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Amazon announced late this afternoon that it will close on its $13.7 billion acquisition of Whole Foods on Monday, and will immediately lower prices, as well as beginning the integration work that eventually will turn Amazon Prime into Whole Foods’ loyalty marketing program.

The official statement said that “the two companies will together pursue the vision of making Whole Foods Market's high-quality, natural and organic food affordable for everyone. As a down payment on that vision, Whole Foods Market will offer lower prices starting Monday on a selection of best-selling grocery staples across its stores, with more to come.”

In addition, the companies said, they will immediately “begin to integrate Amazon Prime into the Whole Foods Market point-of-sale system, and when this work is complete, Prime members will receive special savings and in-store benefits.” The companies said that investments in various segments of the business, including merchandising and logistics, should enable to lower prices even more for their customers.

The announcement came just a day after Whole Foods shareholders approved the deal and federal regulators said they would allow it to move forward; Amazon said as late as yesterday that it expected to close the deal “by the end of the year.”

Jeff Wilke, CEO of Amazon Worldwide Consumer, said, “To get started, we're going to lower prices beginning Monday on a selection of best-selling grocery staples, including Whole Trade organic bananas, responsibly-farmed salmon, organic large brown eggs, animal-welfare-rated 85% lean ground beef, and more. And this is just the beginning — we will make Amazon Prime the customer rewards program at Whole Foods Market and continuously lower prices as we invent together. There is significant work and opportunity ahead, and we're thrilled to get started.”

Other categories where prices will be immediately lowered include organic responsibly-farmed salmon and tilapia, organic baby kale and baby lettuce, animal-welfare-rated 85% lean ground beef, creamy and crunchy almond butter, organic Gala and Fuji apples, organic rotisserie chicken, and 365 Everyday Value organic butter, Amazon said.

Furthermore, Whole Foods’ private label products will now be available Amazon.com, AmazonFresh, Prime Pantry and Prime Now, and Amazon Lockers - allowing people to have products shipped to someplace other than their home or workplaces - will be installed in select Whole Foods stores.

In its coverage, the Washington Post writes that “analysts said the slashing of prices was an obvious move. Whole Foods — nicknamed ‘whole paycheck’ in some circles — has long struggled to shed its reputation as a pricey alternative to other supermarket chains. The company’s prices are about 15 percent higher than at the average grocery store, according to Morgan Stanley.”

Reuters writes that “Scott Mushkin, who covers grocery stores at Wolfe Research, recently said Whole Foods, on average, can be 15 percent to 20 percent higher than some rival grocers and is as much as 25 percent more expensive at the extreme.”

In addition, the story says, “Lowering prices could help the companies stem the defections by price-sensitive Whole Foods shoppers and bring in new consumers who can then be urged to visit Amazon.”

And CNBC observes that one impact of the announcement was that “grocery stocks immediately tumbled Thursday afternoon … Shares of Kroger, Costco, Sprouts Farmers and Supervalu were all seen trading at session lows. Big-box retailers Target and Wal-Mart also watched their stocks fall.”
KC's View:
I want to be careful not to hurt my arm by patting myself on the back, but I think I wrote just hours ago - when Amazon was saying that it planned to close the deal by the end of the year - that it probably would happen sooner rather than later. (I got that right…though Monday is even faster than I expected.)

Plus, I suggested that Amazon would move quickly to stress that the deal will result in lower prices for shoppers, that Prime will be a critical component of Whole Foods’ value proposition, and that Amazon will move quickly to integrate their operations.

Check, check, check.

Actually, even a broken clock is right twice a day, and I only got this stuff right because I’ve been paying attention to Amazon for almost 20 years, and I know people a lot smarter than I (like Tom Furphy) who have patiently tutored me in the ways of Amazon.

I think the Amazon-Whole Foods combination is going to be a potent one that will present competitive problems to a lot of different retailers.

If you are a price-driven retailer, lower prices at Whole Foods means that Amazon is pressuring suppliers to lower prices … so you’re going to have to deal with that. Plus, they’ll be promoting those low prices pretty aggressively.

If you’re a more upscale retailer, it means that Whole Foods will be trying to make its versions of specialty foods more accessible to more shoppers.

And if you’re a middle-of-the-road retailer … well, you’re probably just screwed.

To me, this deal signifies something we’ve been saying here on MNB for years - that you have to have a competitive response to Amazon’s ambitions, and probably should’ve started working on it years ago. You have to figure out how to go to market with some sort of e-commerce strategy that builds on your own strengths (not necessarily mimicking Amazon), ands you have to do more to make your store a unique and compelling experience that is worth visiting.

One thing I’d immediately start doing is working on some version of a subscription model that addresses the advantages that Subscribe & Save will offer when extended to Whole Foods. And I don’t mean starting a series of meetings that hopefully will bear fruit in a year or two. I don’t think you have that long.

I do think it is a pretty good bet that however aggressively you think Amazon is going integrate Whole Foods’ operations and try to create a new competitive urgency at the company - while not sacrificing standards - it is probably going to do it faster than you think. There will be some misses, to be sure, and I would expect that there will be some culture clashes that will get some publicity in social media. But this is a serious threat being crafted by seriously innovative people.

I have two predictions.

One is that John Mackey will step down from Whole Foods within six months.

The other is that at some point in the next two months, President Trump - who hates Amazon CEO/founder Jeff Bezos because of the aggressive coverage of his administration by the Washington Post, which he owns in a private investment - will call out federal regulators in a speech for having approved the deal.

I’m just guessing here. But so far my average on this one is pretty good.

By the way … when news of the closing of the Amazon-Whole Foods deal hit the wires this afternoon (and I realize that the phrase “hit the wires” clearly establishes how old I am), even as I was beginning my vacation, all I could think of was the Lloyd Bridges lines from Airplane:

Looks like I picked the wrong week to quit smoking … looks like I picked the wrong week to quit drinking … Looks like I picked the wrong week to quit amphetamines … Looks like I picked the wrong week to quit sniffing glue.

Just want you to know that even while on vacation, I’m paying attention. And I’ll certainly be visiting my local Whole Foods next week just to see what’s happening, and how visible it is to shoppers.