It’s a move that will help them compete with Amazon, and Walmart will begin offering its service in Phoenix, Las Vegas, and southern California.

Why it matters: Grocery home delivery service is a growing phenomenon but convenience must be balanced with other considerations like sustainability.

Walmart intends to cover 75 per cent of the entire U.S. this year. Customers need to buy at least US$35 worth of products and this service, of course, includes food items. Most retailers across North America are doubling their e-commerce strategies, trying to catch up with the modern consumer’s pursuit for higher convenience. And Canadian grocers are not staying idle.

Food deliveries are not new in Canada. They’ve been happening for decades. What is new, though, is the scalability of operations, which banks on speed and reliability. Online food delivery programs are all about time and precision.

Amazon set the benchmark and everyone else is following. Sobeys recently announced its “Voilà” service, a highly appropriate, bilingual spin for a company desperately trying to execute an online strategy which requires some intense centralization. In order to do so, it’s investing close to $100 million on a new distribution centre north of Toronto that is the size of 15 hockey rinks. Sobeys is hoping to capitalize on its partnership with United Kingdom-based Ocado, known for its knowledge in artificial intelligence and cybernetics.

Loblaws, on the other hand, has been working internally on a new online model while expressing its content on its “click and collect” service, offered now in more than 700 stores across the country.

That said, Loblaws and Instacart already do offer grocery delivery to millions of Canadian homes. Some movement has been reported at Metro as well. Costco is in the middle of its southern Ontario pilot, which could prove interesting since its sales now include over $14 billion worth of food in Canada each year.

Having someone else to carry all those bulk food items from the store to your home can be a very appealing proposition for an ageing population, or even for people living on second or third floors of buildings. Blazingly convenient.

Canada’s online shopping in food retail represents roughly 1.8 per cent of the $120 billion market — a drop really. But some analysts suggest Canada could catch up to the U.S. by 2025, and seven per cent of all food sold in the U.S. at retail is purchased online. It still may not look like much, but seven per cent would be almost $9 billion worth of food. Minus the non-food sales, that sum is almost equal to the food sold by one of the country’s top grocers, Metro. With laser-thin margins, generating more online revenues will be key.

Grocers have realized for a while now that embedded into a successful delivery model is the illusion of a free service to consumers. Selling food online and increasing profits while the customers remain convinced they’re getting deals is a feat that can only be achieved through algorithms and analytics, an art Amazon has mastered for decades.

Most often, the food industry will go after the mighty dollar without thinking twice about how a newly deployed strategy can impact the environment and our health.

Think about it. Fast food with little or no nutritional value, ready-to-eat products and meal kits with excessive packaging – all have provided more convenience while undermining our ability as consumers to serve the planet or safeguard our wellness as individuals. It’s been like that for decades, but things are slowly changing due to an ever-empowered, social network-savvy marketplace.

The sudden, collective backlash against plastics was violent for the industry and came out of nowhere, but it had to happen. As a society, we realize how our way of life is no longer sustainable, in many ways. It is more than reasonable for consumers to ask the industry to comply with societal expectations as soon as possible.

Convenience is the main box being ticked when looking at home delivery service, but it can’t stop there. Grocers will need to think about ways to go after our business and our grocery money while keeping us and our planet healthy. More choice for consumers may be desirable, especially when food is involved, but it can’t come at a huge cost for us all.

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Whole Foods employees have visited regions of western North America for potential retail spaces in parts of Idaho, southern Utah and Wyoming where it currently has no stores, the Journal reported, citing a source.

The world’s largest online retailer plans to expand its two-hour delivery service, Prime Now, to nearly all of its roughly 475 Whole Foods stores in the U.S., the Journal said, citing another source.

The plans are a part in the series of Amazon’s grocery, delivery and pickup expansions to cities across the U.S. in recent months.

Prime Now services include a two-hour delivery option to subscribers in more than 60 cities, and online grocery pickup from Whole Foods stores in as little as 30 minutes from nearly 30 cities, WSJ said.

Amazon was not immediately available for comment outside regular business hours.

— Reporting for Reuters by Supriya Roy in Bangalore.

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In another sign of changes to come, a display offering Amazon’s Echo and smaller Echo Dot hands-free smart speakers for $99.99 and $44.99, respectively, was nestled amid the colorful produce at the Whole Foods in downtown Los Angeles (all figures US$). Those gadgets sell for the same price on Amazon.com.

