After an explosive introduction, excitement for Amazon-Whole Foods has cooled

Dive Brief:

• One month after Amazon assumed ownership of Whole Foods, customer traffic is down and Amazon’s shares have fallen 3% since the beginning of September, according to CNBC.
• According to inMarket, a firm that collects location data, Whole Foods share of grocery visits jumped 16% in the first three days after Amazon bought the grocer and introduced much-publicized price cuts, but has fallen to 3.6% below average since then.
• CNBC also reported that some of Whole Foods smaller suppliers are uncertain about their future with the company following its decision to further centralize its buying operations.

Dive Insight:

None of this news will worry Amazon. The company has made it quite clear that its initial price cuts were just the beginning of its plans for Whole Foods. In addition to further reducing prices, the e-tailer will be implementing Amazon Prime as its store loyalty program, and should eventually roll out a much-anticipated e-commerce platform for Whole Foods stores.

So while the excitement may have waned a bit among customers and investors, there's still a lot more to come.

Observers are confident that Amazon’s Prime loyalty program and e-commerce solutions will make a big splash. But there are some question marks around its pricing plans. There’s no doubt Amazon can lower Whole Foods prices significantly, but can it do so sustainably? Industry experts peg Whole Foods’ markup at around 15%. Can Amazon bring prices down by that much, or perhaps even more, and effectively tackle Whole Foods’ high operating costs?

One move that should lower prices is the centralization of Whole Foods’ buying operations. However, that could result in fewer local and emerging brands. Suppliers interviewed by CNBC expressed concern about being able to distribute nationally.

"We are a national brand, but not one of the larger ones," Kyle Garner, CEO of Organic India, told CNBC. "Our ability to drive a strong relationship at the national level may be difficult."  

It’s not clear how Whole Foods might utilize its regional structure. The grocer might make more buying decisions from its Austin, Texas headquarters, but still roll out certain products on a smaller scale. It seems the greatest difficulty will be discovering and securing promising niche brands from afar. At the same time, with more services like RangeMe and TK doing the legwork for retailers here, a technology solution could be implemented.

Whole Foods, for its part, has reaffirmed its commitment to local producers, stating: “Local suppliers and products are crucial to the success of the company and our ongoing work in category management helps streamline processes that ensure each store has the best possible curated selection of local and national products available for shoppers.”

If Whole Foods does ultimately reduce its assortment of local products, its stores could lose a crucial point of distinction. Kroger, for one, is betting on this, having recently established an online portal where local suppliers can apply for shelf space.