do so with the many niche products that distinguish Whole Foods from other grocers. In any case, Amazon’s deep pockets mean it can absorb early losses in order to drive traffic. The announced price drops include a selection of items that, beyond just being grocery staples, reinforce the natural and organic grocer’s fresh appeal and ethical standards.

Indeed, amid all the commotion, Amazon seems laser-focused on maintaining Whole Foods’ pristine image as a place where organic, fair trade, all-natural and sustainable ideals permeate every category. It will be interesting to see whether Amazon can keep that promise and even expand upon it — or if, as many fear, the company will squeeze suppliers and dilute product standards.

Beyond price drops, Amazon is focused on integrating the two companies in ways that should benefit both. Industry observers for weeks have talked about the value of Whole Foods’ private label selection. Despite the grocer's weaknesses right now — and there are many — its 365 brand remains one of the best store brands in the business. Offering products online should give Amazon’s grocery sales a boost, and could drive traffic to Whole Foods stores. Amazon Lockers, which will be installed in select locations, will also nudge online customers into Whole Foods stores by offering order pickup and returns. Beyond a push into grocery, it has become clear that Amazon's Whole Foods deal is about taking omnichannel seriously.

"With Amazon adding 460 in-store pickup locations, retailers need to get in the game and put in place their own click and collect services, or get knocked over by the oncoming train," Nick McLean, CEO of OrderDynamics, said in an email to Retail Dive. "Amazon has long been the benchmark for consumer expectations online, and it has started the engine in the omnichannel space, too."

Perhaps the most intriguing aspect to watch as the deal closes is just how Amazon incorporates its Prime loyalty program with the brick-and-mortar grocer. Considering the overlap with core customers, it's a smart move, according to Neil Saunders, managing director of GlobalData Retail.

"Not only will this allow Amazon to target discounts and offers effectively, it will also give it significant intelligence on the preferences and habits of Whole Foods shoppers," he wrote in a note emailed to Retail Dive. "Given that 70.3% of Whole Foods core customers are already members of Amazon Prime, the linkage covers a significant part of the existing shopper base."

For Amazon, the main benefit of this nexus will likely be the data it gains. By joining its in-store and online shopper knowledge, the company will be able to better predict demand, hone its assortment and offer promotions in the physical and e-commerce space.

"Real value for Amazon will emerge when their consumer profiles stretch beyond the screen and into the physical aisle," said Greg Portell, lead partner in the retail practice of A.T. Kearney, in a note to Retail Dive. "When Amazon is able to achieve that seamless view, traditional retailers will be pressured to stop viewing their worlds by channel.  The completion of this deal kills the typical view of retail being delineated by channels."

Portell contends that Amazon could shake up the industry if it brings capabilities like dynamic pricing and online profiles to bear at Whole Foods stores. "If Amazon is able to translate their dynamic pricing capability to the physical stores, traditional grocers will be under pressure to match that ability — regardless of whether they match prices," he noted. 

Traditional grocers aren't the only retailers to be pressured. Mass merchants — notably Walmart, Target and Meijer — have much to lose as Amazon escalates the war for the American shopper, now across channels. Target is making major moves to grow sales in the category with new formats and merchandising, and the Whole Foods strategy could spoil Target's grocery ambitions.  

Walmart is vigorously defending its position as the nation's largest grocer with expanded assortments and new merchandising to showcase natural and organic foods, and new delivery and pickup options for online orders. Walmart has also proven it won't back away from a price war and is perhaps best positioned to engage with Amazon on that front.  

And regional chain Meijer is reorganizing around grocery shifts and opening smaller concepts to become more competitive.  

Questions still remain on Amazon’s plans for home delivery and store pickup, as well as how the company plans to proceed with store development. Will it build more stores, close down locations, focus on building more small-format 365 stores — or some combination? As Amazon notes, this is just the beginning. And what a beginning it is. Early indications are that Amazon is serious about becoming a dominant player in grocery, and that this acquisition is as much about building the Amazon brand as it is about building the Whole Foods brand.