When Amazon (NASDAQ:AMZN) took over Whole Foods in late August, it immediately began lowering prices on some items. That well-publicized move brought in new customers to the grocery chain, increasing foot traffic significantly, according to a new report from Thasos Group, but it's possible those gains may be short-lived.
On the positive side, foot traffic rose by 17% year over year at Whole Foods during the first week of the price reductions, according to research company Thasos. Not long after, though, for the week ending Sept. 16, foot traffic was actually down 4% year over year.
This indicates that lower prices can entice people to give Whole Foods a try. It also shows that if the Amazon-owned chain doesn't impress shoppers who normally patronize other stores, any gains will quickly fade.
Where did Whole Foods' new customers come from?
Thasos looked at the data two different ways. First, it analyzed Whole Foods' traffic to break down which rivals provided the highest percentage of its new customers during the first week of the price reduction. It came up with:
- Wal-Mart: 24%
- Kroger: 16%
- Costco: 15%
The researchers also concluded that Trader Joe's, Sprouts, and Target lost grocery customers to Whole Foods in the first week.
And while Whole Foods saw its year-over-year foot traffic fall in the week ending Sept. 16, things did not entirely return to normal for its rivals. "Customer defection rates remained elevated for all competing stores as of Sept. 16," according to Thasos.
Should rivals worry?
It's possible that Whole Foods got a one-time curiosity bump from the publicity surrounding its price cuts. Going forward, however, Amazon has pledged to keep the cuts coming and that's a major concern for its grocery rivals.
Thasos also found that "the new customers Whole Foods attracted with its price reduction were the wealthiest regular customers of the competing stores." That could be very bad news for the other chains because they risk not only losing customers to Whole Foods, but losing the ones who spend the most.
It's also worth noting that lower prices did not bring in a lower-income demographic to Whole Foods. It also failed to bring in shoppers who live further from the chain, according to Thasos.
These results should serve as a wake-up call for Whole Foods' rivals. Amazon has the ability to lower prices while also improving the shopping experience at its grocery chain. It can also add incentives for Prime members to shop at Whole Foods, which may also draw customers who normally shop elsewhere.
That means that every Whole Foods rival needs to examine its own prices, shopping experience, and relationship with their customers. It's clear that Whole Foods won't win by default just because Amazon owns it, but some customers are clearly willing to at least think about switching. If the chain keeps pushing its prices lower, that will probably drive its traffic higher, and that's something every other grocery chain should be very wary of.