This deal is about location, location, location. No, it's not just about having Amazon groceries in physical locations. This is about creating a more efficient gateway between consumers and Prime, ultimately driving more sales of all Prime-eligible products, not just groceries.
The efficiencies result from Amazon delivering products to Whole Foods, not your doorstep. If you like free two-day delivery today, how do you feel about free same-day pick-up of all those same products tomorrow? Amazon is already heading towards that model today, but it becomes much more economical for them to do so when the local Whole Foods replaces your home as the delivery location. Rather than having to manage all those individual packages going to all those different destinations, yours and all your neighbors' products make one simple trip from Amazon's local DC to your nearby Whole Foods.
Your 8AM order of two books, a bag of birdseed, running shoes from Zappos and a cordless drill is ready for pickup at Whole Foods by 3PM that same day, a convenient stop on your commute home. Oh, and because Amazon knows you're stopping by Whole Foods around 5:30 that evening, they'll gladly tell you about all the great dinner options you could whip up by adding on to your 8AM order.
An added bonus is you no longer have to worry about that Amazon box being stolen off your front porch. You can still get two-day free delivery to your home, but you'll often prefer the shorter delivery window, and package safeguarding, available via the Whole Foods option.
I, on the other hand, will have to wait a bit for this added benefit. Even though my hometown is about to open a new Ikea and a community eyesore, better known as Topgolf, Whole Foods still hasn't made it to Fishers, Indiana.