Amazon Cuts Whole Food Prices By 43% on Day One

To be trading at 238-times earnings, you’ve got to have some edge as a company. When it comes to Amazon.com, Inc. [NASDAQ:AMZN], they have multiple.

The online giant doesn’t just provide competitively low prices. They focus on the customer experience, and have distribution networks around the world that allow for timely deliveries.

When speaking at Google headquarters, Pat Dorsey, a ‘competitive advantage’ guru, asked employees:

How many of you have bought something off Amazon without checking the price elsewhere?

Around 75% of Google employees put their hands up. Isn’t that amazing? How hard is it to check the price somewhere else? It takes very little effort; just a few extra seconds.

But it comes down to the trust Amazon has built up with consumers. People trust their credit card information won’t be stolen. They trust they will get their goods in a solid condition, and on time. They trust that, if there is a problem, Amazon has a team of customer service reps to help. And they trust they’re getting the lowest costs.

This is why analysts are so scared about Amazon coming to Australia.

Amazon slashing prices at Whole Foods

Recently, the online giant slashed prices of their newly-acquired grocery store, Whole Foods. As reported by The Australian Financial Review:

Amazon.com spent its first day as the owner of a brick-and-mortar grocery chain cutting prices at Whole Foods Market as much as 43 per cent.

‘…The tech giant’s $US13.7 billion purchase of Whole Foods has sent shock waves through the already changing $US800 billion supermarket industry. The wedding between Amazon and the upscale grocery promises to upend the way customers shop for groceries. Cutting prices at the chain with such an entrenched reputation for high cost that its nickname is Whole Paycheck is a sign that Amazon is serious about taking on competitors such as Wal-Mart, Kroger and Costco.

How will Amazon’s arrival impact our own supermarket industry? To be honest, I haven’t got the slightest clue.

Australian retailers are somewhat insulated from competitors, unlike retailers in the US.

The size of our market is one deterrent. While our retail industry generates billions in sales, it’s comparatively tiny compared to the US or China.

And because of our smaller market size, we can only really support a few billion-dollar retailers. It’s why we’ve only really had two dominant retailers in Australia for years — Woolworths Ltd [ASX:WOW] and Wesfarmers Ltd [ASX:WES].

In 2009, Aussie investors were looking at a similar scenario to today. A low-cost retailer promised to shake up the whole industry. However, Costco Wholesale Corp [NASDAQ:COST] hasn’t had the destructive effect investors once thought it would.

In their 2010 annual reports, neither Woolies nor Wesfarmers mentioned Costco or the competitive pressure they faced from the international retailer. Will it be the same when Amazon gets here? Maybe, but maybe not.

Right now, nothing has happened. Both retailers are more focused on taking market share from each other than worrying about Amazon’s arrival.

Regards,

Härje Ronngard,

Junior Analyst, Money Morning

PS: If you’re looking for income-producing stocks with potential, check out these five dividend stocks trading on the ASX right now.


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