BRAND SPOTLIGHT: The Impact of Amazon Prime on Whole Foods

AUGUST 2018

www.sense360.com Whole Foods And Amazon At the 1-Year Mark: What Has Happened So Far And Where Is It Heading?

Amazon’s $13.7 billion acquisition of Whole Foods in August 2017 sent shockwaves through the retail grocery sector and underscored the Seattle company’s evolution from online threat to brick-and-mortar competitor.

Whole Foods, with headquarters in Austin, was a $16 billion company with more than 460 stores across the United States, Canada, and the United Kingdom. The company had about 87,000 employees and was a perennial presence on Fortune Magazine’s “100 Best Companies to Work For.”

In announcing the deal, Amazon promised lower prices, integration with Amazon Prime, availability of Whole Foods brands online, and the installation of lockers for in-store pickup. “To get started, we’re going to lower prices… on a selection of best-selling grocery staples,” said Jeff Wilke, CEO of Amazon Worldwide Consumer. “And this is just the beginning – we will make Amazon Prime the customer rewards program at Whole Foods Market.”

Data-Driven Insights

One year after the deal closed, all the promised changes and more were in place throughout the Whole Foods ecosystem. A recent Sense360 webinar titled “Real-Time Insights About Amazon Prime at Whole Foods” takes a closer look at the integration process.

Sense360 looked at both the impact of the Amazon Prime loyalty program at Whole Foods and its overall impact on the competitive landscape of the retail grocery sector. Eli Portnoy, CEO of Sense360 and a former senior product manager at Amazon, hosted the webinar. Sense360 helps companies with data solutions for real-time decision-making.

The Sense 360 analysis of the integration of Amazon Prime at Whole Foods is based on aggregating data collected from nearly 100 apps and millions of users. This data, which includes anonymized GPS location data, helps to paint a picture of where consumers go, what they buy, and how those decisions impact the marketplace.

!2 Amazon’s Core Value Proposition

Amazon’s goal for Prime is to make it a compelling value proposition for every consumer. “Prime is this really important part of Amazon strategy, and I think that starts getting at the heart of the grocery question,” Portnoy says. “If Amazon wants to make it super compelling to be a Prime member, it makes sense to make those discounts and benefits available and applicable in everyday shopping items, like groceries… Amazon now has a platform with which they can dole out even more day-to-day benefits to Prime members, making membership even more irresistible.”

In fact, within weeks of the acquisition, Amazon Prime was being tested at Whole Foods stores. Now, a year later, Prime is fully integrated into all Whole Foods locations. Yellow and blue signs throughout the stores indicate items that are available to Prime members at a 10 percent discount.

In addition to resonating with shoppers looking for price and value, Amazon Prime is targeting a buying demographic that cares about quality and healthy choices. “They care a lot more about [those factors] than a typical grocery shopper does,” Portnoy says. “I think this difference in who visits Whole Foods starts getting at the core of why Amazon chose to acquire Whole Foods. They're just a totally different type of grocer.”

CONSUMER SEGMENT USER INDEX

249 Urban Influencers 122

130 Affluent Adopter 108

113 Social Suburbanites 112

102 Healthy Homemakers 109 WHOLE FOODS AMAZON 96 Millennial Movers 86

!3 0 65 130 195 260 Market Segmentation To better understand who shops at Whole Foods, Sense360 divided the overall consumer population in the U.S. into 10 distinct segments, each accounting for about 10 percent of the population.

Comparing Amazon Prime customer demographics with Whole Foods customers reveals dramatic similarities. For example, the category of “social suburbanites” accounts for about 10.3 percent of the population. Both Whole Foods and Prime customers skew toward this market sector.

Another important category for Prime is “urban influencers.” Again, this demographic is an important segment for both Whole Foods and Prime. Sense360 also found that Amazon’s app is one of the top three on the phones of people in this market segment.

ACTIVITY PROFILE CONSUMER BEHAVIORS

62% Shop online 1.1x 13% = 76% 1.1x as many (124 Index) Average 56% business visit per 13% of time work visits Read online reviews day as average spent traveling 72% Connect with brands 38% through social- 41% APPS ON PHONE networking sites

TOP Use a mobile wallet or 30% ABSOLUTE Facebook FB Messenger Amazon digital payments 34%

Absolute 81.2% 78.1% 68.2% 29% Post reviews online 35% Index 99 97 104

Use food delivery apps 11% TOP Seamless Open NY or services 16% SKEWS (Delivery) Table Times TOTAL Use a subscription meal 3% Absolute 1.2% 8.6% 3.5% kit service 5% SEG Index 321 257 253 0 0.2 0.4 0.6 0.8

“Amazon and Whole Foods actually share four out of the five top five skews,” Portnoy says. “In other words, Whole Foods customers are Amazon's customers.”

The overlap in target market segments underscores the fact that the Whole Foods acquisition is potentially much more meaningful for Amazon then just establishing a brick-and-mortar presence in the marketplace. Urban influencers, for example, spend more time and money shopping online compared with other segments of the population.

Urban influencers are highly educated, high-income consumers. They tend to be millennials and are more likely to be women. Most important, they are the top target market for both Whole Foods and Amazon.

!4 The Nexus of Amazon Prime and Whole Foods

Amazon didn’t just buy a grocery store chain; the company bought a new pipeline growing its entire business. Whole Foods shoppers are 25 percent more likely to use Amazon than the “average” person and 50 percent more likely to be a Prime member. Moreover, when it comes to buying behavior, Amazon Prime members are 27 percent more likely to visit Whole Foods than non-Amazon customer.

