Should Whole Foods be worried?

Discussion
Jul 30, 2015

With retailers from Aldi to Wegmans selling organic foods and other products, Whole Foods has never faced so much competition. The evidence is clear in the company’s third quarter results and its decision to cut its annual forecast.

Whole Foods’ comp store sales were up 1.3 percent during the quarter and the company now says it expects low-single-digit growth for the year compared to its previous projection of a low- to mid-single-digit increase.

Aside from increased competition, Whole Foods has also taken hits of the self-inflicted variety. Last month, the grocer was accused by New York City’s Department of Consumer Affairs of overcharging customers with items labeled in stores. The chain, which first vehemently denied the charges, later offered a mea culpa including its co-CEOs, Walter Robb and John Mackey, appearing in a video to tell its customers how the company planned to fix the problem.

In a conference call with analysts, Mr. Robb said the chain’s problems in New York had a "significant impact" on Whole Foods’ third-quarter sales. On the same call, CFO Glenda Flanagan said, "The impact was really felt across the whole country" and not just in New York.

Whole Foods delivery=

Photo: RetailWire

In the past, Whole Foods has announced pricing initiatives to address its "Whole Paycheck" reputation, launched a national advertising campaign and has begun testing a loyalty program to address its competitive challenges.

The chain also recently announced plans to open a new concept, 365 by Whole Foods, that will concentrate on the sale of its private label in smaller footprint stores, similarly to Trader Joe’s, in an effort to attract Millennials. A recent study by Bloomberg Intelligence (via Bloomberg) found that a market basket of 35 private label products at Whole Foods was $88.86 compared to $86.75 at Trader Joe’s.

Yesterday, Whole Foods announced it has signed the first of five leases for the new concept in Bellevue, WA; Houston, TX; Portland, OR; as well as Santa Monica, CA and the Silver Lake neighborhood of Los Angeles.

If you were running Whole Foods, what would you do at this point to address challenges to the company’s competitive position and brand reputation? Do you see issues the chain faces that aren’t being discussed in public reports?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"I’d fix the reputation, then worry about the price point. Based on the Bloomberg study they are sitting very close to Trader Joe’s, so maybe it’s less of a worry than people think."
"Based on the fairly small margin between the Trader Joe’s basket and the Whole Foods basket, the big issue is perception. The NY debacle around overcharging really didn’t help."
"Not only did Whole Foods create their category, they carry many more SKUs than their competitors. They can continue to win by adding new items and bragging about them. The overcharging accusations will fade from view soon enough."

Join the Discussion!

20 Comments on "Should Whole Foods be worried?"


Sort by:   newest | oldest | most voted
Dr. Stephen Needel
Guest
7 years 1 month ago

I’d fix the reputation, then worry about the price point. Based on the Bloomberg study they are sitting very close to Trader Joe’s, so maybe it’s less of a worry than people think. Work at showing the great value you can get at Whole Foods via advertising.

Kelly Tackett
Guest
7 years 1 month ago

Based on the fairly small margin between the Trader Joe’s basket and the Whole Foods basket, the big issue is perception. The NY debacle around overcharging really didn’t help. The big fix needs to be restoring trust in the pricing and reputation. There will always be shoppers who are willing to pay the premium for the Whole Foods experience if they feel like they are being dealt with honestly and fairly.

David Livingston
Guest
7 years 1 month ago

For the most part, Whole Foods has it together. I’d ignore all the reports, stock price or reactions to quarterly reports. Whole Foods is the same company it was 10 minutes before a quarterly report as it is 10 minutes after. The only changes are external such as news reports and stock price. Whole Foods’ best friends are some of their competitors who are really asleep at the wheel. They should stay focused because I think their inferior competitors will stumble.

Roy White
Guest
Roy White
7 years 1 month ago
Whole Foods should be worried. The most sinister statistic from the third quarter results is the 1.9 percent comparable store sales growth. That’s not good, even allowing for the different Easter dates, and guidance for the fourth quarter is for comp store sales gain in the “low single digits.” Issues abound. On the consumer reaction front the chain was hurt by the wrong weights in New York City. And although the chain’s management claims that its stores are competitively priced, the fact that they sell costly products takes away from this claim. On the competitive front, there are more retailers selling their types of product that have much better consumer images, such as Aldi. The 365 by Whole Foods Market concept is obviously one answer to this problem, but it’s long term and there are 425 Whole Foods Markets that need to be made to work, starting with better pricing which may mean a revamp of the mix to one that allows for lower pricing. I would point out, recognizing that the numbers may not… Read more »
Richard J. George, Ph.D.
Guest
7 years 1 month ago

I think the 365 by Whole Foods is an appropriate initiative. I would be aware of Aldi and Lidl but recognize that Whole Foods’ position, namely, organic and natural, is significantly different from the position and target market espoused by Aldi and Lidl.

