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AMAZON’S CHEAP AVOCADOS ARE CRUSHING THE GROCERY INDUSTRY

Amazon has wasted no time in making changes to Whole Foods, the organic grocer it just purchased for a cool $13.7 billion. Starting Monday, Whole Foods’ famously high prices on some staple products dropped by as much as 43 percent: a dozen organic eggs, for instance, now cost $3.99 instead of $4.29. Organic avocados—the primary obstacle to millennial homeownership—are down from $2.79 to $1.99. Organic Fuji apples went from $3.49 to $1.99 per pound. Amazon is selling discounted “farm fresh” Amazon Echo and Echo Dot virtual shopping assistants at the front of its Whole Foods stores. It’s even ordered butchers at Los Angeles-based franchises to shape their ground beef into the shape of the Amazon logo. Customers are loving the price cuts, anti-trust concerns be damned, and the media is more than happy to provide free marketing.

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The competition is less excited: after the deal was approved by Whole Foods shareholders and the Federal Trade Commission late last week, four major U.S. grocers’ market caps fell by a combined $11 billion, and still haven’t fully recovered.

Kroger’s market cap fell from $20.8 billion last week, before the deal was approved, to $19.49 billion at the market’s close on Monday, shaving off $1.31 billion in value for the grocer. Walmart’s value fell from $242 billion to $236.55 billion, a $5.45 billion loss. Costco and Target lost $3.16 billion and $1.35 billion between Thursday and Monday evening, respectively. Smaller grocers also saw their valuations tumble: Sprouts Farmers Markets saw its stock price fall by 9.71 percent; Ingles Markets’ stock sank by 9.69 percent; Supervalu’s stock fell by more than 2 percent; and Weis Markets’ stock dropped by 1.6 percent. Amazon’s all-out assault on grocers is wreaking havoc overseas too: The Street reports that stocks for European supermarkets Morrisons, Tesco, and Sainsbury all dropped on Tuesday, too.

 

Whole Foods, which had experienced slowing sales for years, has tried lowering prices before, mostly unsuccessfully. But Amazon isn’t constrained by the same concerns about profit margins. While tech giants like Apple, Alphabet, and Facebook enjoyed operating margins between 23 percent and 47 percent last quarter, Amazon made just 1.7 percent. That’s less than half Whole Foods’s margin of 4.8 percent, leaving Bezos plenty of leeway to cut costs without being punished by investors.

That power is as terrifying for non-Amazon investors as it is for competing companies. A number of Blue Apron investors have filed lawsuits against the meal-delivery company, in part for not acknowledging that Amazon was a looming threat. Google and Walmart are teaming up to offer a rival virtual-shopping experience. “For other grocers, the deal is potentially terrifying,” Neil Saunders, the managing director of GlobalData Retail, said Friday in a report. “Amazon has moved squarely onto the turf of traditional supermarkets and poses a much more significant threat.”

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