Kroger’s equity price collapse, as we reported yesterday, stemmed from lower revenues driven by competition with supply-chain monsters like Walmart and Germany’s Aldi. Amazon entered the grocery price wars this morning with a $13 billion purchase of the struggling Whole Foods chain. Amazon’s stock price is up 3% pre-market.
Technology is deflationary: it allows companies to make goods and deliver services more cheaply. The future of profitability in a traditionally low-margin business is hard to reckon, now that Walmart and Amazon will go head-to-head.
Walmart, as the Wall Street Journal reported this morning, is also encroaching on Amazon’s online sales business, attracting retailers who get lost in the vast shuffle of Amazon’s product selection. This is yet another of the “idiosyncratic” elements of disinflation on which Fed Chair Janet Yellen blamed the failure of the Fed’s inflation forecasts. Even in labor-intensive industries like food retailing, labor is becoming less important and technology is becoming more important.
The world of mobile telephony is another case in point. Anyone with an unlocked smartphone now can obtain free service with unlimited calls and text and a couple of gigabytes of data. The industry’s cost structure simply has to fall. These are not idiosyncratic events, but the result of a long term trend that began with a collapse in the cost of computation a generation ago.