Mackey et al. have had some significant ethical (recall the Wild Oats fiasco) and now legal lapses. The biggest challenge is the apparent arrogance of Whole Foods. Note the recent weak mea culpa relative to the overcharging customers. If Whole Foods loses customer confidence, then there is little that marketing can do to bring them back.

Yes the market is changing and there are certainly the noted threats, not the least of which is Trader Joe’s. But Whole Foods’ biggest threat is itself.

Cathy Hotka
Guest
7 years 1 month ago

Not only did Whole Foods create their category, they carry many more SKUs than their competitors. They can continue to win by adding new items and bragging about them. The overcharging accusations will fade from view soon enough.

Gene Detroyer
Guest
7 years 1 month ago

When I heard the earnings reports this morning, I couldn’t help but wonder why Whole Foods is emphasizing the question of the New York overcharging issues. It seems to me, I would minimize it or not talk about it at all. Do we want any more press on this issue?

Maybe it is the lesser of several evils going on. Same store sales are up only 1.3 percent. Have we saturated the target audience? That would be considerably more disconcerting than what I perceive as a short-term PR issue.

Hmmm?

Dave Wendland
Guest
7 years 1 month ago

Every retailer in every format has plenty to worry about, but many have far larger challenges than Whole Foods.

Here are some positive signs for Whole Foods: I like their 365 by Whole Foods initiative, their assortment remains a point of differentiation, their loyalty among shoppers appears to be quite strong and I believe they are committed to sensible, consistent growth.

The negatives: price perception, reach/market penetration and a need for stronger messaging and consumer awareness.

Mel Kleiman
Guest
7 years 1 month ago

Starbucks still gets more for a cup of coffee than most of the competition. But the feeling of the customer is, “I am getting more for my money.” Whole Foods can continue to grow and prosper but they need to work harder at making sure that the consumer feels s/he is paying more for the item but the item is worth more. They are losing that perception in the market place and need to work at getting it back.

Lee Peterson
Guest
7 years 1 month ago

If I were running Whole Foods I’d stay the course. Have you ever been in one of their stores after a visit to a “traditional” grocer? Better product, better people, better stores, better service, better message … how is it possible to even think they’re “off course?” To me it’s like saying that the most beautiful woman in the world has a mole on her cheek.

Everyone makes mistakes operationally, so what? Think of their innovation push and those mistakes get quickly overpowered: best app in the business, partnering with Instacart, digital food service offerings in-store and the great price rebound, blow up of the 365 brand. Win, win, win.

Again, I’m Robb, I ignore the noise and keep the ship moving to new lands. The only push would be to go faster.

Tom Redd
Guest
7 years 1 month ago

I’m with Lee Peterson on the panel comments. WF is a well-marketed machine, like Starbucks. They have programmed their target audience to their channel and stolen their remotes. These people also push the WF game and if WF raised, changed, or fixed prices, they would not care, they are a WF shopper.

In years to come, the issue will be growth. Some shoppers that are not WF shoppers and still have their channel changes might not get the WF route.

Like Stabucks, they can keep milking their current customers and do well.

vic gallese
Guest
7 years 1 month ago

The challenge at WF has been going on since 2008. They weathered that storm nicely, when the recession sent many aspirational customers back to lower priced alternatives. They may get some learnings from 365 by Whole Foods, but the real answer is for their mainstream stores to provide a value alternative for their customers and millennials.

One suggestion is “364,” a WF PL that is priced right and may give some concession to the strict definition of “organic” which they current use. One risk they have is looking for cost reducing ingredients (like their competition does) and STILL calling it 365. That would be a huge error in my estimation.

John M. has resisted this move, but it looks like the customers are voting in favor of it!

