The grocery industry has been grappling with several challenges like stiff competition, and aggressive promotional environment of late. Traditional grocery rivals are strengthening their franchises and outside players are offering alternative outlets for food and other staples.

Customers are becoming more inclined toward private label products as they are low-cost alternatives to national brands. Food deflation had added to the woes over the last one year where oversupply in some types of food — particularly meat, poultry and dairy — dragged prices lower and forced grocery stores into more aggressive promotions. However, the scenario is now better with prices starting to increase.

The biggest blow to the grocery industry came when e-Commerce biggie, Inc. (AMZN – Free Report) announced an all-cash $13.7 billion deal on Jun 16 to acquire the natural and organic foods supermarket chain Whole Foods Market Inc. (WFM – Free Report), citing pricing concerns. Shares of several grocery store chains tumbled on Aug 24 following Federal Trade Commission approval to Amazon to purchase Whole Foods.

While shares of big box retailers like The Kroger Co. (KR – Free Report) declined 7.71% and nearly touched its 52-week low, Costco Wholesale Corporation fell more than 5%, Target Corporation dipped 3.99%. Sprouts Farmers Market Inc. shares declined 6.95%, while shares of SUPERVALU Inc. dropped 6.60%. On the other hand, Whole Foods’ stock inched up 0.72%.

Amazon’s Deal and Its Impact on the Food Industry

Amazon will close the deal on Aug 28 and will acquire Whole Foods’ around 470 stores across the U.S., U.K. and Canada along with 87,000 employees and its solid reputation. Notably, the Texas-based Whole Foods deals in natural and organic offerings at a premium price, which is in contradiction with Amazon’s track record of keeping the prices low.

So Amazon will lower the prices of Whole Foods’ as soon as the acquisition is completed, to lock in customer loyalty. Some of the items whose prices will be slashed include Whole Trade bananas, organic avocados, organic large brown eggs, and kale and other organic food. The company also announced certain Whole Foods products will be available through, AmazonFresh, Prime Pantry and Prime Now.

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