Whole Foods Defies Whole Paycheck Tag
“Whole Paycheck? Not anymore.” That was the assessment of Whole Foods’
pricing position by JPMorgan analyst Charles Grom in an interview with the New
York Post.
According to Mr. Grom’s firm, Whole Foods has dropped its prices on food by
an average of five percent since December. Of course, even with lower prices,
Whole Foods is still seen as being significantly higher priced (about 14 percent)
than traditional grocery store rivals such as Harris Teeter, Kroger and Safeway.
In a separate market basket analysis, Ryan Krueger, co-founder
of Krueger & Catalano
in Houston, concluded that Whole Foods is — in its way — price competitive.
Mr. Krueger told
the Minyanville website, “I spent time with a store
manager putting together a basket of everyday items — stuff like chips, bread,
and peanut butter. We compared 10 average products to the closest big grocery
chain and it was closer than you would think: $25 vs. $21. The unknown might
be that the $21 basket came from Whole Foods, and its private labels. Traditional
grocery stores typically sell other company’s products after the slimmest
of one percent or two percent margins. Resellers in any business will tell
you the real money is made by those creating a proprietary product, not a shelf
to put it on. Whole Foods’ private labels are now on plenty of those
shelves. If they make their own peanut butter, they keep all the profit, and
I am inclined to choose it because I trust them and their ingredients.”
Libba Letton, a spokesperson for Whole Foods, told Minyanville, “We’ve
long said that if you compare like for like items, Whole Foods is actually
less expensive, especially in organic grocery items. In general, over the last
couple of years, it’s been a focus of ours to be competitive on price
and highlight the value that’s already in our stores.”
Discussion
Questions: Do you think consumers have gotten the message that Whole Foods
is more price competitive than it had been in the past? Do you think the price
message is compelling enough to bring more frugal consumers into the chain’s
stores?
[Editor’s Note] As a point of contrast, Wal-Mart Stores, which just announced
a price rollback on thousands of items, raised prices on food items by
2.3 percent since February according to JPMorgan’s research.
Linda Blakley, a spokesperson for the chain, told the Post, “We’ve
stepped it up where our customers need us to — with the basics of consumables and food.”
Whole Foods and Stew Leonard’s are not for the frugal. Their value is in selection, assortment and “cachet,” something other markets can only dream about.
Interesting article today and it once again makes us all think about the importance of price. Although important, the market basket data clearly shows that the difference between Whole Foods and other retailers is small. The consumer needs to then ask themselves if that price difference is worth the experience at Whole Foods and I would hedge to bet shoppers would say yes.
Whole Foods focuses on key areas other than price (in no particular order):
1) Organic items
2) Unique Private Brand items
3) Clean stores
4) Great store help
5) Fresh and healthy ready to eat meals
Whole foods should not be influenced by others that feel the pressure of Walmart and other retailers that are competing on price, but rather continue to enhance the areas above.
A CEO of a strong retailer told me it is easy to lower prices but very tough to raise them. I agree. If Whole Foods continues to focus on what it does best, price will not be a huge factor for shoppers and the extra margin from Private Brands will allow Whole Foods to stay ahead of the cure with regards to innovation and growth.
Whole Foods could lower their prices 30% and still be very expensive. They have a good product but it’s designed for the affluent, educated shopper. Consumers have gotten a good message about Whole Foods but it’s not that they are price competitive. It’s all the good things besides that.
Maybe they’ve changed pricing, and maybe that has had some effect, but they haven’t changed their image. In our market, WF has been running radio spots advertising a great deal on one product each Friday. Now, that may be great if it draws in incremental consumers. But does anyone really think that changes their brand image?
Up here in Canada the price gap is still wide, but it is closing. But they consistently earn their premium. It’s a great shopping experience that for many is worth it. It extends beyond basic commodity retailing, which is what most grocers only do. Good for them too! More retailers should look at how price isn’t the only driving factor. After all, the customer experience is the new marketing powerhouse.
Retail pricing tends to be framed as an all or nothing proposition. In the industry, we learn that a retailer has raised or lowered prices and we wait to determine which retailers experience a mass exodus and which ones welcome them with open arms. An encounter I had just yesterday confirmed to me that the reality is more complicated.
At my local co-op (Northwest Arkansas’ version of Whole Foods), a woman behind me in the checkout lane had 10-15 boxes of rice crackers in her basket. I struck up a conversation, telling her that I liked the crackers also and asking if she was having a party. She said that she wasn’t; she just liked the crackers. She went on to excitedly recount her trips to area Walmart stores where she used to be able to buy them (and Burt’s Bees products–“They just disappeared!” said she). When she got to the co-op and saw the rice crackers on sale (“For $1.99! Can you believe that?”), she by that time saw it as a kind of shopper’s revenge and nearly cleared the shelf. I found that fascinating–how lack of availability in one retailer coupled with a sale at another escalated a purchase. She and I also chatted about how various area Walmart stores carry different brands, to the point that you think you imagined ever seeing the brand there in the first place…and which Walmart was it again? Hmmm, must have been the co-op all along.
