Perspective: If Amazon Wins The Grocery Wars, It Won't Be Because Of Prices

Investors assuming price is the most important factor in determining the ultimate winner in the grocery space may be mistaken, according to Credit Suisse's Stephen Ju. Many investors previously assumed Amazon.com, Inc. AMZN's business strategy of sacrificing margins for market share would lead to an ultimate victory in the grocery space through its Whole Foods acquisition.

Currently, there is only a 50.4-percent overlap between Prime Now users and Whole Foods locations, which implies that the real path for Amazon to generate long-term success in the grocery space isn't through price cuts but through fulfillment and delivery options via Prime Now.

"In other words, Prime Now as it stands presents the rails/distribution and Whole Foods presents the content which Amazon seemingly had difficulty perfecting with Fresh," the analyst said.

Amazon will likely take advantage of the media attention it's receiving on Whole Foods price reductions and use this opportunity to continue the expansion of its Prime Now delivery system, the analyst said. In fact, the overlap between Prime Now users and Whole Foods locations is expected to rise from the current 50 percent to as much as 70 percent by 2022.

Bottom line, price reductions "capture the headlines," but Amazon will win the war through service instead.

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