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USA: Why Amazon buying Whole Foods could make groceries cheaper

USA: Why Amazon buying Whole Foods could make groceries cheaper

Junio 20, 2017

Autor/Fuente: Business Insider 👤Periodista: María Alejandra Lopez 🕔20.Jun 2017

 

The deal is “absolutely game-changing” for Amazon, said Phil Lempert, an industry observer and the founder of SupermarketGuru.com, told MONEY.

The acquisition of Whole Foods’ 431 locations gives Amazon new access to wealthy, health-conscious, quality-seeking shoppers.

But will it make your groceries any cheaper? Many experts say yes.

“It’s good news for consumers. This is going to be fabulous” for anyone hoping to save money on groceries, Lempert said.

In general, Lempert said, more competition in the grocery sector will lead to lower prices. The day before the announcement, Kroger stock plunged 19% after investors found out America’s largest supermarket chain was cutting its profit outlook by 10% and is being forced to lower prices amid heightened competition. Speaking of which, this week the low-price grocery Aldi, which is owned by the same company as Trader Joe’s, announced a major expansion in the U.S.

Another low-cost grocer based in Europe, Lidl, also opened its first 10 U.S. locations this week, in the Carolinas and Virginia, and it has plans to have up to 100 stores in operation within a year along the East Coast.

But changes are expected to be especially noticeable at Whole Foods, the organic grocer that has been derided as “Whole Paycheck” because of high prices (remember the $6 asparagus water?). In recent years Whole Foods has attempted to stress value, and even launched a lower-priced Whole Foods 365 line of stores, but for the most part it is still thought of as an expensive place to shop for groceries.

Read Also: Walmart to Buy Bonobos, Men’s Wear Company for $310 Million 

“Amazon can be expected to work to deliver better value to grocery customers, both online and within the brick-and-mortar space,” said Bankrate.com senior economic analyst Mark Hamrick. “”This will be a good deal for consumers.”

Groceries tend to be a very low-margin business. The operating margin for Kroger is around 3%, and for a discounter like Supervalu it’s a low as 2%. But according to Morningstar, Whole Foods’ margin is more like 5% or even 6%.

Amazon is bound to change Whole Foods’ margins dramatically. It is famous for undercutting the profit margins of competitors, and for its willingness to lower prices even though it’s losing money—so long as doing so helps it win market share.

As Bloomberg columnist Shira Ovide put it, Amazon founder and CEO Jeff Bezos “doesn’t abide by the conventional rules of business like … turning a profit. He will slash prices and bleed money for years in groceries if that’s what it takes to fuel his strategic mission to become a big player.”

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