What is Google Merchant Quality Algorithm?

Clearly, Matt is telling low quality merchants to be prepared for a possible downgrade in ranking. This may lead to a huge drop in traffic, sales and revenue for these online merchants.

Mattcutts describes about Google Merchant Quality Algorithm at SXSW conference 2013,

We have a potential launch later this year, maybe a little bit sooner, looking at the quality of merchants and whether we can do a better job on that, because we don't want low quality experience merchants to be ranking in the search results.

MattCutts also stated:

“We are trying to ask ourselves, are there other signals that we can use to spot whether someone is not a great merchant, and if we can find those, and we think that they are not all that spammable, then we’re more than happy to use those.”