I’m not anti-rationalization; however, price and availability go hand in hand. The perception of scarcity can drive full price sales and it can also make a deal seem sweeter than ever. Localization further complicates all of this: shoppers may think the retailer is reading their minds…or that they don’t stand for anything. Whole Foods’ first move may be to make a store-wide statement on price; however, from there, they are going to have to decide on differentiation by market. If they get it right, shoppers may just start clearing their shelves rather than picking and choosing.
I’m afraid Whole Paycheck can never shed that image.
They are not an economical green grocer. Like others have commented, their customer base is affluent.
Other operators like SuperFresh do a much better job offering wholesome organics and variety, like a Whole Foods, but at a lower price point.
I guess anything can be spun, but the truth is, Whole Foods is a very expensive place to purchase food. The proof is in the total at the bottom of the register tape.
I’m a huge fan and regular shopper at Whole Foods and have been aware of their price moves and their excellent 365 brand since its inception. Having said that, all my friends and family, no matter what I say or show them, still believe that Whole Foods is super-expensive. Not just expensive, but SUPER expensive. “Their prices are ridiculous,” is what I hear all the time. It is ingrained in their psyche.
So that makes this a brand issue — which will therefore make changing that perception slower and more difficult to turn around. Whole Foods’ brand perception is one of quality and higher prices, and that’s a tough one to change as those attributes are related. They can do it, but they’re going to have to be careful not to ‘infect’ the quality attribute while doing so. This issue is the converse of Walmart’s. Their brand perception of low-price is dug so deep into the American landscape that it will never change.
Ultimately though, I believe Whole Foods will prevail as a viable business entity. They’ve just got too much going for them in terms of the “Ps”. I’m keeping my stock.
Wow. I didn’t even think that was a concern for WH. Seriously. Did consumers ever expect to go there and save a few bucks? I can say that in Toronto, nobody does. You aren’t shopping there if you are on a $50 a week grocery budget. I think it’s great that they are stepping in and joining the price cut train. It shows the customer some love which always helps in our current retail economic situation.
As a Whole Foods shopper, I have found their private label line “365” to be priced in a very competitive way.
On a whole store basis, for what they offer, I find them to be on the mark.
Whole Foods will never be seen as “price competitive” nor should they want to be. It makes as much sense as Walmart trying to position themselves as “moving upscale.”
In Walmart’s case, their image is low price and that is why people want to go there. Attempting to offset any perceived “negatives” that come out of consumer surveys about not having high quality merchandise is a Quixotic tilting of the first order. Same is true in the reverse for Whole Foods–they are super high quality and price be _____
Firmly established consumer positionings are the most difficult business asset to obtain. Why in the world would anyone want to try and alter a positive one?
Whole Foods Market has done an excellent job over the past 18 months in driving home the “value” message to their core customers, and to a large extent their non-core ones, as their most recent quarterly results have shown. Their “Whole Deal” coupon program has driven this, along with some strategic pricing decisions on individual items. All over the store I most regularly shop I find coupons taped to the shelf or to the actual product, making deal-finding easy. I also know that I can find most national brand natural CPG items at Whole Foods Market at a price that often beats Safeway or Kroger. Add 365 to that and you have plenty of ways to save money.
People who still call them “Whole Paycheck” are focusing on perishables only–and very few Americans buy only perishables when we go to the supermarket, addicted to ease as we are. Or maybe their eyes are dazzled by the stores’ more upscale decor. Whatever the cause of this perception, it’s outdated.
I may be in a minority of one here, but I never thought WF was particularly expensive; or perhaps I should qualify that: they carry more items that are inherently expensive, they are comparable on like items.
However the article did little to reinforce my view: does WF have “comparable” prices or not? and on what items and compared to whom? I would think the questions would be easy to answer, but comparing house brands to name brands (if I understand the survey correctly) suggests deception more than parity.
Well it’s quite clear that Whole Foods is not pursuing the frugal end of the shopper spectrum. The fact that Walmart chooses a different strategy does not make WF somehow deficient.
I think there’s room enough in this great country for a variety of retailers who explicitly target different types of shoppers and/or shopping trips. At Walmart, trimming specialty items from assortments may help it hit a lower price profile, but at the expense of sending some shoppers to Whole Foods for favorite items. It’s a reasonable trade-off–gain a few trips; lose a few trips.
There is also plenty of reason for retailers to adjust their price positioning from time to time as the competitive landscape shifts or as shoppers alter their behavior. Whole Foods is still expensive by any measure I can come up with, but the tolerance of its shoppers may have some limit, which it does well to respect.
The Whole Foods story is about organic foods and wellness; eating intelligently. Being cheaper is inconsistent with their raison d’etre. As a marketer, it’s important their prices are demonstrably more expensive.
They just need to do a better job explaining their value proposition. This point is illustrated by my colleagues who are convinced Whole Foods’ prices are high. I’m convinced Whole Foods’ products are healthier for my family and me. That’s reason enough to spend more for their products.
It would be a big mistake for Whole Foods to be price competitive with Safeway. Very unlikely it could be economically sustainable anyway as their cost of goods is much higher. That said, there is not an unlimited number of premium consumers, even upscale ones, willing to pay for the experience, especially when brands like Safeway are offering more and more premium and organic options. So it comes down to what it always does in pricing…price it as high as you can, but not too high.