September 14, 2017

What Impact Does Amazon/Whole Foods’ Lower Prices Have On Manufacturers?

getting products onto store shelfIn recent weeks you have no doubt heard the news about Amazon cutting prices on many items within the Whole Foods franchise in order to make them more affordable and, ultimately it seems, shed some of the Whole Paycheck image that Whole Foods Market has carried for a while.

Cutting prices is certainly one thing Amazon knows how to do well and they can also certainly afford it, but in recent weeks as I’ve shopped at a variety of grocery stores (caveat here – sample size of 1 and I’m only shopping at stores in the Pacific Northwest so your region may differ), I’ve noticed competitive retailers in my area suddenly offering drastically reduced prices on items I don’t normally see on sale.

I’ll be frank and that my family probably shops at about 3 stores – not including pharmacy or our summer farmers’ market – to get everything we need for a week. Part of this is driven by a desire to get the best price we possibly can on items and some of it is driven by convenience. My closest grocery store has a natural section but is not as wholly-devoted to ‘natural’ as Whole Foods Market or its direct competitors. That notwithstanding, sometimes I just need to run out to grab one or two things and as such the convenience of the closest store wins out.

Since we do shop from a variety of stores, it’s been interesting to witness how Whole Foods Markets advertised price discounts has seemingly reverberated throughout the industry. The day after the initial price cutting announcement, I went into a WFM competitor and saw more ‘sale’ and ‘discount on X’ signs than ever before. Perhaps I just hit a jackpot week at that store – but the timing seems fishy.

Ultimately though, what I’m really interested in knowing is how these decreased prices may or may not impact manufacturers big and small. If price cutting continues as a means to grab market share then at some point the supermarkets are going to turn to the manufacturers to carry part of that burden. Bigger brands will be more able to offer those discounts to their wholesalers than smaller brands will. Does that mean smaller brands will be pushed off the shelf or is customer demand for them so great that retailers need to keep smaller brands on the shelf regardless? If smaller brands are kept on the shelf but don’t discount, will it be harder for them to sell through when up against deeply discounted competitors sitting right next to them in the store?

How do you see this shaking out?

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