While details are still limited about how Amazon Prime will become the rewards program at the grocer, the bottom line is that shoppers will be able to earn Amazon rewards when they buy food from Whole Foods.
Amazon has also said that Prime members will have access to exclusive deal and benefits that non-Prime members won't have access to. Starting Monday, August 28, Whole Foods' prices have already been cut by up to 43% for all shoppers, Bloomberg reported. For example, the price of a jar of creamy almond butter dropped 13% to $6.99 on Monday from $7.99 on Sunday.
In addition, Whole Foods' private labels, including 365 Everyday Value, Whole Paws, and Whole Catch, can now be bought through Amazon's Prime Pantry and Prime Now food delivery programs that are only available to Prime members. Lastly, Prime members will be able to order food items online at Amazon.com and pick them up at an Amazon Locker located at their nearest Whole Foods.
By integrating its Prime membership into the Whole Foods shopping platform, Amazon is luring its current estimated 80 million global Prime members to shop at Whole Foods instead of other grocers, noted Brittain Ladd, who worked as a senior manager on the Amazon Fresh and Pantry operations for about two years ended this May. Whole Foods currently has about 470 locations in the U.S. and Europe but is expected to open more under Amazon's umbrella. Second, this rewards program incentivizes non-Prime members to sign up for a Prime membership to get access to savings both at Whole Foods and on Amazon's online platform.
Amazon has always maintained that its main goal is to give its customers the best retail experience possible. But to boost its top line, Amazon is smart to focus on growing its Prime members because on average they spend more money on the website. According to ITG analyst Steve Weinstein, non-Prime members spent less than $1,000 in 2015 while Prime members who became subscribers in January 2014 spent an average of $2.147 and subscribers who joined in January 2012 spent an average of $3,091.
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"The value of Prime to Whole Foods and Amazon is that Amazon can now make the argument to consumers that we as Amazon have an endless aisle for all of your grocery and retail needs and in addition to already low prices, Prime members achieve even more savings," Ladd explained.
Amazon's $13.7 billion entry into the traditional grocery scene has created shockwaves throughout the sector. Competing grocers don't want to be edged out of their sector by Amazon. Shares of Walmart (WMT - Get Report) , Target (TGT - Get Report) , and Kroger (KR - Get Report) were all lower on Monday afternoon, the day that the acquisition became official after Whole Foods shareholders and the Federal Trade Commission (FTC) approved the deal last week. Investors have seen Amazon disrupt the retail industry and are now waiting to see what happens when it disrupts the grocery scene.
These traditional grocery retailers must rethink their strategy to compete with an Amazon-Whole Foods combo, Ladd said. "Let me be clear: grocery retailing is about to change forever and only those grocery retailers committed and prepared to make the required investment while re-engineering their business models will survive and thrive," he claimed.
Another hard-to-miss change at Whole Foods stores on Monday is the option to purchase the Amazon Echo smart speaker, as advertised by giant posters set up in the store. The device was on sale for $99.99 in the stores, a sharp price drop from its $179.99 price tag. The Amazon Dot was also available for a discount price of $44.99, compared to its regular $49.99 price. The special deals were also available online on Amazon's website on Monday. This mini electronics section allows customers to try out Amazon's devices and become more comfortable with them, Ladd previously told TheStreet. "That's what Apple's (AAPL - Get Report) stores have always done right is letting people test out its devices and gain confidence in them," he explained.
Shares of Amazon were trading down 0.3% to $943.26 on Tuesday morning. The stock is up 26% for 2017.