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Amazon makes Whole Foods' prices more competitive with rivals in LA: JPMorgan

  • For products on JPMorgan's natural and organics-focused shopping list, Ralphs is now 4 percent cheaper than Whole Foods, and Sprouts is less than 1 percent cheaper, down from 11 percent cheaper on average.
  • For products advertising Amazon-related price cuts, Ralphs is now 4 percent more expensive than Whole Foods; it used to be 20 percent cheaper.
  • For those items, Sprouts is now 2 percent more expensive than Whole Foods; it used to be 24 percent cheaper.
Apples are displayed at a Whole Foods store in New York City, August 28, 2017.
Brendan McDermid | Reuters
Apples are displayed at a Whole Foods store in New York City, August 28, 2017.

Amazon's price slashing has made Whole Foods' prices more competitive with, and in some cases cheaper than, rivals Ralphs and Sprouts in the greater Los Angeles area, according to JPMorgan analysts.

Amazon wasted no time trying to scrub Whole Foods of its "Whole Paycheck" image. On its first day officially owning Whole Foods, Amazon cut prices on a number of items across the store.

JPMorgan's Ken Goldman and Thomas Palmer recently visited Whole Foods, Ralphs — which is a Kroger property — and Sprouts stores in the greater Los Angeles area to check prices and speak to store managers and employees about any changes being made. The LA market is the single largest one for all three retailers, Goldman and Palmer said in a note to investors Monday.

At each store, they compared prices on a number of natural and organic foods, as well as items Amazon advertised it had lowered prices on.

For products on JPMorgan's natural-and-organics-focused shopping list, Ralphs is now 4 percent less expensive than Whole Foods, and Sprouts is now 5 percent less expensive, Goldman and Palmer wrote. Ralphs and Sprouts were about 11 percent less expensive on average than Whole Foods before Amazon acquired it.

The change was even more pronounced on items Amazon advertised it had cut prices on. For those products, Ralphs is now 4 percent more expensive than Whole Foods; it used to be 20 percent less expensive. Sprouts is now 1.3 percent more expensive than Whole Foods; it used to be 24 percent less expensive.

However, the items Goldman and Palmer compared were heavily focused on natural and organic foods, they noted. Before Whole Foods' price cuts, JPMorgan found their conventional products were 20 percent more expensive than those at Kroger and Sprouts.

Sprouts has said it's always committed to being competitively priced. Ralphs, meantime, offers customers an entire "savings center" for shoppers on its website.

Goldman and Palmer wrote they did not notice promotional or merchandising changes at the Ralphs and Sprouts stores they visited.

"We would expect that over time, Whole Foods' competitors will likely have to lower prices on certain items, especially in produce; otherwise they will see their traffic under pressure," Goldman said in an email.

JPMorgan's findings suggest Amazon's price cuts are having an effect at Whole Foods. News coverage of the changes buoyed their effectiveness, Goldman and Palmer wrote.

From their store visits, it does not appear Amazon has made many more cuts since the initial ones that were advertised on its first day officially owning Whole Foods. That did not surprise them.

"Additional price cuts so soon after the first wave — and without accompanying press releases — would probably not have as much effect on customer traffic and purchase habits (which are the main purpose for price reductions)," Goldman and Palmer wrote.

They "don't really know" when Amazon will cut prices again, Goldman said in an email. Amazon will likely want to do some diagnostics and testing first, he said, although the information isn't clear.

Amazon has promised "more to come" in partnering with Whole Foods, adding that Prime members will eventually see integration with their loyalty program in stores. For now, Whole Foods has mainly marked down produce and items from its cost-conscious, private-label brand 365.

Whole Foods is also in the midst of rolling out 365-branded stores across the United States, which will give Amazon an expanded real estate footprint but on a smaller scale.

Whole Foods declined to comment.

Wall Street has hammered grocery stocks since Amazon announced in June it would acquire Whole Foods, wiping out billions in market value from grocery retailers. Kroger's shares have fallen 12.7 percent since the day before the announcement. Sprouts' stock price has tumbled 16.3 percent in the same time period.

Correction: For products on JPMorgan's natural-and-organics-focused shopping list, Sprouts is now 5 percent less expensive than Whole Foods. For items where Amazon advertised it had cut prices, Sprouts is now 1.3 percent more expensive than Whole Foods.