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August 07, 2008
What should Whole Foods do?
Yesterday, Whole Foods had a bad day. It reported third-quarter profits of $33.9 million, a 31% decline from the previous year. Sales growth at stores open more than one year slowed to 2.6%, down from 6.7%.
It plans to reduce the number of new store openings by nearly 50% and suspend its 20-cent quarterly dividend.
Yikes.
Whole Foods is known for quality products and high prices, so it recently started a "Great Deal" campaign that aims to show people how Whole Foods can be economical. It's hosting "Value Tours" in stores to help customers find the best deals on products.
Is that enough? Is it time for Whole Foods to bite the bullet and lower prices? (My co-author says they should, but primarily on the products where Whole Foods competes with the discount stores.)
What should Whole Foods do now, if anything?
UPDATE: The Austin American-Statesman did a price-comparison with other Austin supermarkets and found that Whole Foods is more competitive on price than expected, with some exceptions.
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does WF offer any kind of "club card"? Such as what you can use at the supermarket (Safeway, in my case) to get card-only specials. That would send the message that they are actively trying to help customers save money. If they can't offer lower prices, they've got to offer other incentives. Kind of like how, if I can't get a raise at work, it costs nothing for the boss to throw a few more vacation days at me.
Hi Jackie,
I personally love Whole Foods, but only go there for things I'm really willing to spend more on like steaks or fish. Then I go to a traditional store for all the other items.
As the organic movement takes off, you can get organic, quality stuff at regular grocery stores or smaller natural markets - for less than at WF. Many of the same brands WF carries even.
I think WF is trying to solve this by buying their competitors. Where I live, in Boulder, they own five stores now under the names Whole Foods, Ideal Market and Wild Oats. Prices seem a bit lower at these non-WF-named stores. So, maybe they are moving toward a model where they hit different price points for different audiences.
Casey
When Whole Foods opened a store in my neighborhood in DC, one of the criticisms of it was that it was a high-end store in a location with a fair number of lower income shoppers. They made a point of pointing out that they had a number of very reasonably priced items. I did all my shopping there when I lived nearby (mostly because I could walk to it) and indeed, there are lots of things you can get that are not outrageously priced (and of course many that are).
So I think their "value" campaign is smart, and is supported by reality.
I understand that they give buyers for each store a fair amount of latitude, and that's smart. The store in River Oaks in Houston probably doesn't need to worry too much (it's still jam packed all the time) but other stores may have more challenges.
Unless it's in the market for a brand identity change, it should stay the way it is and start pressing up marketing to those who can afford it, as well as pushing manufacturers coupons for those who can't. I think Starbucks made a big mistake closing so many stores, with awfully short term vision. Starbucks made its bones on being the gourmet brand of coffee. (I worked at the famous store, and seeing how they operate behind the scenes would make you love the brand more, I tell ya.)
And I don't care how expensive whole foods is, my fiance and I won't do our grocery shopping anywhere else. He has special religious-related needs for what he eats, and to maintain my change in eating lifestyle, I can't go anywhere else and get everything I need in one shot. Whole foods should be increasing marketing to people like us, and the rest of its core group.
As a current and long time employee of a small, one-store operation I can tell you that the prices at Whole Foods are often a little inflated. But the flip side is the fabulous shopping atmosphere at a WF store. You're paying for a name and a specific shopping experience.The truth is that it costs a lot of money to promote a national brand identity, and to provide such a great, classy, vibrant store which explains the slightly higher prices.
As far as the cutbacks are concerned, I think that WF is just responding to the natural ebb and flow of the market. They've expanded enough to saturate the market and beat out (or buy out) the competition, but now they're over-extended and need to cut back to a more 'reasonable' number of stores...a number the market can sustain.
Starbucks went through this same kind of expansion in the 90's and then hit critical mass, as well. Now that the initial boom for WF is over they're more realistically susceptible to the natural changes in the market and need to adjust their practices to match.
I think we're just seeing a good business responding in a healthy, responsible way to market demands. There may be increased competition as the natural foods industry expands into conventional stores, but regular grocery stores will still only provide top-sellers and loss leaders, not the full array of natural and organic foods. Dedicated natural foods stores are a niche, but a vibrant one, and the industry growth is still outpacing the 'conventional' market...even in slow economic times.
Besides, real value comes from spending your money to buy real food, not artificial/refined/bleached/modified/hydrogenated/instant frankenfood. There's a lot more at stake than what goes on your plate. WF knows this and the massive growth of the industry supports it.
