Wall Street Journal - Amazon.com Inc. will bring lower prices to its new Whole Foods Market Inc. division Monday. It also will bring a new rule book.
While Amazon doesn’t need to make money from its grocery division yet, food sales are crucial for traditional players like Kroger Co., Wal-Mart Stores Inc. and Target Corp. The extremely competitive food-retail business demands high capital investments for low margins. Supermarkets’ success has mainly relied on getting customers into conveniently located stores with deals.
By cutting prices on high-volume staples like bananas, eggs and ground beef in 470 Whole Foods stores, Amazon is signaling it will compete for that traffic. Even if it loses money, it hopes it can bring shoppers into stores, win their loyalty to the whole company and prompt them to spend more money, say former Amazon executives.
“Amazon’s using the same playbook they always have when competing with booksellers and other retailers,” says Chris McCabe, a former Amazon performance evaluation and policy enforcement investigator who now works with sellers on the retailer’s marketplace. “They take out their revenue stream by killing them slowly on price.”
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