Amazon’s Dynamic Pricing Scares Grocers

Walmart, Costco and Kroger stock dipped on Thursday as Amazon slashed prices at its Whole Foods locations. The move is considered to be typical of the tech industry, where the business model is growth focused. Jeff Bezos used his “high-velocity decision making” to grow Amazon, the company he founded, into the powerhouse it is today. He put that same decision making style to use on the grocery model. Unlike other retailers, Amazon has the ability to fiddle with prices without suffering tremendous loss. Already a highly competitive market, this shift in decision making is unsettling to many retailers.

Greg Portell of the A.T. Kearney consulting firm told Bloomberg, “What Amazon has done is bring a level of dynamic pricing that will have to be matched by anybody selling food. It will disrupt the way the sector works.”

Right now the sector works by offering organic products at lower prices than Whole Foods. Kroger, Walmart and others did this slowly. As more consumers purchased organic goods, they began offering more organic goods. The goods they offered were available within the stores’ typical price points. This led to organic specialty stores like Whole Foods to grow slowly and stall, especially as Whole Foods gained a reputation for pretense. It might seem that Amazon was purchasing a dying outlet, but Whole Food’s customer base is also Amazon’s customer base. Amazon has offered their Prime members discounts at Whole Foods locations and it is expected this will help retain a good number of customers. Since two-thirds of Whole Foods customers are already Prime members, Amazon can expect to retain those patrons.

The challenge that Amazon faces is transferring its high-velocity decision making over to a new industry. Analysts believe Amazon is moving a bit too fast and might not be able to physically apply all of their in-store discounts in time. This means watchdogs and federal trade regulators can call Amazon out.

Although Amazon unveils its new pricing on Monday, other retailers might not have reason to be intimidated, at least not right away. Amazon needs to retain existing Whole Foods customers but also must reach out to other demographics. Its share of the food market is small compared to Walmart and other giant grocers. But Amazon is aggressive and its long-term persistence might wear down competitors.

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