What the upswing in food traffic at Whole Foods really means

Morgan Stanley Analyst Brian Nowak believes Whole Foods Market’s sales will grow by 12 percent annually through 2022, and the organic/natural foods retailer will reach 3.3 percent market share of the U.S. grocery market during the next five years from an estimated 2.1 percent at the end of 2017, according to CNBC.

"Growth will come from new shopper growth, which we see inflecting from more competitive pricing and increased convenience," Nowak wrote in a note to clients last week as reported by CNBC.

Seattle-based Amazon, which officially acquired Austin, Texas-based Whole Foods in late August, reduced prices immediately on many Whole Foods’ products.

Nowak also stated that Amazon.com could gain millions of new members in its Prime subscription program from Whole Foods’ current customer base. The analyst estimated 38 percent of Whole Foods’ customers, or about 5 million households, are not Amazon Prime subscribers.

"We expect Amazon to convert half of these shoppers between now and the end of 2019," Nowak wrote.

Amazon already has benefited from its acquisition of Whole Foods. According to new research from Rockville, Md.-based Packaged Facts, the grocer’s branded product web sales reached $500,000 in the first week after the acquisition's Aug. 28 completion, following Amazon’s placement of roughly 2,000 items from Whole Foods' 365 Everyday Value private brands on its website.

According to Bloomberg, Whole Foods saw a spike of more than 25 percent in foot traffic on the first two days after the official merger of Amazon and Whole Foods.

Other facets will play in, however, starting with what Nowak calls “competitive pricing.” Other major grocery retailers aren’t likely going to stand by and watch Whole Foods win the pricing game. Kroger CEO Rodney McMullen vowed recently that “we won’t lose on price, [but] we’re not trying to lead the market down on price.”

As far as convenience, another factor that Nowak says will help Whole Foods grow, expect other retailers to embrace home delivery (have you seen the new Walmart commercial?). And there’s the trend toward smaller stores, which will be accented by Aldi’s continued growth and Lidl’s entry and U.S. expansion, to making shopping more convenient.

And, of course, there is the store brand factor. More than ever, retailers should be studying store brands to make them exclusive, which is a huge factor in the overall equation. That’s a reason why Whole Foods was a successful in the first place.

There is no doubt that the early signs point to Amazon rejuvenating Whole Foods after the retailer experienced several dismal quarters of growth before being acquired by the megacorporation.

There are a lot of balls in the air in the air for all grocery retailers, at least the ones that want to stay in this game. It will come down to which retailers can juggle them best.