They should understand that they are doing the best they can, and to acknowledge that the times are not in their favor. We have a retail store that relies on disposable income, as if there is anything left these days to be disposed of, and we are going through some interesting times.
We had to come to a conclusion on what to do - closing was the easiest way out, trying to reduce prices and offer discounts the second best, and cutting costs while remain faithful to what we are and what we do was the hardest. Well, we took the hardest road... and we are realize that at the end of the road we may not be better off in earnings and revenue, but when these conditions improve - and they will - we will be in much better shape (lean and mean) and continue to deliver what made us what we are.
Thus, I would recommend to reduce the costs where possible - without sacrificing their brand and identity and emerge in better shape at the end.
Lowering their prices doesn't improve their stores. It doesn't improve the experience of shopping there. It doesn't improve the products they sell.
Lowering their prices is an awful idea.
WF is a premium store. That limits its growth potential. But that's not a problem. Like everyone else, they need to be the best at what they are for the people that care about whatever that is.
They were doing just fine. But if they try to grow too much, they will run out of rich people to sell to.
If they want to sell to everyone, they can lower their prices to zero. If they don't want to do that, they shouldn't lower them at all.
I love WF and go there because they offer products that are not offered at other grocery stores, high-end or not. I would have to say the same for my friends. Products like local cheeses, fresh quality bread, local veggies and fruit is why I go there. What I did notice is they focus on products you can get somewhere else. Their featured products do not perhaps reflect what their loyal consumers are actually purchasing, what truly sets them apart from the rest.
They should dump all the ground beef, invest in some heavy duty PR and be prepared for another down quarter.
I'm going to agree with Seth Godin that they need to remember to delight their customers. (link: http://sethgodin.typepad.com/seths_blog/2008/08/the-bitter-tast.html )
From what I've experienced shopping at the Whole Foods nearby me in San Francisco, they have hired some really cool people to work there, but they have never really impressed me with their customer service. I've experienced a few minor frustrations that I haven't had at other stores. No dogs allowed, would not accept my Canadian ID for wine (I'm 27), etc.
Maybe they need an overhaul of their staff training and figure out a way to motivate them to treat the customer like gold. People talk about great experiences.
Maybe they should read Seth Godin's blog: http://sethgodin.typepad.com/seths_blog/2008/08/the-bitter-tast.html, and follow his suggestions to improve their customer perception.
What worries me most about Whole Foods from a brand perspective comes from a recent interview with the head of marketing in which he said several times that the company has an "image problem," meaning that people incorrectly perceive the prices to be too high.
This is utter nonsense and the kind of blindness that leads companies to destruction. Whole Foods is expensive. While we may not like it, that is certainly part of what gives the brand its mystique and has contributed to its success to date.
This doesn't mean that in a down economy the company shouldn't focus on affordability. If they're selling competitive products to other stores, they must be priced competitively. There's no reason I should pay an extra dollar for store-brand peanut butter I can get just about anywhere. In order to not only get through a tough economic period but also keep the brand growing, Whole Foods needs to focus on areas where it offers the most value.
The value tours are the right thing to do, as is continuing to demonstrate the company's commitment to quality and a superior experience.
What strikes me about this is how long it has been an issue, and how misunderstood (aka, "marketing") Whole Foods Market really is. In 2006, I wrote about it's role as an organic foods pioneer--noting that Wal-Mart, and not Whole Foods, would likely be the brand that the majority of consumers end up associating with "organic" unless WFM figured out a way to do organic AND affordable foods. (See "Genius of the "And", http://www.clickz.com/showPage.html?page=3623868)
Then, in 2007, I referenced the Whole Foods "365" (house) brand -- it IS affordable, and a typical family can balance its budget while shopping at WFM. (See "The Power of Brand",
http://www.clickz.com/showPage.html?page=3625354) That said, the majority of WFM customers barely know of (much less understand the role of) the 365 brand. That’s a marketing opportunity.
Of course all of this misses a fundamental point: just as the Mercedes C Class starts well above the price point of economy cars--and just as it also delivers an absolutely fantastic experience as a Mercedes--so to Whole Foods is not to be confused with value-priced grocers, at least not as it's built now. Yes, it has a line of staple products (365) but let's face it, that's not the center point of the intensely "inhale" (versus relaxing "exhale") experience of shopping at WFM.
Whole Foods Market ought to stand by its current strategy: it’s easily the best in the world at it. WFM is a premium experience for those can afford it, with a strong enough house brand that :those who can afford it" is actually a big enough number to continue to pressure Wal-Mart and others that are experts at low cost delivery to bring the benefits of organic to the rest of the world.
