4 days ago, on Monday, August 28th, Amazon (NASDAQ:$AMZN) closed its deal to acquire Whole Foods Market (NASDAQ:$WFM). One of the first implementations and key strategies by Amazon is to cut grocery prices up to 43%. As of this morning, as as much as 100 products already saw their prices fall 30% or more.
What does this mean for other grocery store giants like Costco (NASDAQ:$COST)?
Discount prices at Whole Foods will negatively impact other companies whose whole strategy is to provide goods at a lower price. Specifically, Sprouts Farmers Market’s (NASDAQ:$SFM) stock already fell 10% since Monday.
How Will Amazon Profit from Price Cuts?
Initially, Amazon’s price cut strategy could trigger a price war within the grocery industry. While Amazon is able to afford such price cuts given its mass size, not all grocers can. In fact, Amazon’s price cut strategy is not a novel one. The e-commerce giant frequently adopts such practice with their own best-selling products. They understand that to enter a new sector, you have to gain competitive advantage through making sacrifices; especially when it entails brick-and-mortar shops.
All in all, Amazon hopes to be patient, incurring short-term losses for long-term profit by leveraging its colossal network against its competitors.
Featured Image: twitter
