A Year After the Union of Amazon and Whole Foods, Grocery Chain Rivalries Grow

Amazon struck a nerve in the grocery industry when it bought Whole Foods for $13.7 billion last year, causing a chain reaction among big name competitors like Walmart and Kroger. Since then, Walmart and Kroger have been spending billions on digital services to stay in the game. However, as attractive as competitive low prices may be, they can also come with consequences.

What Have These Companies Been Up To?

Since Amazon’s acquisition of Whole Foods, major competitors have geared up to make partnerships of their own: Walmart with Doordash and Flipkart, Target with Shipt, and Kroger with ClickList, Instacart, and Ocado.

However, while news sources have noted that Amazon’s acquisition has led to an anticlimactic anniversary, Amazon did make a few changes by announcing a free two-hour delivery service from Whole Foods earlier this year. If users have a Prime account, they can qualify for a free two-hour delivery service directly from a local Whole Foods. This program is currently available in 14 cities, and is looking to expand into more cities throughout the year. Amazon promised special discounts and deals for Prime members at Whole Foods stores, and they are now gradually rolling out this program.

Google has stepped into the ring by striking an advertising program deal with retailers such as Target, Walmart, Costco, Home Depot, and Ulta Beauty. According to Reuters, with this new program, these companies “can list their products on Google Search, as well as on the Google Express shopping service, and Google Assistant on mobile phones and voice devices.” In return, companies will pay Google a share of each purchase. Retailers’ products will be listed under sponsored shopping results, but these results are often prioritized at the top of the search page.

Guru Hariharan, CEO of e-commerce startup Boomerang, tells CNBC that “the Whole Foods acquisition created a tremendous urgency in the market. Both sides are feeling pain. If you’re fighting the same enemy, maybe you can figure something out.”

However, at the same time, these major retailers are facing new challengers from German-owned grocery chains like Aldi and Lidl, which have been driving grocery prices low in wherever they are present. According to a study conducted by the University of North Carolina’s Kenan-Flagler Business School, “competing retailers near Lidl stores set their prices approximately 9.3 percent lower than in markets where Lidl is not present.” CNBC also reports that Lidl is on the rise, as it is planning to open about 100 more stores by mid-2018. According to a Bloomberg article, “the rising popularity of the discounters is having a cascading effect: Walmart cuts prices to eliminate the gap with Aldi and Lidl, and Kroger and others are forced to respond to their customers.”

Are Lower Prices Always Good?

While it is a no-brainer that consumers always prefer the lower price option, there are reasons why lower prices are not always beneficial for everyone. According to a Forbes article, while the U.S. dollar strengthened in 2016, U.S. food exports slowed down and imports shot up. According to Annemarie Kuhns, an economist with the USDA’s Economic Research Service, “depressed exports proved to be a double whammy—more U.S. products wound up in the domestic market, which was flooded at the same time with cheaper imports.”

With a surplus in domestic supply of food, retailers could competitively lower prices. However, as the Forbes article reports, “the problem is that when price wars start, there always seems to be no bottom and in order to maintain these lower prices retailers were forced to dip into their margins to stay competitive,” thus resulting in layoffs and store closings.

When stores offer a lower price, this means that they have cut costs somewhere in their operations to afford low prices. In stores like Aldi, there is a shopping cart rental system that requires shoppers to use a quarter to unlock carts. The quarter is returned to the shopper once the shopper returns the cart. With this system, Aldi does not need to hire workers to put back carts, and can afford to cut down on costs. However, lower prices might also mean that companies keep lower wages or have been forced to cut wages or lay off employees.

Photo from Pexels

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