The companies signaled last week that they would selectively cut Whole Foods prices starting on Monday, and promised more discounts in the future.

Major supermarket chains and grocery sellers, including Kroger, Sprouts Farmers Market, Supervalu, Costco and Wal-Mart Stores, already were grappling with growing pricing pressure when Whole Foods and Amazon announced their $13.7 billion merger deal on June 16.

And, shares in those food sellers have fallen on worries that Amazon could disrupt the grocery business in the same way it did with books and electronics.

Signs posted in Whole Foods’ 450 U.S. stores trumpeted the changes.

The price of organic Hass avocados was slashed by 33 per cent to $1.99 each, down from $2.99, in the Whole Foods in downtown Los Angeles. Organic Fuji apples sell for $1.99 a pound, from $2.99 previously.

Boneless ribeye prices dropped to $13.99 per pound from $16.99 in downtown Los Angeles, a reduction of nearly 18 per cent, while the price for “responsibly farmed” Atlantic salmon filets fell to $9.99 per pound from $13.99, down almost 29 per cent.

Price cuts varied slightly from city to city. For example, a Whole Foods in Chicago’s West Loop reduced organic avocado prices by 20 per cent, while Bloomberg reported that a Manhattan store chopped the price on organic Fuji apples by 43 per cent.

The downtown Los Angeles Whole Foods prices, in some cases, were lower than those at a nearby Ralphs grocery store owned by Kroger, which competes aggressively on price.

Ralphs was selling conventional avocados for $1.99, versus $1.49 at Whole Foods. Conventionally grown bananas were also priced higher at Ralphs: 59 cents a pound, against 49 cents at Whole Foods.

Some analysts estimate that Whole Foods would have to cut prices by 10 to 15 per cent overall to truly compete with other food sellers.

Nevertheless, its surgical paring of prices on popular staples could force other retailers to follow. That would only add pressure on those retailers, who already were preparing for another step down in prices as German discounters Aldi and Lidl expand in the U.S. and intensify the price war historically led by Wal-Mart.

Shazneen Gandhi, 41, in Los Angeles said the Amazon-Whole Foods merger is a frequent topic of conversation among her friends and fellow mothers.

“We’re really expecting great things,” said Gandhi, who closely tracks grocery prices for her business selling prepared organic meals.

Cynthia Von Weiss, 62, groused about the “ridiculous” high price for chicken salad as she shopped at the West Loop Whole Foods and said the store would have to aggressively compete with local grocers to win her loyalty.

“We’ll see what happens… If I could come in here and spend something comparable to Mariano’s or Jewel, or ideally Trader Joe’s, then they got a customer for life,” she said. Mariano’s is owned by Kroger and Jewel is owned by Albertsons Cos.

As part of Amazon’s putting its stamp on the grocer, Whole Foods stores displayed promotions for Amazon’s Echo speaker in tongue-in-cheek fashion, with signs reading “Farm Fresh” and “Pick of the Season.”

The Echo plays a critical role in Amazon’s burgeoning ambitions to popularize and dominate the market for voice-controlled computing.

Echo speakers are equipped with Amazon’s voice-controlled assistant Alexa, which competes with Apple’s Siri. Users can direct Alexa to set timers, play music, read recipes, order deliveries, and perform a host of other activities.

Shares of Amazon were up 0.1 per cent at $946.01 in afternoon trading.

Sprouts was the hardest hit of the food sellers. Its shares tumbled 9.8 per cent on Monday, compared with the 2.7 per cent drop for Supervalu and the less than one per cent decline for the remainder of the group.

— Reporting for Reuters by Lisa Baertlein in Los Angeles and Julie Ingwersen in Chicago; additional reporting by Jeffrey Dastin in San Francisco.

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Amazon’s $13.7 billion purchase of Whole Foods, which won antitrust approval from U.S. regulators on Wednesday, has been a shadow hanging over an ailing brick-and-mortar retail sector unsure of how to respond to the world’s biggest online retailer (all figures US$).

Shares in Kroger Co. and Sprouts Farmers Market each shed around seven per cent of their value in after-hours trade, while Wal-Mart Stores stock was down almost two per cent.

The price cut on selected in-store goods will start Monday.

Amazon also said that it will start selling Whole Foods brand products on its website, a move that sent down shares of packaged food sellers such as Kellogg and General Mills down roughly three per cent.

“There was never any doubt that Amazon would lower prices, and even offer further discounts in-store to Prime members,” Baird Equity Research analyst Colin Sebastian said.

