Evidence Amazon-Whole Foods Is Starting To Steal Trader Joe's Shoppers

Scale's muscle begins to tell. JL


Spencer Soper reports in Bloomberg:

In more than 100 places around the U.S., the upscale grocer gained foot traffic at the expense of Trader Joe’s, Walgreen and Dollar Tree Stores. The data, which covers Whole Foods locations within one mile of competing stores, demonstrate that Amazon can lure loyal Prime members to physical stores with discounts. The number of shoppers who visited a Whole Foods at least six times increased to 11% from 9% a year earlier.
When Amazon.com Inc. bought Whole Foods last year, investors panicked and dumped shares in Kroger, Sprouts Farmers Market and even Walmart. The fear was that the e-commerce leviathan would disrupt yet another industry. Since then, the concerns have subsided as investors and analysts came to recognize that it will be years before Amazon becomes a major player in the $800 billion industry. Meanwhile, traditional grocers have more than managed to hold their own.
Still, there are already hints that the fabled Amazon effect is boosting Whole Foods, which had been losing ground to rivals as organic food went mainstream. In more than 100 places around the U.S., the upscale grocer gained foot traffic at the expense of Trader Joe’s, Walgreen and Dollar Tree Stores in the past year, according to Sense360, a Los Angeles company that tracks location data from millions of smartphone users.
The data, which covers Whole Foods locations within one mile of competing stores, demonstrate that Amazon can lure loyal Prime members to physical stores with discounts. Whole Foods just needs a lot more stores to be close to more people. Sense360 Chief Executive Officer Eli Portnoy says national grocers aren’t hurting yet but says Amazon is getting traction at the “micro” level. “We’re at the very beginning stages, and these things take time,” he says. “These findings show there will be an impact.”

A Trader Joe's store in San Francisco.

Photographer: David Paul Morris/Bloomberg 

Amazon typically refrains from making wholesale changes immediately following acquisitions and so far has merely tinkered with Whole Foods. The Seattle-based company added Amazon lockers to stores so shoppers can pick up deliveries. Whole Foods now sells Echo voice-activated speakers and other Amazon devices. Amazon offers delivery in 24 cities through the Prime Now service, mostly replicating what Whole Foods previously offered via Instacart.

Whole Foods this month announced store pickup of online orders in Sacramento, California, and Virginia Beach, Virginia, with more locations to come this year. That’s still far behind Walmart Inc. and Kroger Co., which both offer the service at thousands of locations. Kroger recently upped the ante with a grocery-delivery pilot in Arizona using autonomous cars.

Still, Amazon is making progress. The number of shoppers who visited a Whole Foods at least six times in the past year increased to 11 percent in August from 9 percent a year earlier, according to surveys by consumer products research firm Tabs Analytics. Amazon has been targeting its discounts and credit card reward at its millions of Prime subscribers, intensely loyal customers who pay annual or monthly fees for subsidized shipping and other perks.

A sign alerts Amazon.com Prime members of a special deal on shrimp at a Whole Foods store.

Photographer: Dania Maxwell/Bloomberg

In February, Amazon began offering Prime members 5 percent back on all Whole Foods purchases made with an Amazon-branded Visa card. And in June, Amazon introduced Whole Foods deals exclusively for Prime members that included 25 percent off bulk purchases of nuts and dried fruit and discounts on wild-caught salmon, organic cherries and hundreds of other products. “There’s a big segment of the population that loves deals,” says Tabs CEO Kurt Jetta. “Offer them a deal and they’re coming.” Even so, overcoming the grocer’s “Whole Paycheck” image will take time and patience.
Initially industry watchers believed Amazon would force other grocers to lower prices and sacrifice profit margins; in fact, the opposite has happened, with food prices rising and profits growing, says William Kirk, an analyst at RBC Capital Markets. Whole Foods is a niche, urban chain with only about 470 stores and little overlap with Walmart’s 4,000-plus stores and Kroger’s almost 2,800 locations that are mostly located in suburban markets.

Both companies have fully recovered from the initial Amazon scare, and strong food sales are fueling investor optimism in Walmart, the biggest U.S. grocer with 25 percent of the market compared with Amazon’s less than 2 percent. The threat from Amazon is far more pronounced for Trader Joe’s Co. and other regional urban supermarkets. Trader Joe’s declined to comment.
Of course, Amazon CEO Jeff Bezos is famously patient. Amazon will use Whole Foods as a lab to reinvent grocery shopping before expanding what works, says Neil Ackerman, a former Amazon executive who now works for Johnson & Johnson. “They are willing to experiment and be totally misunderstood for long periods of time,”  he says. “Walmart is built to deliver pallets to 4,000 stores and Amazon is built to deliver packages to millions of homes. Who do you want to bet on: the pallet people or the package people?”