Commentary

Whole Foods Sees The Positive As Competition Rises

Whole Foods is not only facing an uphill battle in its quixotic quest to trademark itself as the “World’s Healthiest Grocery Store,” it has a lot more local competitors to deal with who are offering highly competitive prices for organic and natural products.

"Sales at the company's stores open a year or more declined for the fourth consecutive quarter, according [to 3Q] results released Wednesday afternoon,” Patrick Gillespie reports for CNN Money, adding that profits were down 22% from a year ago to $120 million. 

It's same store sales were down 2.6%, which was worse than the 2.4% analysts anticipated, and the stock to declined about 5% in after-hours trading.

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On the positive side, “overall sales rose 2% to $3.7 billion, which was a record for the quarter,” Gillespie writes, “but still a far cry from the company's double-digit sales growth just two years ago.” And co-CEO Walter Robb said in a statement that the chain is “continuing to make measurable progress on fundamentally evolving our business,” about which, more later.

“Consumers have more options than ever before,” Robb told investors on an earnings call transcribed by Seeking Alpha. And the other co-CEO, co-founder John Mackey, named some names: “People may not be driving as frequently or as a far as they used to because they can stop by a Krogers or a HEB or a Wegmans.” 

“The grocer has slashed prices, offered discounts, and launched a pilot loyalty program that is one of the hallmarks of traditional grocers,” writes Heather Haddon for the Wall Street Journal. But the increased competition “is continuing to undercut the Austin, Texas-based food grocer’s dominance in natural foods and it has offered lower prices to try to compete.”

It is also fighting back with a nine-point plan unveiled last November. Among other things, it “called for the launch of a new line of smaller, value-driven stores, 365 by Whole Foods Market,” reports Claudia Grisales for the Austin American-Statesman. “It has since opened two locations of the new store brand to positive reviews: A first store opened in the Los Angeles suburb of Silver Lake May 25 followed by a second store in the Portland suburb of Lake Oswego July 14. A third location is slated to open in Bellevue, Wash. outside Seattle on Sept. 14.”

Asserting that the smaller and more-affordable 365s “deliver a fresh new format to the marketplace,” Mackey said on yesterday’s call that they “are firsts for us in so many ways, from a streamlined operating model, to centralized buying, to auto-replenishment of inventory. We are already taking advantage of our many learnings to shape and evolve not just future 365 stores but Whole Foods Market stores as well.” 

Mackay also “elaborated on the retailer’s ‘back to basics’ plan, which will mean refocusing on the customer experience, among other initiatives,” Grisales reports.

“Everything has to do with upgrading the customer experience, from signage to the way we communicate,” Mackay said. “…I’m not going to say Whole Foods neglected that. I don’t think we’ve neglected it, but I think we need to up our game.”

And lower its prices.

“Wellness has gone mass, and it is not coming back, never again to be relegated to niche specialty retailers serving price-insensitive, early adopters,” Goldman analyst Stephen Tanal wrote in a research note earlier in the week that is cited by Forbes’ Maggie McGrath. 

“Tanal noted that part of the problem is geography: he and his team found that 54% of Whole Foods’ stores have one or more Kroger within five miles; a whopping 75% have one or more Trader Joe’s within five miles and 84% have one more Costco within 10 miles,” McGrath reports, pointing out that Goldman had downgraded the stock from neutral to sell.

Mackey “has said the company remains committed to reducing annual expenses by $300 million by the end of fiscal 2017 and will invest the savings in ‘better pricing.’ The company has trimmed about 2,000 jobs as part of the cost-cutting effort,” Bloomberg’s Craig Giammona writes.

And separately, he reports, Macklowe Properties and Whole Foods announced yesterday that it is the first commercial tenant to sign on in the residential redevelopment of One Wall Street, which will open in 2018. Whole Foods Market will occupy 44,000 square feet over three floors; two of them will be for shopping. 

It will be 16-minute stroll from the Goldman Sachs Tower on West St., the better for analysts to get a feel for how that qualitative “customer experience” stuff is working out.

 
1 comment about "Whole Foods Sees The Positive As Competition Rises".
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  1. Rick Thomas from MediaRich Marketing, July 28, 2016 at 5:30 p.m.

    Looking forward to the smaller stores.  For some of us we want to get in and get out.  And I speak for all men.  You need a comfortable pair of walking shoes at some of these stores. 

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