R&FF Retailer: 9 things Whole Foods Does Well… And 9 Ways Whole Foods Could Improve
Through a special arrangement, what follows are excerpts of a current article from Refrigerated & Frozen
Foods Retailer magazine, presented here for discussion.
While Whole Foods clearly does plenty right, like any retailer, there are a few areas it might improve. That’s especially true if it plans (as it says) to grow its sales by 56 percent over the next three years in the face of growing competition. We asked a cross section of industry observers – including frozen and refrigerated food vendors, consultants, brokers and competitors – for their thoughts on what Whole Foods could do better. (Our complete
story also focuses on what Whole Foods does especially well.)
1. The price image needs work.
Observers say the perception of high prices, justified or not, hurts Whole Foods, and it needs to take active steps to change this. They note that other supermarkets send out fliers to steer shoppers to their stores, while Whole Foods relies on word-of-mouth. It needs to do more to recruit mainstream shoppers who are not going to its stores, these people say.
2. Some buyers need to chill.
Says one vendor, “Whole Foods needs to educate its team more about category management and pricing strategies. Because they have a chip on their shoulder about their price image, the buyers are tough on suppliers and often themselves, depressing margins within a core commodity which hurts everyone from the farmer to the manufacturer to the retailer themselves.”
3. It could speed up a little.
Says a manufacturer trying to gain distribution: “I
have found the process of getting our items to the right place and point of
approval to be very slow. The information seems to flow very, very slowly and,
in my retail experience, that appears to be a sign of overwhelmed buyers…My
guess is that once you are in, it is a different story.” Yet other vendors
also selling the chain say decision-making can be very slow.
4. It relies too much on distributors.
Complains one vendor. “If you are a
local niche producer with high costs, further marked up by the distributor
and yet again by WFM, often your products end up with wildly high retail prices
and aren’t successful in the store.”
5. It must focus on hiring quality people.
Okay, so this isn’t really seen as
a problem now, but potentially a serious one as the chain expands.
6. More structure, but not too much!
They need structure, and maybe a hint
of standardization, but not at the expense of becoming homogenous. They need
to maintain their commitment to being a ‘neighborhood’ market. This flies in
the face of buying power but serves to keep them special and sensitive to each
store’s community. Says one observer: “The largest area I believe they could
improve upon is their distribution network. Once this is secure I believe they
can further that by implementing some national programs while not pulling too
much decision-making away from the store personnel.”
7. It needs to pre-order more product for promos.
“If WFM chooses to support
your items, they do sell lots of product and their stores do support the national
display programs. However, about half of the stores do not pre-order enough
product to manage their needs.” Another vendor says Whole Foods needs to reduce
its margins on promoted items, and to work with manufacturers better to help
them hit target feature price points.
8. Private label is gaining too much at the expense of branded items.
For the record, Whole Foods’ private label SKU count rose 13 percent over the past year, and it makes up 19 percent of grocery and whole body sales.
9.
It must maintain differentiation.
According to one vendor, “Other retailers are quickly catching up in terms of adequate assortment that also delivers healthy, all-natural or organic alternatives. Whole Foods needs to make sure that shoppers do not become ‘equally pleased’ with the alternative.”
Discussion Question: Which of the recommendations for Whole Foods makes the most sense? Which makes the least sense?
They need to remember that their name is Whole FOODS. Perhaps it is just in my local store, but there seem to be more and more shelves and aisles dedicated to non food products. This includes not just an expansion of household and personal care products but dietary supplements, candles, magazines, even crocs shoes.
As my stock pick, I have really looked at WF with a passion. Many of these recommendations make sense. Customer service training and hiring is a biggie as this organic market explodes and new customers come in.
WF needs to be prepared for all the questions and needs uninformed consumers will have. Weekly circulars would spruce up traffic and increase basket size. Price image is also a huge factor. WF needs to deliver the message that they offer high quality and competitive prices. There are demographics out there that balk at shopping at WF because they are perceived as the high price leader. Conveying a value message will bring new groups of customers in the door.