Amazon said starting Monday it will cut prices on Whole Trade bananas, organic avocados, organic large brown eggs, organic farmed salmon and tilapia, organic baby kale and baby lettuce, some apples, butter, and other products.

“They will lower prices on consequential items to drive traffic and sales but not do a whole store price reduction which could really damage gross margin and potentially wipe out operating margin,” said Roger Davidson, a former executive at Wal-Mart, Whole Foods and Supervalu and current president of consultancy firm Oakton Advisory Group LLC.

“It does not look like they will go kamikaze on pricing,” said Davidson.

Scott Mushkin, who covers grocery stores at Wolfe Research, recently said Whole Foods, on average, can be 15 per cent to 20 per cent higher than some rival grocers and is as much as 25 per cent more expensive at the extreme.

Lowering prices could help the companies stem the defections by price-sensitive Whole Foods shoppers and bring in new consumers who can then be urged to visit Amazon. “It’s ultimately a nice land grab” as well as a way to get those customers “thinking about buying healthy food from Amazon,” said Bill Bishop of retail consultancy Brick Meets Click.

But the move could come with a high price tag.

“In some cases grocery retailers have had to invest between $500 million to $1 billion in order to reduce prices to a level that retained customers and resulted in a net increase in customers,” said Brittain Ladd, who until earlier this year was a senior manager working to roll out AmazonFresh, Amazon’s grocery delivery service, globally.

“Amazon is more focused on driving volume and improving service at the expense of profit margins. Long-term, this strategy works because the absolute profit dollars can still be significant,” Sebastian said.

Amazon said its Prime members will eventually become part of Whole Foods Market’s customer rewards program.

Whole Foods, which operates about 470 stores, including 13 in Canada, already has rolled out a loyalty program at its smaller, lower-priced 365 by Whole Foods chain, which offers members 10 per cent off more than 100 items in the store.

Amazon said John Mackey will remain chief executive of Whole Foods and the company will operate as a subsidiary and continue to be headquartered in Austin, Texas.

— Reporting for Reuters by David Shepardson in Washington and Lisa Baertlein in Los Angeles; additional reporting by Jeffrey Dastin in San Francisco.

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The FTC said in a statement that it had reviewed whether the deal would substantially lessen competition or constituted an unfair method of competition and opted not to pursue its investigation further.

Earlier Wednesday, Whole Foods said shareholders in the natural and organic grocery chain had approved the proposed sale to Amazon.

The companies expect to close the deal in the latter half of this year.

Amazon’s takeover of the upscale chain would give it a foothold in the US$700 billion U.S. grocery market, key for it to grab a greater share of shoppers’ wallets.

It would also give the world’s largest online retailer hundreds of brick-and-mortar stores where it could showcase products and ready packages for home delivery.

Amazon and Whole Foods did not immediately respond to requests for comment.

Antitrust experts had said the deal likely would win government approval because Amazon sells few groceries and Whole Foods itself makes up a small fraction of food sales.

Critics had argued there was precedent to block the merger, since Amazon would be leveraging its retail and supply chain power to dominate a new market.

The FTC opted not to make a second request for information in its review, which is often a burden for companies that have to provide extensive information that can drain time and resources to collect. Such requests have in the past led to concessions so a merger gains government approval.

In closing its antitrust review, the FTC noted on Wednesday it “always has the ability to investigate anticompetitive conduct should such action be warranted.”

Austin-based Whole Foods operates over 450 stores in the U.S. It expanded in 2002 into Canada, where it now has six stores in British Columbia and seven in southern Ontario, and in 2004 into the U.K., where it now has nine stores.

— Reporting for Reuters by David Shepardson in Washington, Jeffrey Dastin in San Francisco and Lisa Baertlein in Los Angeles; additional reporting by Diane Bartz in Washington. Includes files from AGCanada.com Network staff.

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Amazon plans to keep the natural grocer’s high standards, Whole Foods CEO John Mackey said, adding, “They’re not stupid enough to go change that.” The filing with the U.S. Securities and Exchange Commission contained a transcript of a town hall meeting for Whole Foods employees held on Friday.

But Mackey, at the town hall, said, “Over time, there could be other formats that evolve that — that might — wouldn’t be branded Whole Foods Market, potentially, wouldn’t be our standards.”

The remarks offered a preview into how e-commerce giant Amazon might turn around the sluggish sales of Whole Foods since announcing on Friday it would buy the company for US$13.7 billion, including debt.

