Amazon (NASDAQ: AMZN) has been hard at work trying to shed Whole Foods' "Whole Paycheck" reputation ever since it acquired the grocery chain about two years ago. Those efforts have resulted in more volatility in its pricing than anticipated, however, as the company had to raise prices in February after suppliers' contracts ended and they complained of higher costs.
The retailer keeps working to lower the gap between Whole Foods' high prices and the rest of the industry, and a recent note from Morgan Stanley analysts suggests it's moving in the right direction. Whole Foods' prices fell 2.5% year over year last quarter, according to the analysts. That compares with a 3% increase in the first three months of the year.
Lower prices could help attract new customers to Whole Foods, especially if Amazon is able to drive traffic to the stores by leveraging its massive online retail presence. Amazon may have to sacrifice margins, however, in order to reach scale on par with less-expensive stores, including Kroger (NYSE: KR) and Walmart (NYSE: WMT).