Some of the retail company stocks plunged yesterday. No, this wasn’t on an earnings announcement.
It was in response to a breaking news item that sent shock waves through those stocks.
It created an instant bloodbath.
But I think the opportunity from this bloodbath is bigger than just one recommendation, and that the declines in these stocks are an opportunity you shouldn’t pass up.
Avocado Toast
In June, Amazon.com Inc. (Nasdaq: AMZN), the online retail giant, announced it was going to purchase Whole Foods Market, which started the bloodbath you see above.
Then last Monday, Amazon announced it was going to close the deal and offer discounts on “popular” items.
These stocks sold-off again.
I put popular in quotes because they’re items that are popular at Whole Foods, not necessarily with the public. Items like avocados, almond butter and baby kale, to name a few.
Still, investors view Amazon’s disruptive business model of lowering prices and not caring about profits as a negative for Whole Foods’ competitors.
There’s just one problem.
Amazon picked the worst target to do that with.
Whole Paycheck
Whole Foods (WFM), nicknamed “Whole Paycheck” by many, is known for its overpriced organic foods.
Reuters reported that Gordon Haskett Research Advisors analyst Charles Grom did a pricing analysis of Whole Foods before and after the deal was announced. He found that prices overall declined just 1.2% from the week before despite the “slashed prices” that made headlines. And several items actually increased in price.
Other shopping studies have shown that Trader Joe’s prices are roughly 20% cheaper than Whole Foods. And prices from Wal-Mart and Aldi are often cheaper as well.
And that’s what I mean by Amazon picking the worst target.
Whole Foods, even after substantial price cuts of as much as 48% on over a dozen items, still doesn’t impact Amazon’s ability to be competitive in the grocery industry.
