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New Owner, Old Prices

By: Darrin Duber-Smith


Much has been written of late about the lack of progress Whole Foods has made thus far in its efforts to lower prices, but this writing has been penned primarily by journalists rather than professional marketers, the latter of whom must understand that these things take time.


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Five weeks is not enough time for a large company to alter a marketing strategy, especially one that involves business-to-business buying on a national level. Amazon was able to lower prices immediately on mostly high profile, high volume goods because it wanted to generate publicity and a larger company can operate with thinner profit margins; but without a major change in how Whole Foods buys what it stocks on its shelves, a one percent reduction is about all it can afford. In fact, the company opted to raise prices on some lower volume goods. What can we expect in the future?


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Right now Whole Foods' business model is inefficient, and it takes a while for one company (Amazon) to digest another (Whole Foods) after acquisition. Amazon will use its massive retail presence and command of supply chains to reduce prices in much the same way that Wal-Mart has been able to do over the years. Channel captains enjoy close relationships with their vendors, are able to negotiate more favorable prices, are great at merchandising and category management, and often buy in large volumes over a long period of time, all of which results in a more efficient supply chain overall and lower costs.


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Add Amazon's obvious e-commerce advantages into the equation and overall, we could see about a 10% reduction in retail prices over the next few years at Whole Foods Markets. And since prices at Whole Foods have historically been about 15% higher than traditional grocery prices, the brand can still enjoy a bit of a premium position in the market, albeit not one as extreme as the "Whole Paycheck" image it has managed to cultivate. But these things do take time and Whole Foods doesn't want to dilute its brand equity by duplicating the low-price model of Sprouts. I would favor a slow, steady reduction in prices. Let's see what happens.