Aug 25, 2017

Investors worry Whole Foods price cuts will spark grocery war

Grocery stocks were clobbered Thursday afternoon after Amazon announced that it will be cutting prices at Whole Foods. Shares in both Kroger and Walmart—which generates more than half its revenue from grocery sales—fell on the news, with Kroger down more than 8%.

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Data: Money.net; Chart: Andrew Witherspoon / Axios

Amazon will begin with price cuts to some organic fruits and vegetables, egg, organic rotisserie chicken and ground beef, among other items. ""We're determined to make healthy and organic food affordable for everyone," Amazon said in a statement.

Why it matters: Amazon is in a unique position, because so far its investors have put up with the firm making very little in profit, on the hopes that it will continue to gain market share in the growing number of sectors in which it competes. Meanwhile, the grocery segment already operates with very low margins of less than 2% according to IBISWorld, compared with an overall 8.8% margin for the S&P 500. Logic dictates that investors will eventually revolt if Amazon refuses to raise profits, but this may come too late for competitors in the grocery segment.

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