When Amazon.com Inc. (NASDAQ: AMZN) bought Whole Foods, other grocery companies worried that America’s largest e-commerce company would use its delivery systems to make groceries more readily available, particularly for home delivery.
Amazon has employed another tactic to get more business in the category. It has started to cut prices at Whole Foods. It extended that tactic by further cutting what Amazon Prime members pay at Whole Foods. This will add to Amazon’s grocery business, and it also may help add to its 100 million Prime business.
Amazon announced:
Prime members now save more at Whole Foods Market. Starting today, members get an additional 10 percent off sale items, typically hundreds of products throughout the store, plus weekly deep discounts on select best-selling items. These savings are currently available in all stores across Florida and will expand to all Whole Foods Market and Whole Foods Market 365 stores nationwide starting this summer. Exclusive savings at Whole Foods Market join the unparalleled combination of benefits for Prime members in the U.S., including unlimited fast, free shipping and great entertainment.
The decision also may help it to flank its largest rivals, Walmart and Kroger. Neither has a business like Prime to leverage as a tool to get or retain customers.
Of course, discounts on Whole Foods products have to compress margins in its grocery business. At the same time, it is a way for Amazon to entice Prime members and to make it more attractive to current Prime members. Effective May 11, Amazon raised the annual price for Prime to $119 a year from $99.
The new price will apply to existing members on their next renewal starting on June 16
Prime is already a bundle of products and services unlike any other in the retail industry. It includes streaming media, a large portion of it produced by Amazon itself. It offers free shipping on millions of items, unlimited photo storage and early deals on Amazon sales.
Prime members also shop more often at Amazon.com than non-Prime members do, a huge benefit for Amazon. According to a study by Consumer Intelligence Research Partners:
On average, US Amazon Prime members shop at Amazon.com 25 times per year. In contrast, customers without Amazon Prime shop at Amazon.com an average of 14 times per year.
Even if the Whole Foods discounts cost Amazon something in terms of profit, they are another way to help move Prime membership from its current 100 million to a higher level.
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