Whole Foods continues to perform extremely well, so it is difficult to be too critical of the things that they are doing. That being said, as is true with any fast-growing chain, there are things that worked when they are small, that need to be improved upon as they expand. While many of the items on the presented list are areas that require improvement, they will come in time.
There is one additional area that I would add to the list. They do need to become more centralized. While regionalized buying is important, there seems to be too much decision making happening on the regional level, and it is causing a lack of consistency throughout the chain. While providing each region and each store some autonomy is great, a WF shopper wants to know that certain staple products are going to be available in each store that they visit, and those staple items have to extend beyond the 365 brand.
I see #9 as the biggest threat. It’s going to be more and more difficult to maintain the differentiation needed over the next few years.
Whole Foods needs to be more user-friendly to “sell” them new products, goods, and services, on a national basis. They are missing out on some golden opportunities in the same way that independent stores do, because for many niche suppliers, it’s too expensive to try to sell each store on an individual basis.
It’s interesting that the responses seem to be self serving to the manufacturers, brokers and vendors that work with Whole Foods. Few are consumer focused. Consumers seem to be willing to pay a premium to shop at Whole Foods and tend to like the stores as they are.
In the LA area, Whole Foods recently ran a series of ads promoting quality and low price. I’d like to know if they drove sales of the featured items.
Whole Foods is successful because they are not like other retailers. Their new stores move further towards prepared and fresh foods and further from traditional grocery. The formula seems to be working.
We like Whole Foods and would shop there more often if it was closer. There is a new one under construction that will be considerably closer and so I am sure our visits will increase. The price image is real but I’m not sure about how large a problem that really is. They seem to draw a lot of upscale shoppers that are attracted to that environment and are willing to pay more for selection and quality.
As has been pointed out, a bigger problem may be trying to maintain their image of having an exclusive variety of organic and healthy offering that are superior to their competition. Another thing that would be helpful going forward is to keep a muzzle on their CEO.
Differentiation is definitely a challenge. As with many retailers, once they have been around for a while, the novelty wears off and the flaws become more apparent. There are several Whole Foods in the areas that I spend time in and they are inconsistent. Thus, the Whole Foods brand is damaged by the inability to maintain a certain standard.
Max is right on–especially with regard to #1. People may call it “whole paycheck” but they still flock there for the differentiated brand experience and the quality of goods. While Whole foods may be challenged in a down economy the worst thing they can do for their long term brand health is suddenly try to compete with the average grocery store.
For most of us, Whole Foods is a “second stop”–we either can’t afford to buy everything there or aren’t willing to pay a premium for organic everything. If I were Whole Foods, I’d be thinking less about how to compete with grocery stores and more about how to draw people into the store more and how to position myself as a fresh low cost alternative to eating out. Whole Foods could become the affordable fresh dinner option for those who used to go “fast casual” for dinner.
Not that it doesn’t face challenges but Whole Foods has brand fanatics based on its current model and any attempt to cheapen or mainstream that experience risks the entire brand proposition.
It is not about price (retail price that is) and if it becomes that.. WF loses. They must differentiate and separate WF by being special, by selling interesting, exciting, unique, and healthful products. They must have a “wow” factor. I do not think that Harrods food shops in London needs to send out weekly circulars and flyers to do its mega high levels of business and if WF delivers that kind of excitement in the natural foods arena they will continue to stay ahead of the pack as well.
Whole Foods’ #1 priority: build as few new stores as possible. Only take locations with the least possible cannibalization of existing locations, with the highest possible return on investment. Whole Foods already bought their #1 competitor, Wild Oats, so why rush to expand further, quickly? It’s better to expand slowly, increasing the return on investment, and preserving a very special culture. Retail stock prices rise fastest when their ROI rises and their comp sales increase. Building a lot of new locations wrecks the ROI and the comp sales trends, both.