Amazon quickly narrows the price gap between Whole Foods and Kroger

CINCINNATI - It only took a day for Amazon Inc. to narrow the price gap between Whole Foods and Kroger, but it still has a ways to go before beating Cincinnati’s largest grocery chain on the price of organic products.

That’s what WCPO found in a quick price check of retail rivals in the Oakley area. We checked 10 prices on organic staples, including kale, corn flakes, avocados and rotisserie chicken. Amazon implemented reductions of up to 50 percent on the first day of its Whole Foods takeover, prompting this response from shopper Lindsay Schott.

"I think it is awesome," said the Montgomery resident. "Who wouldn't want a lower price? I'll make the drive more."

“It’s clear the new combined entity is serious about being competitive on price,” said Mark Hamrick, senior economic analyst for Bankrate. “But I wouldn’t place too much emphasis on the importance of the exact prices.  Amazon is ingenious in using data and pricing accordingly. It holds a competitive advantage in that realm. But this is going to be a very fluid, dynamic situation. We’ll see innovations on a number of fronts.”

WCPO visited the Whole Foods store at Rookwood Commons on Aug. 26 and Aug. 28. Prices were checked Aug. 28 at the Kroger Marketplace store in Oakley and the Walmart supercenter on Redbank Road in Fairfax.

Here is a summary of results:

• Whole Foods’ Organic Roasted Rotisserie Chicken took a $3 price trim to $9.99. That’s less than Kroger’s $10.99 price for its comparable Simple Truth whole-roasted chicken.
• The price of organic avocados from Peru declined 26 percent to $1.99 at Whole Foods, or 20 percent less than Kroger’s competing product.
• Kroger maintained its pricing advantage for Kale and brown eggs, even after Amazon’s price cuts.
• Walmart had a smaller selection of organic products, but its pricing was competitive on gala apples. Amazon cut the Whole Foods price 50 percent to $1.99 per pound. Kroger had gala organics at $2.49, while Walmart offered two-pound bags for $4.24.
• Kroger, with organic alternatives for all 10 products, was 14 percent lower than Whole Foods' new, lower prices.

"We've always believed that customers shouldn't have to pay higher prices just because a product is natural or organic," said Kristal Howard, head of corporate communications for Kroger.

But the Cincinnati-based grocery chain shouldn’t breathe easier with that result, Hamrick said. That’s because Amazon is likely to follow its day-one price reductions with additional targeted discounts to millions of Amazon Prime members.

“That’s essentially the equivalent of putting balloons outside the store and giving away free cake and ice cream,” he said. “Also yet to be seen is how they might transform the checkout experience. Could be they develop a real-time tally of your bill as you put it in the cart?”

Barclay’s analyst Karen Short predicts Amazon will change the way Americans shop for groceries.

“The traditional supermarket racetrack, weekly circulars and checkout process will likely be a thing of the past once (Amazon) gets its sea legs through thorough testing and analysis of the current and future generation of grocery shoppers,” Short wrote in an Aug. 25 note to clients. “Amazon will likely drive drastically different shopping behavior in grocery – at least for a subsector of the population.”

Short predicts Amazon will provide more services through Whole Foods, including new meal kit stations, home delivery and in-store pickup of all merchandise sold on Amazon, perhaps even an Amazon help desk.

“The day will soon come when customers can walk in to (Whole Foods) and ask an employee to set up Amazon Prime video or music on their personal device, she said.

What will this mean for Kroger?

“It simply accelerates and magnifies the need for Kroger to be innovative and competitive by larger orders of magnitude,” Hamrick said. “If they thought they had problems before, the problems have only become more challenging.”

Kroger has an advantage in its number of store locations and an existing relationship with millions of loyal customers. But it will have to gain greater efficiencies as online rivals continue to find cheaper ways to deliver every product Kroger now sells in its stores.

One "obvious inefficiency" to Hamrick is the number Kroger banners. He thinks Harris Teeter in the Southeast, Ralph's and King Soopers in the west will eventually be folded into the larger Kroger brand – in much the same way that Macy’s eliminated all nameplates for its national brand.

Kroger declined to comment on how the grocery industry may evolve under Amazon's influence.

“It’s a new day for grocery shopping,” Hamrick said. “Its become apparent that these rivals are going to be competing on price, but also trying to deliver value … that’s good for consumers.”