Whole Foods could drive Prime subscriptions for Amazon (AMZN)

BI Intelligence

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Amazon's acquisition of Whole Foods could push more of the grocer's shoppers to sign up for Prime, according to Morgan Stanley analyst Brian Nowak cited by CNBC. That would provide a meaningful boost to Amazon's business outside of the grocery segment, helping the e-commerce giant to benefit from the deal beyond its immediate implications.

Adding more Whole Foods shoppers to Prime would strengthen Amazon’s connection to its core consumer demographic, affluent millennials. Nowak estimated that 38% of Whole Foods shoppers, about 5 million households, are not currently Prime subscribers, and projected Amazon will get half of that number to subscribe by the end of 2019.

That will likely be tied to Whole Foods rolling out Prime as its rewards program, attracting shoppers with exclusive price cuts and other loyalty benefits. Whole Foods shoppers are likely to be receptive to Prime, as they tend to be younger and affluent, just like Amazon’s core base. And while 2.5 million more subscribers wouldn't mark a huge increase for Amazon — it already counts about half of US households as Prime subscribers — Prime members spend nearly twice as much with the company than nonmembers, making them very valuable.

While Whole Foods is projected to grow its market share, it may not be enough to make brick-and-mortar a better focus than online grocery. Nowak predicted that Whole Foods’ market share will grow from 2.1% to 3.3% from 2017 to 2022, but that is not enough for Amazon to take over brick-and-mortar grocery. With online grocery primed to grow rapidly, it may make more sense for Amazon to focus on that area, and leverage Whole Foods’ value there, rather than hoping to effectively tackle the physical grocery space.

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