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Amazon cuts Whole Foods prices in clear signal of sweeping changes to come

Amazon announced plans to buy Whole Foods in June. (Bill Sikes/AP)

Amazon’s $13.7 billion purchase of Whole Foods Market will be finalized Monday, and shoppers will see an immediate markdown in prices on a number of items, including salmon, avocados, baby kale and almond butter, as the tech giant looks to shake up the grocery business.

Amazon and Whole Foods announced the news on Thursday.

“The two companies will together pursue the vision of making Whole Foods Market’s high-quality, natural and organic food affordable for everyone,” they said in a joint statement. “Whole Foods Market will offer lower prices starting Monday on a selection of best-selling grocery staples across its stores, with more to come.”

Amazon said it will continue to lower prices at Whole Food stores and will eventually offer special discounts and in-store benefits to Amazon Prime members. (Jeffrey P. Bezos, the founder and chief executive of Amazon, owns The Washington Post.)

Other foods that will be cheaper beginning next week: Bananas, eggs, ground beef, rotisserie chicken, butter and apples.

“Everybody should be able to eat Whole Foods Market quality — we will lower prices without compromising Whole Foods Market’s long-held commitment to the highest standards,” Jeff Wilke, chief executive of Amazon Worldwide Consumer, said in a statement. “There is significant work and opportunity ahead, and we’re thrilled to get started.”

Find out how this changes your shopping experience. (Video: Jhaan Elker/The Washington Post)

Amazon to buy Whole Foods Market in deal valued at $13.7 billion

Analysts said the slashing of prices was an obvious move. Whole Foods — nicknamed “whole paycheck” in some circles — has long struggled to shed its reputation as a pricey alternative to other supermarket chains. The company’s prices are about 15 percent higher than at the average grocery store, according to Morgan Stanley. By immediately cutting prices, analysts say Amazon is sending a clear signal that sweeping changes are in store, even if it means temporarily cutting into profit margins.

“Amazon is playing to its strengths here,” said Michelle Grant, head of retailing at Euromonitor International, a London-based market research firm. “Obviously the low-cost approach is in Amazon’s DNA, and it’s something Whole Foods has been struggling with for a quite some time.”

Whole Foods will continue to be headquartered in Austin, and co-founder John Mackey will stay on as chief executive.

For Seattle-based Amazon, the addition of Whole Foods means laying claim to more than 460 physical locations and an inroad into the competitive $600 billion grocery industry. The company will add Whole Foods’ private label products — including 365 Everyday Value, Whole Paws and Whole Catch — to, AmazonFresh and Prime Pantry. Some Whole Foods stores will also begin adding Amazon Lockers, where customers can pick up online orders or drop off returns.

“Grocery has always been the Achilles’ heel for Amazon,” Grant said. “Amazon’s competitive advantage is its speed — and that’s what it’s bringing here, with quick turnaround and quick changes.”

There is already significant overlap between the customers of the two companies. Analysts estimate that about 70 percent of Whole Foods customers are also Amazon Prime members. The loyalty program, which has an annual fee of $99, offers a number of perks, including free two-day shipping, video streaming and discounts on recurring purchases of household goods and diapers. Now Amazon is working to combine the two companies’ back-end computer systems.

News of the impending deal has rattled the grocery industry, which is already struggling to keep up with growing competition. Although Whole Foods remains a niche chain — Walmart and Sam’s Club, by comparison, have 10 times as many stores — analysts say an Amazon-backed grocer could have broad implications on pricing and profits.

“Prepare for blistering competition and complete upheaval,” said Eric Schiffer, chief executive of a private-equity firm in California. “Bezos is coming full circle by marrying the enemy,” he added, referring to bricks-and-mortar retailers, “and grocers are terrified.”

On Thursday, stock prices of rival grocers took a hit on the promise of lower-priced goods at Whole Foods. Shares of Kroger, which was rumored late last year to be considering its own takeover of Whole Foods, fell more than 8 percent. SuperValu, with a network of 2,000 stores across the country, was down more than 6 percent, while Costco slipped about 5 percent. (Shares of Whole Foods, meanwhile, rose about 1 percent.)

The purchase — Amazon’s largest to date — also intensifies the brewing battle between the tech giant and its largest competitor, Walmart, which sells nearly $200 billion worth of groceries each year. On Wednesday, Walmart announced it would soon allow shoppers to buy its products by speaking to their Google Home devices, in an obvious move to compete with Amazon’s Alexa.

Amazon announced plans to buy Whole Foods in June. The deal received regulatory approval from the Federal Trade Commission — as well as a green light from Whole Foods shareholders — on Wednesday.

“Change is coming much faster than anyone imagined,” Neil Saunders, managing director of GlobalData Retail, said in an email. “Amazon is wasting no time in making the most of its newest division.”

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