It's been a year since Amazon (NASDAQ:AMZN) acquired Whole Foods Market, and competing grocers like Walmart (NYSE:WMT) and Kroger (NYSE:KR) haven't seen too much impact. But smaller grocery and retail chains including Trader Joe's have been losing foot traffic to nearby Whole Foods stores over the past year, according to data from Sense360 reported by Bloomberg.
Whole Foods is managing to steal traffic from nearby stores in more-urban areas. Walmart and Kroger stores are generally more suburban and have seen a very muted impact, if any. But if Amazon builds more suburban stores or expands its free delivery service, it could be bad news for the larger grocers.
What's changed at Whole Foods?
Amazon hasn't changed much at Whole Foods stores. It's started selling its own electronic devices like Echo speakers alongside organic produce, and installed lockers for customers to pick up Amazon.com orders. For the most part, however, Whole Foods stores look like they did a year ago.
But Amazon has moved quickly to integrate its Prime membership program into the grocery store known for its high prices. Prime members get discounts on everyday items throughout the store, including a 25% discount in its bulk section, where you can buy dried fruit and nuts by the pound. Members with the Amazon credit card get an additional 5% cashback savings when using the card at checkout.
That's been enough to attract some extra foot traffic to the stores. The percentage of shoppers who visited a Whole Foods at least six times in the past year increased to 11% in August from 9% a year ago, according to Tabs Analytics.
Amazon has also been testing free delivery for Prime members in select markets and free curbside pickup for online orders in other markets. It plans to eventually expand both services nationwide.
Maybe Walmart and Kroger have felt some impact
As mentioned, Walmart and Kroger haven't seen much change in their foot traffic. In fact, sales at both chains have been great in 2018. Walmart posted spectacular second-quarter results with same-store sales increasing 4.5% in the U.S. Management specifically called out strong fresh-food sales growth in its earnings presentation. Kroger's sales increased 2.8% on an adjusted basis during its first fiscal quarter.
But both companies have invested significant amounts to reach that point. Walmart's online grocery ordering and pickup have expanded to over 1,800 stores already. It also offers delivery from over 320 stores. Kroger offers free pickup at over 1,250 stores, and it started testing online shipped-to-door sales earlier this month. All of those investments in making it easier for customers to shop online seem aimed directly at Amazon.
Unlike smaller competitors like Trader Joe's, both companies have the scale and resources to make those investments. The cash and scale needed to invest in things like store-to-door delivery are what Amazon brings to Whole Foods, which has roughly the same number of stores as Trader Joe's. That could put further pressure on Trader Joe's as Amazon expands Whole Foods' online ordering capabilities.
Amazon will surely continue to put pressure on Walmart, Kroger, and other big national chains, and they'll have to keep investing to stay ahead of Whole Foods. In the short term, however, it appears Amazon's success will come at the expense of smaller, urban-focused grocers and convenience stores. Meanwhile, Amazon investors should be ready for long-term investments to start taking share from the big national players.