By purchasing Whole Foods, many believe Amazon will transform the retail grocery industry. But this business has become extremely sophisticated, intensely competitive and powerful new competitors like Lidl are entering the U.S. market. With the purchase of Whole Foods (1.2% market share), Amazon will still have less than 2% of the market share of U.S. grocery retail sales. Which means over 98% of groceries are being purchased at stores not named Whole Foods.

Here are four key challenges Whole Foods will face and how Amazon might overcome them.

1. Revenue dip – Over the past two years, Whole Foods has experienced a drop in same store sales as customers have left to find lower priced natural foods at traditional supermarkets. Amazon will likely sacrifice some margin by lowering prices which should help to lure back old Whole Foods customers and entice new ones.
2. Consumers not biting – Online grocery purchasing has never been widely adopted in large part because customers want to see and touch fresh produce products before they buy. Whole Foods could overcome by reminding customers of their high standards for freshness and winning them over by delivering it.
3. Margin crunch – Grocery products have razor thin margins which has always made the added cost of home delivery a major challenge. Whole Foods margins are larger and can better absorb delivery costs. Plus, the option of curb-side pickup can make online ordering more cost effective.
4. Acquiring a taste – High margin brick and mortar retailing on a national scale is new for Amazon. The company has proven its ability to innovate and dominate in the ever changing, hypercompetitive online retailing and now in cloud services.

Walmart started with a smaller piece of the market pie 30 years ago and now controls the largest share of the U.S. food and grocery market at 14.5%. Walmart’s innovative systems and processes reinvented the grocery business. The retail grocery environment today is tougher, but given its insatiable appetite for growth, it’s not a stretch to think Amazon could do the same.

Tariffs are meant to protect American businesses, but tariffs can force businesses and consumers to pay more for imported products. Industries affected by tariffs can respond by absorbing the extra cost, increasing prices or even moving production to other countries.

It started with a 25% tariff on imported steel and 10% on aluminum from China. As a result, U.S. industry leaders say consumers could face higher costs for cars and trucks, beer and soft drinks, canned goods and more.

“Make no mistake, this is a tax on American families,” said Matthew Shay, the President and CEO of the National Retail Federation.

But how big will the impact really be?

It depends on how far it escalates. So far, the Trump administration has focused on raw materials and components. Beer makers said their cans will cost more to make. Car companies said their expenses for manufacturing vehicles will increase. But even these costs will not be felt until next year when raw material inventories begin to be replenished.

In fact, some food product prices such as soybeans will likely decrease for American consumers. Sales of soybeans have slowed since China retaliated with taxes on soybeans, pork and electric cars. Excess supply will lower food prices in some categories. U.S. fruit and nut farmers could also suffer, but President Trump has proposed $12 billion in aid to help American farmers.

Full scale trade war?

Much depends on what happens next. President Trump has threatened to increase the scope of tariffs to $450 billion if China indeed retaliates against his 25% tariff.

Currently only about 1% of targeted tariff items are consumer products thanks in part to lobbying by companies such as Best Buy. But if the trade war with China grows, it could impact categories both consumers and retailers will notice. Mobile phones, TV’s and computers represent some of the largest categories of consumer products imported from China. More than 41 percent of clothes and 72 percent of shoes sold domestically are also made in China.

Plus, the trade war could intensify with other trading partners such as Mexico, Canada and the EU. Mexico and Canada account for almost half of U.S. steel imports.

“The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help,” according to the National Retail Federation’s Shay.

The U.S. Chamber of Commerce has also spoken out against the tariffs, saying the escalating global trade war will hurt American consumers in the long run.

Stay tuned.