The Whole Foods chain today includes about 465 retail stores, mainly in the U.S., with seven in Ontario, six in British Columbia and nine in the U.K.

Industry observers have said that Amazon may add a selection of discounted, non-organic food to distance the chain from its “Whole Paycheque” nickname.

Mackey said Amazon’s innovations will help the grocer transform from “class dunce” in technology to “class valedictorian.”

— Reporting for Reuters by Jeffrey Dastin in San Francisco.

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Amazon, which is known for squeezing suppliers and has been experimenting with its own outlets, will take over a natural and organic grocer pioneer brimming with 456 stores and high-end shoppers but struggling to rein in prices and integrate technology.

The deal sent shockwaves across the food distribution market and beyond. Shares of grocer Kroger swooned 11 per cent, while Wal-Mart Stores fell five per cent, signaling fears that Amazon could cut prices and broaden Whole Foods’ product mix, turning it into a much broader retailer.

Amazon’s shares were up three per cent at $993.40, adding more than $14 billion to its market capitalization (all figures US$).

“Supermarkets will now have to contend with not only competition with each other and non-traditional grocers like Wal-Mart Stores Inc. and Target Corp., but with a retailer like Amazon which has the financial capacity to price aggressively,” said Mickey Chadha, vice-president and senior credit officer at Moody’s Investors Service.

“We expect this transaction to further accelerate the consolidation within the supermarket space.”

Amazon has agreed to pay $42 per share in cash for Whole Foods, a 27 per cent premium on the Austin, Texas-based grocer’s closing share price on Thursday. Whole Foods shares were trading just above that level on Friday, as investors saw negligible regulatory risk to the deal closing.

A person familiar with Amazon’s strategy said the company believed customers wanted a combination of online and real-world buying options.

Amazon has been looking at stores that could allow traditional in-store purchase, online ordering with on-site pickup, and home delivery, using the store’s warehouse as a distribution point.

Still, Amazon is playing catch-up in the grocery business. Wal-Mart already offers in-store pickup. Amazon announced a similar service called AmazonFresh Pickup at two locations.

Amazon also has dealt with technology problems at a prototype store inside its corporate office in Seattle, called Amazon Go, where sensors and tech-savvy cameras detect what shoppers pull off the shelves and charge their Amazon accounts when they leave, people familiar with the matter said. That has delayed opening the store to the general public, they added.

And while some analysts expected Amazon to bring vast buying power to Whole Foods, Amazon’s heft in the food market is far smaller than in other areas, and high demand for organic products gives farmers unusual bargaining power.

Whole Foods, whose chain includes 13 Canadian stores in Ontario and British Columbia, has posted seven straight quarterly sales declines at established stores and had overhauled its board of directors in the face of pressure from activist hedge fund Jana Partners.

“I think that this takes all of the pressure off Whole Foods and gives Whole Foods the opportunity to revitalize that business and, of course, it stems the criticism from all of these activist investors,” said Neil Saunders, managing director of GlobalData Retail in New York.

The deal is for $13.4 billion in cash and the remainder in debt.

The acquisition price implies a trailing 12-month price-to-earnings multiple for Whole Foods of 31 times, versus a 14.4 average for the S+P 500 Food Retail index.

Amazon and Whole Foods expect to close the deal during the second half of 2017.

The grocer will continue to operate stores under the Whole Foods Market brand and John Mackey will remain as its chief executive officer, the companies said. Whole Foods’ headquarters will still be in Austin.

Eyes on grocery shoppers

Amazon, started in Seattle in 1994 by former hedge fund manager Jeff Bezos, has grown into the world’s biggest diversified online retailer, with a market capitalization of nearly $500 billion.

It has expanded from a bookseller into a merchant of nearly all consumer products, as well as producing videos.

Both Amazon and Whole Foods cater to younger consumers including so-called millennials as well as those who are financially well off.

“Amazon could bring technology to all Whole Foods locations or it could absorb Whole Foods into Amazon Fresh. Either way, it’s good for consumers like myself,” said Di Wu, a New York resident in her early 30s who is a member of Amazon’s Prime fast-shipping service and also shops at Whole Foods at least twice a week.

“Amazon is known to drive down prices and make the shopping experience more efficient,” Wu said.

— Reporting for Reuters by Lauren Hirsch and Anya George Tharakan in Bangalore, Angela Moon in New York and Jeffrey Dastin in San Francisco. Writing by Peter Henderson and Greg Roumeliotis.

