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September 2017

How Amazon is priming the pump at Whole Foods: get ready for a gush of new loyalty tactics

When growth stalled at Whole Foods, investors demanded management changes, but CEO John Mackey's job was saved by Amazon purchasing the company. To get growth flowing again, Amazon will prime the pump initially with lower prices at Whole Foods, then try to pump members of its loyalty program, Amazon Prime, into the store. In a press release, Amazon stated, "... Amazon Prime will become Whole Foods Market’s customer rewards program, providing Prime members with special savings and other in-store benefits." 

So there's good news for loyal Whole Food customers (lower prices), and good news for loyal Amazon customers (rewards extended into Whole Foods). So, what does this mean for the grocery industry and its loyalty programs?

In one word: pressure. Kroger has been a major innovator in retail loyalty programs, and now they will have to match wits with one of the world's most aggressive companies. Walmart has generally avoided loyalty programs and may be driven to deeper price competition. Everybody else will probably be forced to change quickly as loyalty shifts. 

Advertising Age: Amazon 'Primes' Whole Foods for More Visitors, 2017-Aug-25 by Bloomberg News

"Prime customers are very suggestable and leadable, extremely loyal and spend a lot more at Amazon than others," Levin says. About 63% of Amazon customers in the U.S. have Prime and they spend $1,300 a year on goods from the retailer, compared with $700 for non-members, CIRP estimates. They purchase from Amazon 25 times a year on average, 11 more visits than non-Prime customers. The company won't say how many Prime members it has, although CIRP put that number at 85 million in the U.S. as of June 2017, about a quarter of the country's population....

About 60% of Whole Foods shoppers are already Prime members, CIRP estimates. This still leaves millions of new members to lure through those new in-store deals and the loyalty program.

..."It's an opportunity for Whole Foods to capture more wallet share of its best customers, provided the program has the right components and you really get rewarded for shopping at or visiting Whole Foods," says Sucharita Mulpuru, a retail industry analyst. Amazon's new physical bookstores have Prime tightly integrated into store transactions and they have a distinct pricing structure for Prime customers, she notes.

"It doesn't even make sense to purchase in an Amazon bookstore unless you have Prime," Mulpuru adds. "I doubt they'll be quite that drastic with Whole Foods but I do think they'll incentivize shoppers quite a bit to associate their Prime account with their Whole Foods transaction."