Whole Foods is debuting lower prices in its stores Wednesday, and former Walmart U.S. President and CEO Bill Simon doesn’t expect that the strategy will boost its sales.
Whole Foods, known for its organic selection and premium prices, last made major price cuts in November 2017 after being acquired by Amazon. Simon said the new lower prices on select items, announced earlier this week, likely show the retailer is working through the kinks of the competitive grocery market.
The recent price cuts are probably an “indication that [Amazon’s strategy] hasn’t worked the way they expected it to,” Simon, a frequent critic of Amazon, told CNBC’s “Squawk on the Street” on Wednesday.
Even with the announced average 20 percent off certain items, Whole Foods still has higher prices than other national grocery retailers. An analysis from Morgan Stanley revealed that a basket of items at Whole Foods costs $198, while it’s $172 at a conventional grocery store and $157 at Kroger.
Groceries, especially with a focus on the produce market, are a difficult market to enter, Simon said. Acquiring a grocery chain is likely the hardest thing Amazon could have chosen to do, he said, adding that it would have been easier to buy a national retailer such as Walgreens or Target if it wanted to expand its physical footprint.
Consumers are less likely to flock to one of Whole Foods’ 480 locations over this price reduction, Simon said, because customers seeking low costs usually live near less-expensive retailers. Whole Foods had originally been selective in its targeted consumers and physical footprint, he said, so its current customers aren’t likely to note a huge change in prices.
“[Products] are still expensive,” he said. However, that’s not to say this won’t benefit the company, adding that Amazon “got the lift they’re looking for from this price action, because it’s been covered in the press.”
But Simon said he wouldn’t be surprised if this was part of a larger plan under Amazon CEO Jeff Bezos. Simon expects more announcements from the company in the next few years.
“I still think there may be something that Jeff’s got up his sleeves with this digital, physical integration that we haven’t seen yet,” Simon said. “I don’t think we’ve seen success yet with it.”
Amazon did not immediately respond to a request for comment.
