Blog: Does Amazon deal signal end of Whole Foods' ‘whole paycheck’ label?

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Blog: Does Amazon deal signal end of Whole Foods' ‘whole paycheck’ label?

By Lawrence Aylward - 06/20/2017

With its acquisition of Whole Foods Market last week for $13.7 billion, Amazon has suddenly become a major player in private brands, not to mention in organics. But what will Amazon, known for driving down prices, do with Whole Foods’ store brands, which have been tagged with the “whole paycheck” label by consumers for their high prices?

Whole Foods has reportedly lost millions of customers the past few years because more consumers have discovered they can purchase organic and free-from products at conventional grocery stores at lower prices. So what will Amazon do to stop the bleeding, which also includes six straight quarters of sales losses?

Jeff Bezos, founder and CEO for Seattle-based Amazon, said in a press release that Whole Foods "has been satisfying, delighting and nourishing customers for nearly four decades — they’re doing an amazing job and we want that to continue.” If it sounds like Bezos isn't going to change a thing, don't believe it for a second. He is a cunning businessman. He knows Whole Foods's organic and free-from products have lost ground to its grocery rivals. Somehow, he will put a stop to it. The question is how much will it impact grocery retailers' sales of organics, especially among private brands, where retailers have found a premium item that is performing well and growing as store brands?

Chris Bryson, founder and CEO of Unata, a Toronto-based grocery e-commerce provider, says he expects Amazon to make Whole Foods’ private brands more accessible to a broader market at lower prices.

“Amazon has always been a destination that is appealing to the masses,” Bryson says. “In the end, the consumer wins because Amazon will be able to make these products available to a wider market and likely bring down prices.”

Private brands consultant Jim Wisner, president of Libertyville, Ill.-based Wisner Marketing Group, says he expects Whole Foods’ private brands, which have lagged in sales behind its competitors,’ to be spurred by Amazon’s ability to sell them online. But in the short term, Wisner doesn’t expect Whole Foods’ prices to change dramatically.

Generally, Bryson says the deal is “the clearest sign we have seen of the importance Amazon is placing on the in-store experience,” which validates the need for physical stores because consumers want a choice when it comes to grocery shopping.

“Consumers will migrate between shopping online and shopping in-store,” he adds.

But Bryson says Amazon, with its recently introduced click-and-collect model, has created a “three-legged stool” for consumers to shop and that other retailers will be forced to keep up … or else.

“What it means for mid-market grocers is they better embrace that strategy of being an omnichannel provider and having all three of those offerings or they certainly stand to have their business significantly effected,” Bryson says.

Wisner says most every major food retailer has begun building “a fairly robust” online system for consumers to purchase groceries.

“In fact, they are doing it far better than we might have guessed,” he adds.

Many retailers have been trying to figure out strategies to sell their private brands online. Amazon, perhaps, will shed some light on the subject.

While Wisner says Amazon will “accelerate the pace” of the omnichannel experience, he notes that is not bad news for other grocery retailers. In fact, he expects retailers to react swiftly.

“This will raise the tide for [all boats],” he adds.

Wisner also expects retailers to gain more focus on where their private brands fit in the equation.

“It’s in every retailer’s best interest to position their own brands in a more favorable light and develop loyalty to the products,” he says. “Ecommerce provides a more controlled environment to do that.”