Correct links for prior post (got snagged by closing paren in original post)
The Genius of the "And" --
http://www.clickz.com/showPage.html?page=3623868
The Power of Brand --
http://www.clickz.com/showPage.html?page=3625354
I think the stumbling of Whole Foods and the collapsing of Starbucks proves a point in 2008: people are tired of paying premium prices for products that they can get cheaper elsewhere.
This is not to say that what Whole Foods offers is not 'valuable'...but obviously it's not priced to meet that value. You can no longer, in this economy and with smarter consumers, tell the customer "we are telling you that this item is valuable..so pay top dollar for it."
The product alone is no longer valuable. There has to be a combination of product value, customer service, convenience and uniquness of offering. Organic food is the 'rage' now...which means you can get it more easily and more often.
Lower your prices, WHole Foods, or watch your revenue continue to decline.
www.ShopForTheGood.blogspot.com
I totally agree with Josh. Right on!
Jeff: Obviously I disagree with you. First of all, is nobody buying from Whole Foods anymore? Or is it that people who are not their core consumer are falling off? You can't say the product alone is not valuable enough when people still buy it. But obviously some people are voting themselves off the island. The question is whether WF should change anything to keep those people.
I do agree with you about the product alone not being enough. But the "product" they sell is not just what you take home with you. It is the store layout, the beauty of those produce displays, the smell of the coffee, the mystique... You can buy organic at Wal-Mart but you sure as hell are not getting a WF experience at WM.
The most certainly do not have to lower their prices. They do have to figure out who their target shopper is and market with laserlike precision to that target. If they want to sell to less rich people as well, open another chain. Something more like Trader Joes.
What should Whole Foods do, you ask?
They should be more careful where they source their beef from. Nationwide ban on beef? Yikes!
The problem with lower price on a premium experience is that customers perceive a lowering of quality and service. I don't think they should go down this path. I think they need to focus their marketing on their target customer and remain true to their brand identity.
Jackie-many of us, including our whole Customer Service team for Private Label lost our jobs due to cut=backs on 8/13. This is how the company responded to the quarterly earnings loss.
I no longer work there, but I still believe in the 365 Brand. It's great quality, and a great value, what more can you ask for?
Thanks again for the books, I took them with me! : )
April R.
I'm a big proponent of focusing on your niche market... and charging for it too!
Too often, I've seen brands and services diluted by simply lowering their prices when times are tough. Times may be tough, but now more than ever, WF needs to stick to their guns and focus on their core service (and the pricing to go along with it).
By lowering your price when times are tough, WF is simply saying to the public at large, "we weren't really committed to our vision, only if you would pay for it"
Lowering prices may keep the company alive, but it speaks poorly to their shoppers that it's not the place I thought it was.
Thanks, Jason M. Blumer
WF is always very entertaining. If I ever feel the desire to purchase a $9.00 bag of poptatos I head to WF. Hey, aren't they just spuds?
Also, You shouldn't need to offer a "virtual tour" on how to get their version of the "NO FRILLS" asile. (Any one whom has ever resided in the tri-state area and shopped at a Pathmark will understand "NO FRILLS".)
I'd rather not comment on this issue (as I have strong opinions on this kind of store in general,) but I did feel I had to put a word in for the person who complained of Whole Foods not allowing dogs: how would you feel if I came in with my cat, or my (very clean and well-behaved) rat? People seem to think dogs should be treated like toddlers these days - I had to turn out someone from a restaurant I used to work at - which was a community-seating establishment - because they thought it was perfectly fine to bring in their accessory-dog. Once in a while, you can and SHOULD leave those things at home.
i would just like to point out that in shopping at wholefoods, if you grab a gourmet item, expect the price to be higher. if you get meat there, understand that the quality standards are going to cause the meat to be higher priced. if you don't mind mass produced meat with antibiotics,etc, you should probably buy it at a conventional grocery store. all in all, unless there are major vic specials at anothrer store, i can shop more effectively, and not have to read labels at wholefoods. i've been shopping there for years.
just remember they have quality standards.
Quality Standards, food maybe..?..how far do these compare with the US territories. Just on reading labels..it has come to light that on Natural Remedies, not all of the brands are as Natural & good for you as they make out! With some containing many grey area ingredients still frowned upon. The more ethical brands are being side-lined for more premium packaged lotions & potions, with a new..not so natural addition every month..from a customer perspective its very confusing. Perhaps consistency is the key across all categories, but I'm not so sure the UK lot can pull this off! They should be leading by example but unfortunately this is not the case.
