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5 lessons learned from Amazon's first week with Whole Foods

Alexa has suddenly developed a taste for organic quinoa.

On Monday, Amazon closed on its $13.7 billion acquisition of Whole Foods Market — much earlier than many expected — and immediately slashed prices on staple items in a savvy bit of marketing that had been announced a few days prior. Headlines blared the news. Competitor stock prices tumbled.

Here are five takeaways from week one of Amazon-owned Whole Foods.

Amazon knows how to make an entrance

When was the last time a grocery retailer was able to stir up this much excitement?

Amazon effectively cannonballed into the placid waters of the grocery industry by grabbing headlines with price cuts. But the longer-term potential of Amazon-owned Whole Foods — and what worries competitors — is that it could fundamentally transform how shoppers buy groceries through data insights and e-commerce options, forcing massive change throughout the industry, some experts say.

"It's brilliant marketing from day one — lower prices, more to come. ... It's exciting and it's probably the most excitement we've seen in a pretty staid industry," said Phil Lempert, a grocery store analyst who runs the Supermarket Guru website.

Price cuts might be more splash than substance

Amazon-owned Whole Foods wasted no time in reducing prices on certain food items across the store, including avocados, tomatoes, bananas, ground beef and eggs.

A few examples: At a Whole Foods in Evanston, a dozen white eggs went from $3.39 to $2.99; New York strip steak, from $18.99 a pound to $13.99; and organic bananas from 99 cents a pound to 69 cents.

But some analysts say the price cuts were mostly about creating buzz. Gordon Haskett Research Advisors, a New York-based market research firm, compared 114 items before and after the announced changes at a Whole Foods store in New Jersey and found an average price decline of only 1.2 percent, with 78 percent of the items unchanged from the previous week.

"All told, we will continue to monitor the situation going forward, but our initial checks suggest that Amazon's bark may be greater than its bite," Gordon Haskett analyst Chuck Grom wrote in the report.

Still, there's plenty of reason to believe Amazon will continue to lower prices through supply chain efficiencies, as it has in other industries.

"As for whether the price cuts were just PR, it's really too early to tell. But you can't blame the retailer for doing exactly what it said it was going to do," said Randy Hofbauer, digital and tech editor for Progressive Grocer, a trade publication.

Private label is a sneaky big part of the plan

Hundreds of Whole Foods' 365-branded private label products — everything from packaged deli meat and dairy products to vitamin supplements — are now available in the Chicago area through Amazon Fresh, a grocery delivery service available to Amazon Prime members for an extra cost.

The Amazon website declares: "We are stocking up on new items weekly."

"That hasn't gotten the publicity that the price cuts have, but it's a big deal," said R.J. Hottovy, an analyst with Morningstar, a Chicago-based market research firm.

Consider that about two-thirds of the estimated 75 million Amazon Prime members already have some interaction with Whole Foods, according to Hottovy's calculations, and you begin to see the opportunity for Amazon.

Selling the private label goods online is also a way to offset the cost of price reductions in the stores because they generally have higher profit margins, Hottovy said. Likewise, some of Amazon's own private label brands likely will end up on Whole Foods shelves, he said.

The next frontier: When Amazon begins delivering Whole Foods' fresh fruit, vegetables, meat and seafood to consumers, as anticipated. Right now, those products aren't available through Amazon Fresh in Chicago, but many analysts see that as a potential game-changer for the entire industry.

Fresh product delivery through Amazon could begin early next year, Hottovy said.

"That's my best guess. I think they're still trying to figure out what they have and what kind of engagement they have with Amazon Prime members," he said.

Change is going to come

Whether it's because of Amazon's pricing pressure or e-commerce breakthroughs, other grocery stores likely will have to step up their game to compete.

And while Amazon has been tight-lipped on how it will use technology in Whole Foods stores, the company likely will use data analytics to help tailor the in-store experience to exactly what shoppers want at a given location, Hofbauer said.

That means a more curated shopping experience and product assortment at Whole Foods, with lower prices and more discount deals offered through Amazon Prime membership, he said.

"Consumers are the big winners here. Anytime you get a better store experience with cheaper prices, it's a good thing," Lempert said.

Success is a long game

Despite all the buzz, Amazon still has a long way to go. Once the darling of the grocery world, Whole Foods struggled with falling sales in recent years as competitors of all shapes and sizes caught up, enticing shoppers with natural and organic food offerings, often at lower prices.

Hottovy said he believed Amazon would succeed, largely because of the crossover appeal for its Prime members.

"As Amazon integrates Whole Foods' supply chain and distribution into its existing infrastructure, I think Prime members will become more willing to try Amazon's grocery platform, with the endgame being a higher Prime pricing tier. Still, I believe it will take some time before we can define the acquisition as a success," Hottovy said.

gtrotter@chicagotribune.com

Twitter @GregTrotterTrib

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