Amazon’s Whole Foods Lures New Shoppers From Wal-Mart, Sprouts – Bloomberg

Amazon.com Inc.’s takeover of Whole Foods Markets has shaken the grocery business. Wal-Mart Stores Inc., Trader Joe’s and Sprouts Farmers Market Inc. may be hurting the most so far.

Whole Foods’ foot traffic from new shoppers jumped 33 percent in the first week following Amazon’s acquisition, and Wal-Mart regulars accounted for the largest percentage of first-time customers, according to research firm Thasos Group.

Amazon acquired the epicurean organic grocer in August for $13.7 billion, a move that sent shares of grocery rivals tumbling. The day Amazon completed the deal, it cut some Whole Foods prices by as much as 43 percent. In many cases, the reduced prices were still higher than similar items at Wal-Mart.

Bloomberg’s Olivia Zaleski reports on how Amazon and Whole Foods are working together.

Still, that week, 24 percent of new Whole Foods shoppers were previously loyal Wal-Mart customers, Thasos reported. That same week, 16 percent of first-time visitors used to be regular shoppers at Kroger Co., while 15 percent came from Costco Wholesale Corp., according to the firm, which tracks shoppers who agree to share their location with smartphone apps.

Smaller grocers Trader Joe’s and Sprouts provided fewer new shoppers, but the losses were larger relative to the size of their customer bases. Trader Joe’s saw about 10 percent of its regular customers go to Whole Foods, while for Sprouts it was 8 percent, Thasos found. About 3 percent of Target Corp. customers defected.

Amazon remains a small player in the $800 billion U.S. grocery business, which is dominated by mega-chains like Wal-Mart, Kroger, Costco and Albertsons Cos. The new customers migrating to Whole Foods from Wal-Mart make up less than 1 percent of Wal-Mart’s customer base, Thasos noted. It is also unclear if Wal-Mart customers are defecting permanently or are temporarily curious about Whole Foods following a spate of media coverage.

Even so, a temporary loss of loyal customers to Amazon is a concern for the world’s largest brick-and-mortar retailer, which has struggled to position itself against the e-commerce giant, said Kirthi Kalyanam, director of the Retail Management Institute at Santa Clara University. “The data is a striking indication of the latent demand that exists for quality organics. Wal-Mart is no doubt preparing to work extremely hard to overcome deep-set perceptions that its organics are of a lower quality than those found at Whole Foods.”

Wal-Mart is relatively new to selling organic fruits, vegetables and pantry staples. In 2014, inspired by the growing success of Whole Foods and record sales of pesticide-free produce, Wal-Mart embarked on a nationwide expansion of its organics selection. It also promised to sell the items for the same price as its non-organic products. The indistinguishable pricing model may make it hard for Wal-Mart’s customers to believe they’re getting the highest quality organic produce compared with Whole Foods, said Kalyanam.

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