Brent Buttolph
Guest
Brent Buttolph
7 years 1 month ago

Here’s an idea. Instead of fretting about pricing (too much), leverage those industry crushing margins into something time-starved consumers want—fast, free home delivery. As traditional grocers struggle with the economic model to support such a strategy, Whole Foods decided to test outsourcing delivery (and the last mile) to Instacart…really? Not talking so much about packaged goods here, but imagine if Whole Foods was offering delivery of fresh goods (consumers have come to trust—read brand equity/differentiator—WFMI’s quality in produce, meats and seafood) and better yet, the cornerstone of the Whole Foods experience—healthy, fresh, unique, hot prepared meals!

Brian Numainville
Guest
7 years 1 month ago

They need to tackle the reputation and price integrity issues first as the news on the overpricing was an “Aha! I knew they were taking advantage of me” by some. However, loyal Whole Foods shoppers likely place more trust in the brand and are more forgiving. Whole Foods needs to keep full steam ahead on both short term and long term initiatives to deal with the changing competitive landscape, and at the same time stay clear of any additional controversy.

Joan Treistman
Guest
7 years 1 month ago

Seems to me that Whole Foods has to take a time out and think about who they are and who they want to be. Adjusting prices, repairing reputation and promoting private label may be part of the ultimate strategy. But right now it sounds like disparate attempts to resolve some problems. Their mission statement may no longer be the guiding light it once was. To bolster revenue, Whole Foods has to reconsider the overall competitive landscape and decide where they want to be positioned.

Li McClelland
Guest
Li McClelland
7 years 1 month ago

Yes, it’s mainly the elite perception they need to exploit. They need to keep trying to convince shoppers that shopping at WF and bragging about it gives them class and cachet like shopping at Neiman Marcus or Bloomingdale’s. Competing on price they can never do.

Karen S. Herman
Guest
7 years 1 month ago

Going after the Millennial market share is a bold move and something I feel is long overdue for Whole Foods. In launching their 365 by Whole Foods concept stores and selling private label items, they are catering to the Millennial shopper and also working to damper that “whole paycheck” reputation.

But opening these stores in select markets is certainly not enough. Targeted marketing to Millennials is key. Creating a community for the 365 brand through mobile marketing and social networks would be my objective, with relevant and engaging content on the brand, products, healthy eating, recipes, a rewards program and special discounts, all sorts of touchy feely information that is authentic and useful, that can be shared with friends and family, is the goal.

Meanwhile, I’d love to shop at a Whole Foods with a smaller retail footprint and private label items. Hope I get the opportunity.

Gordon Arnold
Guest
7 years 1 month ago

In the face of what the company is trying to accomplish, investors have begun pulling back as seen this week on the floor. It may appear to those outside the company that not much is being done to correctly compensate for the apparent loss of market share by the core business. The executive committee is no doubt feeling the heat and in to much of a hurry for a home run thus making poorly prepared moves. People that make consecutive mistakes must be scrutinized and evaluated for competence in a hurry. Cutting to deep is a bigger problem at a time when there is little or no room for more mistakes. What a mess!

If it were my decision, I would focus on the core business only. New offerings of earth and people friendly items and categories would be my primary focus. This would be closely followed by more informative advertising and newly designed store layout which now is closely reminiscent of a 20th century grocery store.

Kai Clarke
Guest
7 years 1 month ago

Be different. Whole Foods is just like TJ’s. They need to create something new and different that every other grocer doesn’t already have. This includes different pricing, product positioning and products themselves.

Jeff Skoke
Guest
Jeff Skoke
7 years 1 month ago

Think about streamlining in-store operations and back of house food prep. This will go a long way to reducing shrink and optimizing labor spend. Some of this savings can be invested into smart pricing initiatives to continue to nibble away at the Whole Paycheck perception that really hurts this company.

wpDiscuz
Braintrust
"I’d fix the reputation, then worry about the price point. Based on the Bloomberg study they are sitting very close to Trader Joe’s, so maybe it’s less of a worry than people think."
"Based on the fairly small margin between the Trader Joe’s basket and the Whole Foods basket, the big issue is perception. The NY debacle around overcharging really didn’t help."
"Not only did Whole Foods create their category, they carry many more SKUs than their competitors. They can continue to win by adding new items and bragging about them. The overcharging accusations will fade from view soon enough."

Take Our Instant Poll

If you were running Whole Foods, how concerned would you be about the chain’s ability to compete effectively in the marketplace based on recent events and its latest earnings report?

View Results

Loading ... Loading ...