The next round of the US grocery price war started today.

Bloomberg reports that on its first day of owning Whole Foods, Amazon lowered prices by up to 43% for some popular SKUs in a Manhattan store. Link to the Bloomberg article here.

Will Amazon try to build a cost leadership advantage through a mix of Alexa and a sleek home delivery supply/fulfilment chain; or instead keep a prudent focus on cost but turn its main attention to differentiation?

Price wars in thin-margined industries inevitably lead to casualties and eventual competition on features and benefits (i.e., our tomatoes are fresher) and a repositioning. This is in the hope of raising barriers through differentiation. If Amazon can get its clicks and mortar strategy right, it will have a sufficient drop on the others to raise significant barriers in the area of customer fulfilment. Will this be sustainable in the face of further disruption by others?

Walmart and Google's planned voice-shopping alliance may represent a competitive response to Amazon's Alexa/Whole Foods pairing, but given the timing, it is likely that price will be where the first battles are fought.

On the subject of consumer prices, read our Jackson Hole blog which poses falling consumer prices as a 'structural' contributor to low inflation.

It will be exciting to watch this unfold in the US and also to watch for clues as to how Amazon might seek to engage with our consumer market here in Australia.

Mike