Since the acquisition, Amazon Prime members are shopping at Whole Foods even more. In fact, the delta in visitation between Amazon and Non-amazon Users has doubled since the Prime Discounts rollout.

Today, those shockwaves that reverberated through the grocery industry when the deal was announced are hitting their mark. Sense360’s analysis shows that since the introduction of Prime discounts, an increasing percentage of all grocery store visits are to Whole Foods. What that means is that Prime is helping to lure customers away from all of its competitors.

Whole Foods Performance Grows WholeAmong Foods Amazon Performance App Users Grows Among Amazon App Users Gap Between Amazon and Non-Amazon Users at WholeGap Between Foods Amazon and Non-Amazon Users at Whole Foods

2018 Delta Avg Delta (prior May 17th)

0.8% 2018 Delta Avg. Delta 0.7% (prior May 17th) May 17: Prime Deals Launch in Florida 0.6%

0.5%

0.4%

0.3%

0.2%

0.1%

0.0% % Difference in Whole Food Share of User Visits in Whole Food Share % Difference

% Difference in Whole Food Share of User Visits Jan Feb Mar Apr May Jun Jul

!5 Copyright 2018 24 In May, June, and July of this year, Whole Foods market share increased from 4.8 percent of all grocery store visitors to nearly 6 percent when compared with the same period a year earlier (2.2 million visit sample size). While the Prime analysis is based on a small sample of 1,000 people, the initial indication is that Prime discounts are having a significant impact on consumer behavior.

More growth is on the horizon. According to the Sense360 survey, 81 percent of Prime members who have not yet used their membership for a discount at Whole Foods said they would consider it. “That means that, as Amazon rolls this out, we can expect to see visits to Whole Foods by Amazon Prime members increase,” Portnoy says.

The Sense360 survey also found that 33 percent of all consumers plan to shop more at Whole Foods, and 50 percent of Prime members plan to increase their visits. Also, the Whole Foods discounts benefit the overall Prime program. That’s because 56 percent of existing Prime members surveyed said the Whole Foods program increases the likelihood that they will renew their Prime membership.

So, in addition to creating more value for Prime members, Amazon’s acquisition of Whole Foods is increasing the strength and growth of its all-important loyalty program.

Whole Foods Reaches More Customers Wholein Grocery Foods Market Reaches More Customers in Grocery Market Conversion by Month Conversion by Month

2017 2018

5.8% 2018 5.6% 2017

5.4%

5.2%

5.0%

4.8%

4.6% % of Total Grocery Market Users % of Total Grocery Market Users Grocery % of Total 4.4%

4.2% Jan Feb Mar Apr May Jun Jul

!6 Copyright 2018 25 A Competitive Edge Head-to-Head Visit Share One year after bringing Whole Foods into its ecosystem, Amazon has both established itself as a formidable force in the grocery sector and positioned itself for future growth by leveraging its Prime loyalty program to both attract and retain customers. “Its’s a competitive advantage that is going to be very, very hard for a pure-play grocer to compete with,” Portnoy says. 51% 49% To gain some insight into the shift in the competitive landscape, Sense360 compared Whole Foods traffic with Trader Joe’s. Because 36 percent of customers shop at both stores and share demographic similarities, the overlap provides insights into consumer buying trends.

Those urban influencers who are the core segment of the Whole 2017 Foods and Amazon customer base are also the most critical segment for Trader Joe’s. Sense360 looked at instances where a Whole Foods store was within one mile of a Trader Joe’s store to see how the Amazon deal may have impacted shopping choices.

Since the Amazon acquisition of Whole Foods, Trader Joe’s share of the market has dropped. The two stores were almost on pair in 2017, with 51 percent of shoppers choosing Whole Foods and 49 percent shopping at Trader Joe’s. But once Amazon Prime deals were added to the mix, people started migrating more to Whole Foods. In fact, 53% 47% over the past year, there has been a 3.5 percent increase in the number of people who visit Whole Foods rather than a nearby Trader Joe’s.

But the competitive impact goes even further. Whole Foods has 2018 increased market share when it is in close proximity to almost every (During Prime Deals) national competitor in the grocery sector, as well as drugstores and discount stores.

CONSUMER SEGMENT USER INDEX

Urban Influencers 249 220

130 Affluent Adopters 122 Similarities of Whole Foods and Trader Social Suburbanites 113 Joe’s Customer 121 Segments

102 Healthy Homemakers WHOLE FOODS 117 TRADER JOE’S

96 Millennial Movers 86 !7

0 65 130 195 260 Other Head-to-Head Gains by Whole Foods Index of Total Visit Share Gains by Whole Foods from Head-to-Head YoY Increases

Trader Joe's 112

Safeway 109

Sam's Club 107

Walmart 106

Costco 106

Walmart Supercenter 105

Stop & Shop Supermarket 105

Walgreens 104

Sprouts Farmers Market 104

Ralphs 104

Smart & Final 103

Dollar Tree Stores 103

102 104.5 107 109.5 112

Conclusion

In just one year, Amazon has emerged as a formidable competitor in the grocery sector. Amazon’s growing base of Prime members and the program’s synergy with Whole Foods promise to further strengthen the company’s competitive edge in the year ahead.

For retail competitors, Amazon went from being an online force to becoming a direct physical competitor virtually overnight. That raises the bar for competing retailers to better understand the data about their customers and to develop strategies to retain and grow their share of the market.

For Amazon and Whole Foods, year one translates into a happy anniversary. For the rest of the marketplace, it represents a clear sign of things to come.

To learn more about the implications of Amazon’s acquisition of Whole Foods, take a look at our webinar.

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August 2018 www.sense360.com

AUGUST 2018 www.sense360.com