A price war has raged in U.S. supermarket aisles for well over a year, bloodying retailers big and small. Today, Amazon.com plans to toss a smart bomb into the fray.
The online giant’s move to slash prices on everything from organic baby kale to fair-trade bananas on the same day its $13.7 billion acquisition of Whole Foods Market Inc. closes showed the “high-velocity decision making” Amazon founder Jeff Bezos claims as his hallmark, and sent shares of Kroger Co., Costco Wholesale Corp. and Wal-Mart Stores Inc. reeling Thursday. Amazon will also begin selling Whole Foods’ store brands on its site, install Amazon pickup lockers in some locations and meld its Prime program into the upscale grocer’s operations.
While this won’t exactly bring responsibly farmed salmon to the masses — after all, Whole Foods stores will remain in high-rent neighborhoods — the price reductions could draw in curious new shoppers and present brick-and-mortar retailers with a dilemma. Do they follow suit and see their margins squeezed, or hold fast and risk sacrificing sales in one of the few areas of the food industry that’s actually growing?
“Changing prices across the board is not a simple process for most retailers,” said Greg Portell, a partner at consulting firm A.T. Kearney. “It takes time and labor. What Amazon has done is bring a level of dynamic pricing that will have to be matched by anybody selling food. It will disrupt the way the sector works.”
Kroger shares rose 2.8 percent on Friday after falling 8.1 percent Thursday, while Costco alternated between losses and gains following Thursday’s 5 percent decline. Friday, shares of Royal Ahold Delhaize NV, the Dutch company that operates the Giant Food and Food Lion chains, dropped as much as 7.6 percent in Amsterdam.
Even European companies with no ties to the U.S., such as Great Britain’s Tesco Plc and France’s Carrefour SA, saw their shares decline. Amazon said it would also cut prices in its 9 U.K. stores.
Amazon is less constrained by profit expectations thanks to a tech-industry ethos that values growth above everything. So it can tinker with the prices of organic eggs, almond butter and rotisserie chicken, experimenting with what gets customers to respond and then doubling down on those successful bets.
Up until a couple of years ago, the grocery…