How price competitive does Whole Foods need to be?
Whole Foods Markets, reporting its sixth straight quarterly decline in same-store sales, is apparently finding its “Whole Paycheck” reputation tougher to shake now that organic offerings are widely available across retail at lower prices.
“Does Whole Foods need to be the cheapest or least expensive retailer out there? No. But we also can’t have too big of a gap or people will feel like we’re trying to take advantage of them,” said CEO John Mackey on a conference call last week with analysts. “So we are very conscious of pricing and, in some cases, when we have a particularly strong quality advantage, the gap might be a little larger. But if they’re selling the exact same items and exactly the same brands, we feel like we really need to be competitive on those prices.”
The grocer reduced its sales forecast for the year, announced the closing of nine locations and a slowing of new-store development. Its goal of opening 1,200 plus stores was dropped.
The company plans to “double down on focusing” on its core customer — “the Whole Foodie customer” — that is still shopping its store. As part of that effort, Whole Foods announced a partnership with dunnhumby to accelerate its category management efforts. Stated Mr. Mackey, “If these customers add just one more item per trip, the sales potential is significantly greater than with any other segment.”
Further price investments will continue, and the company is looking for ways to reduce costs, including introducing self-service in departments such as pizza and bakery that don’t impact the shopper experience.
One challenge Whole Foods faces is that conventional grocers allegedly use lower standards to bring down their prices in organics. Whole Foods’ dedicated consumers, however, will be watching its commitment to quality closely.
“If you’re a publicly traded corporation, you have no choice but to maximize short-term profits,” Ronnie Cummins, the co-founder of the Organic Consumers Association, told The Washington Post. “But we are going to be complaining to Whole Foods if they decrease their quality to keep up with the competition.”
- Whole Foods Market Reports First Quarter Results – Whole Foods
- Whole Foods Market Selects dunnhumby to Help Lead Customer Driven Merchandise Strategy – Whole Foods
- Whole Foods Market (WFM) Q1 2017 Results (Earnings Call Transcript) – Seeking Alpha
- Analysis: Why Whole Foods is now struggling – The Washington Post
- Whole Foods says it’s focusing on price because no one wants to feel ‘cheated’ –MarketWatch
- Whole Foods launches Dunnhumby partnership, trims growth forecast – Supermarket News
DISCUSSION QUESTIONS: Is Whole Foods’ quality message getting lost with consumers? Does Whole Foods need to match prices with conventional grocers in staple categories?
Phil MasielloFounder and CEO, CrunchGrowth Revenue Acceleration Agency
Phil MasielloFounder and CEO, CrunchGrowth Revenue Acceleration Agency
Phil MasielloFounder and CEO, CrunchGrowth Revenue Acceleration Agency
Phil MasielloFounder and CEO, CrunchGrowth Revenue Acceleration Agency
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22 Comments on "How price competitive does Whole Foods need to be?"
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Founder & CEO, Hubba
It is not necessarily about price but value. People have no problem paying more when they perceive they are getting more. In the case of Whole Foods, there is a bigger disparity between the price and the perceived value. Whole Foods can combat this in several ways but there are two that I would recommend. First is their assortment. Whole Foods has always been known to carry interesting items that are not easily found elsewhere. People will pay more for a well-curated and unique experience. Speaking of experience, that is the second strategy. How can Whole Foods differentiate on the shopping experience compared to other retailers? They have a foodie and healthy culture that they can tap into. Unlike other grocery retailers they have a real community around them. What can they do in-store to exploit this further? Their core customers would pay a premium for a tailored experience.
Managing Partner, Advanced Simulations
This is really a research question; if they lower their prices on staple items do sales increase? While I’m sure there are some shoppers who buy almost all their stuff at Whole Foods, I’m betting that’s a pretty small group. For the rest of us, yes, prices need to be somewhat in line with traditional grocery, but what “somewhat” is needs to be researched.
President/CEO, The Retail Doctor
For gosh sakes, just own your products, cost more and stop trying to be both a luxury grocery store and “for the people.” If you do, you won’t use discount offers for Groupons customers which is a whole different customer base than the ones who built you. Add more luxury and service. I must say, the Whole Foods I visited recently in Downtown LA didn’t feel very upscale, it was packed and the aisles were confusing. Talk less, do more. Pick a side and run with it.
Founder and CEO, CrunchGrowth Revenue Acceleration Agency
President, Max Goldberg & Associates
Whole Foods should emphasize its local, unique offerings, not try to compete on price with other grocers. A price war would simply confirm the company’s Whole Paycheck image. Their stores are different. Celebrate the difference. Don’t try to be the other guys.
Co-founder, RSR Research
Whole Foods has never been very adept at keeping prices low on easily recognizable and available items while keeping them high on their unique foods, vitamins, etc. I don’t usually call technology a panacea but, in this case, I am hoping rolling out new technology helps them get better at this. When seltzer cost 50 percent more at Whole Foods than Publix (same brand … same everything), even though it’s short money, you notice.
