Amazon’s Latest Price Cut Leaves the Competition Unfazed
05 Apr 2019
Amazon.com’s third round of price reductions at Whole Foods Markets may be a signal that competition is tougher than the online giant initially thought.
Amazon (NASDAQ:AMZN) said that it will cut prices on a range of produce by an average 20% from Wednesday. It’s the third round of cost cuts in just over two years since it bought the organic food retailer.
The move appears to be aimed at enhancing its Prime service in the U.S.: the company said it will double the range of Prime member deals at the grocery chain and offer deeper discounts.
While it has repeatedly said it intended to bring prices down, the move suggests that Amazon is not having things all its own way. Other big players in U.S. grocery market, such as Kroger (NYSE:KR), Walmart (NYSE:WMT) or Target (NYSE:TGT), have all responded to Amazon’s challenge in recent quarters. Certainly, the shock and awe effect visible when it bought Whole Foods two years ago has faded: neither Amazon’s stock nor those of its competitors moved much in response to the news, although Dutch-based Koninklijke Ahold Delhaize (OTC:ADRNY), the owner of Stop & Shop and Giant Landover, fell 1.7% in early European trading.
Amazon is facing a two-way squeeze this year. It’s forecasting a slowdown in sales growth and a rise in costs – not least due to investment in its grocery stores. Its shares fell 5% at the end of January after forecasting revenue growth of between 10%-18% in the first quarter, the slowest rate in at least four years.
The shares have more than recouped those losses since, but the latest measure is a reminder that buying market share in a competitive grocery business can be an expensive business.