Dive Brief:
- New research by Morgan Stanley estimates that 80% of U.S. Amazon Prime members — or about 38 million consumers — don’t shop at Whole Foods. Likewise, the investment firm estimates about 5 million U.S. households — roughly 38% of Whole Foods shoppers — aren’t Prime members. This disparity between the two shopper bases creates a huge opportunity for the newly combined Amazon/Whole Foods entity to grab more shopper dollars, according to Quartz.
- Morgan Stanley expects Amazon to convert about half of the 5 million non-Prime Whole Foods households into Prime members during the next two years.
- The investment firm anticipates that bigger customer gains — to the tune of adding 15 million new customers in the next five years — are anticipated for Whole Foods. This would double the grocery chain’s current shopper base.
Dive Insight:
Amazon’s recent acquisition of Whole Foods has a lot of potential to bring together different kinds of shoppers. It could truly turn into a big win-win situation. Even if the huge cross-pollination of shoppers estimated by Morgan Stanley turns out to be overly optimistic, the company is still coming out ahead.
Whole Foods has tried for years to shed its pricey “Whole Paycheck” image and become a more competitive grocer. Morgan Stanley data finds that 69% of people say they don’t shop at Whole Foods because there are lower prices somewhere else, reports Quartz. Now under Amazon’s reign, prices are being lowered and shoppers are responding. In just the first two days after Amazon took ownership, Whole Foods’ store traffic jumped 25%, driven by the chain’s highly publicized discounts on items such as organic avocados, eggs, salmon, kale and ground beef. Further price cuts are on the agenda.
Morgan Stanley research estimates that 33 million U.S. households live within five miles of a Whole Foods store. As prices continue to come down, Whole Foods has a good chance that some of these — even if it’s not the entire 15 million estimated by Morgan Stanley — will begin shopping the natural grocery chain. Shoppers may just give the grocer a try when they come by to collect orders placed on Amazon. Industry-wide speculation is that Amazon will use Whole Foods locations as click-and-collect pickup points.
Meanwhile, Amazon is in a good position to convert a number of non-Prime Whole Foods shoppers to Prime members. The company likely will provide substantial incentives and make a strong case for why they should join Prime, which in addition to buying Whole Foods 365 non-perishable groceries online and the many other benefits associated with the program, could also be expanded to include other special offers and experiences.
For example, Planet Retail RNG analyst Jack O’Leary told Food Dive that he could see Amazon offering special deals to Prime members on Whole Foods products or members-only cooking classes inside stores. “You’ve got Amazon Prime shoppers just really wanting that Amazon experience in other categories,” O’Leary said.
Other grocery-related service companies — like Instacart, for example — would love to be in the position where people are more likely to pay for their premium service. It’s been said that unwillingness to pay is one of the biggest barriers to wider adoption of Instacart.
Still, there’s a huge gap between paying $99 a year to access the many benefits of Amazon Prime (free delivery, video streaming, and other rewards along with likely future Whole Foods-related benefits too) versus paying premium fees for grocery home delivery via an Instacart-type service. Stacking the two fee-based services against one another is far from an apples-to-apples comparison.