Amazon's Whole Foods Acquisition Harms COSTCO

I'm sure at this point most people are aware of the purchase of the organic grocery chain Whole Foods by CEO Jeff Bezos and Amazon.com.

Shares of many food retailers including Costco were negatively impacted by the acquisition.

In fact, it was not Walmart the nations largest food seller, but Costco that received the toughest blow to it's stock price. Between June 14th and July 10th of this year Costco's stock price declined by over twenty percent.

From a technical point of view Costco should be able to endure Amazon Prime Food Delivery entry into the market. It is almost as large as Amazon, boasting annual sales of a whopping $130 billion.

In addition it's same store sales have grown at a 5% clip in comparison to Walmart at only 1.5% and membership renewal rates at Costco are a strong 90%.

So why is the warehouse club giant stock price taking a hit? One word demographics.

Costco customers are different than Walmart's, as they are more of a reflection of Amazon Prime large household demographic with higher than average incomes.

Around a quarter of Costco and Amazon Prime consumers earn more than $100,000 a year compared to 17% for consumers in general. This makes Costco vulnerable to some of Amazon Prime's strong price advantages.

Amazon Was Always A Threat To COSTCO

The common demographics between the two retailers is producing an overlap with a large number of Costco members shopping at Amazon Prime, which signals a threat to Costco's growth possibilities.

Some surveys are showing that over 70% of Costco members plan to shop at Amazon Prime in the coming months. In addition, there is data that suggests dual members are shopping at Costco less frequently. In fact, recently Costco's membership penetration rate has started to decline.

One advantage the warehouse membership club has is that it offers lower prices than other discount chains.

One study shows that prices on brand-name products were nearly 20% less at Costco.com than at Amazon.com. However, online sales are only about 3% of Costco's total revenues.

Costco is trying to change all that with plans to increase its online fulfillment centers. It would also like to increase it food delivery service which it presently provides through Instacart and Google Express.

What can we learn as affiliate marketers from the Amazon Whole Foods acquisition? Here are five keys that could help.

1. Know your competition and stay up to date with changes in your niche.
2. Create quality content that your competition can't contend with.
3. Build a brand that provides long lasting value to your customers.
4. Don't rely on a single source of traffic.
5. Look to the future and be ready to change.

Patrick

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