Amazon's Bananas Prices: They Can Take Share, Say Morgan Stanley, KeyBanc

Shares of Amazon (AMZN) are up $4.66, or half a percent, at $949.92, as the company this morning formally takes control of Whole Foods, with the immediate result being various reports of price cuts, as had been promised by Amazon.

CNBC, for example, reported a short while ago that organic bananas are now selling for 49 cents per pound, down from 79 cents yesterday.

KeyBanc's Brent Bracelin reiterates a Sector Weight rating on Amazon shares, writes that his survey of a "basket" of 13 items shows a 22% price decline from before the deal's closing, on things such as almond butter, organic avocados, and" responsibly farmed tilapia."

Whole Foods has to recoup lost market share, writes Bracelin, from Costco (COST) and others:

We believe the banner has lost market share to other competitors in natural/Organics (Costco, KR, Trader Joe's, among others). The 22% initial price adjustments in key items are material and help bridge the gap (see Exhibit 1 herein). We also expect AMZN to continue to roll out additional 365 banner locations in an effort to make WFM's price points more accessible.

His view is, "these prices helped shrink the price gap with Trader Joe's, and we think will allow WFM to begin to reclaim lost market share."

Amazon is going back to its roots in the book business, writes Bracelin, in leaning heavily on price chopping, writes Bracelin, writing "the move to aggressively use price is similar to the strategy used within the book category," versus things like speed and convenience, which have been more of a focus of late with Amazon Prime.

Brian Nowak of Morgan Stanley, reiterating an Overweight rating, and a $1,100 price target, asks rhetorically, "Could lower WFM prices drive marketshare gains?"

"Our View:Yes," he writes.

Nowak writes that price cuts can definitely help take share, given price was a barrier for people to shop at Whole Foods, according to his firm's survey:

We believe there is room for pricing-driven share gains given our latest AlphaWise survey shows that 70% of people who don't shop at WFM list price as the main barrier, and our Grocery team's survey work shows that WFM's average prices are ~14% higher than the average grocery store...with Protein the biggest difference (35%). Excluding protein WFM prices are 5% higher, on average. We see lower pricing leading to accelerating WFM share gains.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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