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365, which debuted on Wednesday with a bright and airy store in Los Angeles’ Silver Lake neighborhood, is critical to Whole Foods. In the fiercely competitive market for fresh fruit and vegetables, Sprouts Farmers Market, Trader Joe’s and other rivals are taking sales from Whole Foods by undercutting it on price, if not always matching it on quality.

Even among shoppers seeking goods promoting health and wellness, “I don’t think we can underestimate the power of frugality,” said Richard Vitaro of consultancy AlixPartners.

365 president Jeff Turnas said reducing overhead and increasing convenience are part of the new chain’s DNA.

“Our goal is to compete in the marketplace without lowering the Whole Foods standards,” Turnas told Reuters during a recent store tour. He said 365 stores would complement the Whole Foods premium, full-service brand, which is fighting to shake its “Whole Paycheck” nickname stemming from the perception that it charges high prices.

The company, whose Whole Foods Market chain includes 11 stores in Canada, said recently that it had signed 19 leases around the U.S. for 365, without disclosing financial goals for the new chain.

Turnas said 365, which targets busy, value-minded shoppers, would carefully curate and price products to avoid undermining Whole Foods and keep the two chains distinct.

Shook Kelley principal Kevin Kelley said 365’s challenge is to avoid being labeled “a cheaper Whole Foods.” His strategy and design firm has worked with Whole Foods and other grocers.

Air guitars, foodies

365’s messaging is breezier than its serious elder sibling’s. One sign offers “free air guitars”, while a “silver kale” mural next to the meat case is a fun, foodie nod to the chain’s first neighborhood, known for a hipster feel.

About half of the brightly colored fruits and vegetables at 365 are non-organic, a greater proportion than at Whole Foods. Produce is priced per piece or per package, rather than by the pound as at cult discounter Trader Joe’s.

365 stores will be about a third smaller than the average Whole Foods outlet and carry roughly a quarter the number of products, reducing real estate and merchandise-related costs.

Staffing is leaner and no longer specialized. An iPad app replaces wine experts, while meat and cheese are in “grab-and-go” packages, eliminating the need for staff like butchers and cheesemongers.

While 365 takes aim at budget gourmets and cash-strapped “millennial moms,” grocery experts said it also must appeal to people who buy from a range of other food sellers, including Kroger, Walmart and Amazon.com, as well as restaurant delivery companies and meal kit providers such as Blue Apron.

Some are skeptical that 365 stores will hit the mark. “I don’t see them generating the efficiency they need to balance value and quality,” said Bill Bishop of retail consultancy Brick Meets Click.

But Kevin Kelley disagreed, saying Whole Foods has the experience to successfully choose what goes on 365’s shelves.

Roger Davidson, a consultant who has held key positions at chains including Wild Oats, which was acquired by Whole Foods, is also betting on 365’s success.

But he said the intense competition in the sector leaves little room for error.

“They have to make it work.”

— Lisa Baertlein is a Reuters correspondent covering the U.S. retail grocery and restaurant sectors from Los Angeles.

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People for the Ethical Treatment of Animals (PETA) said the use by Whole Foods of a five-step rating system for beef, chicken, pork and turkey was a “sham,” because it was not enforced against suppliers, and the standards were at best little better than normal industry practices.

In a decision late Tuesday, U.S. Magistrate Judge Nathanael Cousins in San Jose, California said PETA failed to show that Whole Foods’ alleged misrepresentations on in-store signs, placards and napkins defrauded consumers into overpaying.

Cousins said statements such as “great-tasting meat from healthy animals” and “raised right tastes right” amounted to permissible “puffery” by the Austin, Texas-based company.

He also said the statement that “no cages” were used to raise broiler chickens was not misleading merely because Whole Foods failed to also disclose that poultry suppliers normally do not use cages in the first place.

“Retailers do not have a duty to disclose product information unless it relates to a consumer safety issue,” and PETA did not raise any such issues, Cousins wrote.

The lawsuit was brought by PETA and Lori Grass of Portola Valley, California, a town south of San Francisco. It sought class-action status for California consumers who bought Whole Foods meat products over four years.

“There is still no question that Whole Foods is misleading well-meaning shoppers into buying meat falsely labeled ‘humane,'” PETA said in a statement. “This is a developing area of the law, and we are considering how we want to proceed.”

Whole Foods did not immediately respond on Wednesday to requests for comment.

— Reporting for Reuters by Jonathan Stempel in New York.

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