Whole Foods and Walmart are battling for one crucial set of customers — and it reveals a dark truth about the American middle class

Whole Foods' traffic shot up after cutting prices — and 24% of new shoppers were regular Walmart customers.  The defectors to Whole Foods are wealthier than the average Walmart customer.  Rising pay for top income brackets, compared to relative stagnation for lower-income Americans, has made upper-middle- and upper-class customers key to retailers' survival.  Walmart and Amazon are fighting for customers, and Whole Foods is serving as the latest battleground.

And, the two retail giants' strategies say a lot about the American economy. 

When Amazon's acquisition of Whole Foods formally went through in August, the e-commerce giant immediately made some changes — most notably, significant price cuts. 

The changes attracted new customers. Foot traffic to Whole Foods increased 17% year-over-year following the acquisition, according to mobile phone location data collected by data intelligence firm Thasos Group. Average daily foot traffic for new customers skyrocketed 33% relative to the previous week. 

The biggest source of foot traffic for Whole Foods were regular Walmart shoppers. People who visited Walmart at least twice a month accounted for 24% of new Whole Foods customers the week of the price cuts. 

Walmart has an enormous retail presence, with more than 5,000 locations in the US compared to Whole Foods' roughly 450 stores. When accounting for the total percentage of Walmart customers who defected to Whole Foods the first week after the acquisition, it's just 0.6% of Walmart customers. 

However, that doesn't mean that it's a negligible amount — especially when you take a closer look at what type of customers were ditching Walmart for Whole Foods. Across the board, the customers who defected to Whole Foods from grocery rivals were wealthier than the retailers' average shopper. 

"We would have thought that by lowering the prices Whole Foods would attract lower-income customers ... We see that in fact, they didn't," Thasos CEO Greg Skibiski told Business Insider.

Walmart's regular customers' average income is $59,264, according to Thasos data; the average income of a regular Walmart customer that is defecting to Whole Foods, however, is $71,697. 

If Whole Foods keeps "stealing" 0.5% of Walmart's customers in the coming months, that's dangerous for the retail giant, especially if it's attracting customers with more disposable income, Skibiski says.

Walmart has been making an effort recently to win over higher-income shoppers with acquisitions of pricier brands like menswear brand Bonobos and trendy womenswear brand ModCloth. ModCloth's dresses cost $60 to $150, whereas Walmart's dresses are usually priced at $10 to $25.

RELATED: Supermarket traps companies use to get you to spend more: 

10 supermarket traps
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10 supermarket traps

Large shopping carts

According to Martin Lindstrom, the larger the shopping cart, the more likely you are to spend. The marketing consultant told The Consumerist"We doubled their size as a test, and customers bought 19% more."

Pleasing aromas and colorful sights

Walking into a grocery store and smelling freshly baked goods and flowers, especially if you're in a good mood, is a surefire way to get you to throw a few unnecessary items into your cart as your begin shopping experience.

Fresh produce first​

After you've already been tricked into picking up a loaf of bread or some flowers, supermarkets also get you by placing the produce in the front of the store. By doing this, they fool you into believing you're being healthier by shopping for fruits and veggies first so you won't feel bad if you decide to stock up on a few unhealthier snacks along the way to checkout, too.

Mist on produce

You may think the mist on fresh fruits and veggies is helping the produce, but in all actuality, it makes them rot faster. Also, be sure to shake off the access water before purchasing your produce -- the mist tends to add additional weight, making the price go up.

Slow, boring music

Have you ever wondered why most grocery stores play some sort of elevator music? It's because they want you to take your time while shopping. Many stores play music slower than the average heartbeat, so pop your headphones in and play upbeat music to combat this trick.

10-for-$10 promotions

It's common to believe you're getting a great deal during a 10-for-$10 promotion, but say, if a can of beans was originally 87 cents, you're actually paying more versus buying 10 of the same cans when they aren't on "sale."

Dairy being in the back of the store

The reasoning behind the age-old trick of placing milk and other dairy products in the back of the store may surprise you. Although it forces you to walk through various aisles, the true reason is because trucks unload their shipments in the back of store, and since milk needs to be refrigerated immediately, the easiest place to keep it is in the back.

More expensive items at eye level

If you've ever wondered why all of the expensive items seem to be the most accessible, there's a reason behind that, too. Supermarkets place cheaper items on the lower and higher shelves and reserve the middle, or eyesight level, shelves for their most expensive products.

Buying premium deli products

Just because you are buying a seemingly fresh cut of meat or fish from the deli and paying a higher price, doesn't necessarily mean the product is of better quality. Often times, the meat was previously frozen meaning you may have to use it sooner than meat you would buy from the frozen section.

Changing the layout of the store... often

Don't get too comfortable with your local supermarket's layout. Markets believe that when a person remembers where there items they plan on buying are, they'll spend less time in the store and will ultimately spend less money.



While Walmart has aimed for more aspirational customers as Whole Foods cuts prices, Thasos data proves that both retailers are competing for the same shopper: the upper-middle class customer who is increasingly important as wages stagnate for much of the US. 

While the average household income for the wealthiest 20% of Americans a from 1980 to 2015, the rest of America has lagged significantly behind, according to US Census data. The mean income of the lowest-earning 20% grew by just 10% in the same time period.

Looking at real wages, the difference is even more stark. The hourly wage for people in the 95th percentile by income grew by 41% from 1979 to 2013, according to the Economic Policy Institute. The hourly wage for the 50th percentile increased by 6% in the same time period, while the 10th percentile dropped by 5%.  




All of this means that wealthier shoppers are increasingly influential, forcing bargain-centric retailers like Walmart to expand into more aspirational brands.




At the same time, these higher-income individuals are often still proud "bargain shoppers." After all, they were attracted to Whole Foods by lower prices immediately after the acquisition. 




Companies that relied on middle-class spending, such as Sears and Macy's, are struggling and closing hundreds of stores. On the other hand, luxury and budget brands are thriving — or, at least, surviving. 




Skibiski says that Whole Foods could become a "battleground" if it continues to draw a substantial number of new customers from Walmart, with the budget retailer potentially rolling out a scheme of its own to win back shoppers. 




Walmart is gearing up to cash in on wealthier customers, especially as it expands its e-commerce lines. Whole Foods winning over high-income customers could force Walmart on the offensive in this battle — one that both retailers are determined to win. 




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More from Business Insider: 
Whole Foods is cutting prices — and it's hitting Trader Joe's hard 
Whole Foods CEO: Amazon saved us from the 'whole paycheck' trap 
Whole Foods is selling a cake for a Jewish holiday that is observed by not eating anything




SEE ALSO: I visited Whole Foods on the day it was acquired by Amazon — and it's clear it'll never be the same




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