Amazon plans more Prime perks at Whole Foods, and it will change the industry

Key Points
  • Amazon is planning new perks for Prime members, including 10 percent off of already discounted products at Whole Foods stores, sources told CNBC.
  • The moves will begin the process of more fully integrating the Amazon and Whole Foods businesses.
  • The perks will further fortify Amazon's role in the grocery industry.
Amazon plans more Prime perks at Whole Foods says sources
Amazon plans more Prime perks at Whole Foods says sources

Amazon is planning new Whole Foods benefits for its Prime members, sources told CNBC.

The new perks will bring the might of Amazon's membership program to the grocery industry, folding Whole Foods into a network other grocers will struggle to compete with. It will give Amazon vendors, many of which are niche and small, special access to Amazon's vast shopper base.

Roughly 75 percent of Whole Foods shoppers are Amazon Prime members, but less than 20 percent of Amazon Prime members are Whole Foods shoppers, a source told CNBC.

Whole Foods will begin offering Prime members an additional 10 percent off of already discounted products, sources told CNBC. They requested anonymity because the information is confidential. It has already begun to roll out other perks: free delivery of Whole Foods products to Prime members in certain locations, 5 percent cash back when members use its Visa rewards card at Whole Foods stores and exclusive member deals. It tested the latter with roses on Valentine's Day and turkey on Thanksgiving.

The grocer announced several weeks ago it would end its loyalty program on May 2, with new benefits to come soon.

Whole Foods rewards program was roughly a year old and considered a weak program by industry insiders. As a perk, it offered 10 percent off shoppers' first purchase as a new rewards member, according a press release announcing its rollout. As customers shopped, they unlocked more deals.

The new Whole Foods benefits will strengthen Amazon's increasingly powerful bundle of Prime offerings, which Chief Financial Officer Brian Olsavsky recently called "the best deal in retail." Olsavsky's comments came as Amazon said it would raise Prime's annual fee by $20 to $119 per year. In addition to free two-day shipping, the e-commerce giant offers streaming of music and movies, and now Thursday night football games through Prime, unlimited photo storage and other perks.

Promotions and discounts are typical in the grocery industry. Whole Foods is, therefore, looking to strategically use them to target Amazon shoppers.

For vendors, it is a fresh opportunity to reach a new customer base at a time when competition in the natural food industry is fierce. Most natural and organic brands have only broken through to a small set of households.

Organic brands with less than $500 million in sales are often only bought by 1 to 2 percent of households, according to one industry executive. With roughly 126 million households in the U.S., this means these brands might reach only 2 million homes. Last month, Amazon disclosed it had 100 million Prime members worldwide.

Meantime for retailers, the loyalty benefits turn Whole Foods into a far more formidable competitor, extending its impact beyond its roughly 400-store footprint and attacking one its greatest weaknesses — high prices. The grocer made its name selling organic and specialty foods but lost its defense as large grocers like Kroger began to sell similar products and at a lower cost.

Whole Foods' major competitor in the grocery wars, Walmart, has always offered low prices but does not have a membership program comparable to Amazon Prime. It has been investing heavily in automation and announced in March it plans to expand its grocery delivery business to 800 stores by the end of the year.

Grocers like Kroger have both loyalty programs and loyalty fuel programs, the latter of which is the more powerful of the two in terms of driving shoppers to stores.

Albertsons, meantime, recently announced plans for its own digital marketplace to help marry its offline and online shopping experience.

Whole Foods declined to comment.

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