Strategy Architect – Digital Place-based Media
Value is becoming more widely defined in retail, and it differs even more widely among consumers — from week to week and experience to experience on the micro level. When retailers define their brand and operate within a range of defined value, smooth sailing can be expected. Moving outside of this makes the waters choppy and the winds of success uncertain. Whole Foods should stay the course unless consumers tell them to do otherwise. Beware the consumer who declares that they want everything. Retail success lies in the proportion of value elements.
Advisor, MyAlerts
Anecdotally, I’ve heard from several Whole Foods shoppers that they are switching to Aldi and they are quick to point out huge price disparities. And I read that Aldi is investing heavily in new store layouts focused on organics and is aggressively adding stores. With this being just one competitor, I would say Whole Foods has a lot of problems on its hands to turn things around.
Principal, Your Retail Authority, LLC
As you all know I am not the grocery shopper in my family, however this looks like a retail 101 question. What are the top 10 percent of your customers buying? If I were to guess, the top 10 percent at Whole Foods are buying their highest quality products. After all, Whole Foods falls into the luxury brand category. To me, that is. They will grow by giving their top customers more of what they want, not by lowering their standards to hopefully appeal to a broader market.
As for matching prices with conventional grocers? Only if they sell the same product, and I really recommend that they NOT do that.
I was just watching Top Chef and, of course, they did all their shopping at Whole Foods. They didn’t go there for the best prices, they went there for the best quality and unique variety. So Whole Foods, play that up and take it to the bank.
For my 2 cents.
President, Protonik
Whole Foods is justifiably seen as overpriced in my experience. But I think part of their problem is they structured the company in an earlier day when they could demand and maintain those higher prices. Now there are mid-range competitors like New Seasons on the West Coast who offer same quality, a better shopping experience and generally lower prices. And now our local Kroger chain offers better organic fruit and vegetables at lower prices.
I expect we have a few years of struggle ahead for Whole Foods while they attempt to wean themselves off of a business model based on higher margins than today’s market competition will allow them.
Oh. To answer the question? Yes. They have a high price problem. But it’s not going to be an easy fix since I expect the company is structured around the margins those prices brought.
Global Vice President, Strategic Communications, SAP Global Retail Business Unit
Yes, and match the value. The whole movement is coming to an end soon so people will have healthy food and part of their paycheck left over. Even my Millennial kids do not shop there due to the low value they get out of each dollar. They are health nuts but not brandwashed.
Principal, Anne Howe Associates
Whole Foods has pretty much lost its meaning. I find it hard to define what it stands for these days. There’s plenty of competition in the healthy, natural, organic retail market in the Charlotte area, including Earth Fare and even Aldi. Perhaps in addition to new technology, this is a company that can benefit from a re-do of brand architecture and positioning that includes points of parity as well as points of distinction. Right now they seem to have a cloudy vision and are therefore talking from both sides of the mouth.
President, Global Collaborations, Inc.
Focusing just on price is myopic. Who is the core customer? What do they want? Focus on getting the assortment, quality and value right. Then make the price competitive and reasonable. Then create messages that emphasize the value you provide, such as strict standards for ingredients.
Independent Board Member, Investor and Startup Advisor
EVP Thought Leadership, Marketing, WD Partners
Strategy & Operations Delivery Leader
Founder, CEO, Black Monk Consulting
I don’t know if it is getting lost or if it’s simply under attack. Foodies have been critical of Whole Foods for not being “pure” enough — a problem with any business that is selling “purity” as part of its brand. What may be getting lost is the notion of differentiated quality — why my purity is purer than yours. As to price, they may need to be closer, but they don’t have to match. Their customer isn’t motivated by price, unless they are facing insult pricing.
Editor-in-Chief, CPGmatters
While it is true that other grocers are stocking more organics at lower prices than Whole Foods, the latter does not have to overreact. Whole Foods has tremendous brand power. Act like the leader. Be competitive on price, but promote value. My hunch is that dunnhumby will help Whole Foods in a big way.
Contributing Editor, RetailWire; Founder and CEO, Vision First
Whole Foods needs to overcome the reputation of being the most expensive option.
Global Managing Director, Prosper Business Development
Retail Transformation Thought Leader, Advisor, & Strategist
Director, SaaS Marketing, Zebra Technologies
There’s no secret what you receive at a Whole Foods: a great shopping experience and quality food at a premium price. Shoppers are showing with a healthy skinnying-down of their purchases that the value they perceive is not justifying the prices they are paying. Since no company, public or private, can indefinitely withstand a loss in same store sales, an adjustment is in order which should include a review of pricing, inventory and service. They need to find the features and products that consumers will pay a premium for and which they will not. The great experience offered at Whole Foods has value but the consumer is showing that the price may be too steep.