The gist of this story is that organic and natural foods are available all over now, and consumers don’t need to go to Whole Foods to get these products. In fact, they can get them elsewhere more conveniently and less expensively.
The New York Timeshighlights the problems of Whole Foods in an article by Stephanie Strom, Wall Street Sours on Whole Foods Market:
Sales of organic and natural products are soaring — but you would never know it from the share price of Whole Foods Market, the premier purveyor of such merchandise.
Shares are almost 50 percent lower than they were in February, the high point of the year.
Investment analysts are almost uniformly negative on the company, worried that competition from mainstream retailers, which are increasing the amount of organic and natural items in their mix, will impede the growth of Whole Foods.
Costco, for instance, claims to be the biggest seller of organic foods, and Walmart now sells Wild Oats, a brand of organic products, at the same price as similar conventional brands.
“Conventional retailers can get it into their stores more cheaply, and they can be more predatory on pricing,” said Mark Retzloff, a pioneer of the natural and organic foods retail business. “If one of those stores is just down the street from a Whole Foods, there’s a big segment of their customer base that isn’t going to shop at Whole Foods anymore.”
The encroachment of traditional retailers onto turf historically dominated by Whole Foods has reminded consumers of the old nickname for the chain, Whole Paycheck, Mr. Retzloff and others say.
“Their single biggest problem is their price image,” said Meredith Adler, who follows the company for Barclays Capital. “Sure, Whole Foods is working to lower prices in produce — but if it’s also selling fish that’s $45 a pound, it will be hard to convince people that prices are good.”
The gist of this story is that epicurean options are available all over now and consumers don’t need to go to Fairway to get these products and, in fact, can get them elsewhere more conveniently and less expensively.
The New York Timeshighlights the problems of Fairway in an article by Julie Creswell, Fairway Slumps as Epicure Options Grow:
In Fairway Market’s grocery store on Manhattan’s Upper East Side, shoppers bustle past a colorful array of squash, peppers and cucumbers. A bulb of fennel or a bright red pomegranate can be picked up for $2.99. The scents of ground fair-trade coffee, pricey imported French cheese and fresh-baked loaves of artisanal bread waft through the store.
Just around the corner, at Whole Foods, shoppers bustle past a colorful array of squash, peppers and cucumbers. A bulb of fennel or a bright red pomegranate can be picked up for $2.99. The scents of ground fair-trade coffee, pricey imported French cheese and fresh-baked loaves of artisanal bread waft through the store.
Fairway’s motto may be “Like No Other Market,” but these days, a lot of grocery stores are awfully similar. When Whole Foods opened on the Upper East Side earlier this year, Fairway said sales immediately slumped at its store there.
Now, Whole Foods has been trying to get out of this box by claiming its products are better than those of others selling organic. In the same article, Walter Robb, Co-Chief Executive of Whole Foods, is quoted:
He said he recently purchased four certified organic steaks at a mainstream retailer and had them analyzed. The steaks, he said, came from organic dairy cows that had been decommissioned at about 40 months — most beef cattle are slaughtered by 24 months for taste and food safety reasons.
“Sure, those steaks technically meet the organic standards, but in terms of taste and flavor, they’re not the best example of organic meat,” Mr. Robb said.
And Whole Foods has built a big national consumer campaign around Sustainability, which we critiqued in pieces such as these:
Whole Foods’ ‘Responsibly Grown’ Program Turns Out To Be Pretty Irresponsible Implies Other Farmers Are Not ‘Responsible Growers’
A Walk Through Whole Foods And Why Its ‘Responsibly Grown’ Campaign Is Bad For Farmers
Pundit’s Mailbag — The Irresponsibility Of Whole Foods’ ‘Responsibly Grown’ Campaign
Whole Foods’ Responsibly Grown campaign was, in fact, specifically designed to persuade consumers that Whole Foods was a brand in and of itself, with a standard above that of organic or anything sold elsewhere.
In contrast, the CEO of Fairway, Jack Murphy, acknowledges the competitive sands are shifting:
On Thursday, Mr. Murphy said Fairway needed to respond not only to competitive pressures from traditional and upscale grocery stores, but also to e-commerce sites like Fresh Direct and Blue Apron, which deliver directly to the home. Fairway, he said, is starting its own e-commerce site for a limited test audience next week.
“There is an e-commerce thing going on. There is more competitive pricing pressure going on than ever before,” Mr. Murphy said. “Stores are popping up everywhere you look. Everybody is rushing to open a store on top of a store on top of a store. It’s more competitive than I’ve ever seen it, and everybody, quite candidly, is upping their game.”
Surely the key point here is that product is not a sufficient differentiator to ensure long term success. It is just too easy for other retailers to add any product that consumers are demanding.
It is also true that narrow specialization exposes any business to price competition. If a produce shipper only sells cucumbers, it is likely to have competition willing to sell cucumbers at break even or even a loss. These competitors can crush a competitor and live off the profits of selling peppers or other products.
So retailers living off a reputation in one product category are vulnerable to retailers that can live without profits in that category.
Of course, the other fact is that some retailers, in their ambition to grow, stretch their concept beyond its limits. Should there really be a Whole Foods in Detroit?
Now the big bet by Whole Foods is its new small store 365 banner. It is supposed to be a smaller, more economical concept.
One wonders if Whole Foods can really execute.
Consumer insights firm iModerate has a new study out:
Can 365 Reinvigorate the Whole Foods Brand?
Whole Foods is taking aim at Trader Joe’s, as well as big-box stores such as Walmart and Costco, with its 365 concept that hopes to appeal to budget-minded millennials, but will it be well received when it launches in early 2016?
iModerate found that consumers are excited at the prospect, but with a caveat – they expect Whole Foods to deliver its renowned quality at traditional grocery store prices. The top unique benefit identified (36%) was the ability for more consumers to take advantage of healthy foods thanks to the lower price-point.
“365 is Whole Foods’ chance to pivot from its elitist image and reach a new segment of shoppers that’s paying closer attention to their waistlines, but can’t afford premium prices,” said Rossow. “Giving this population access to healthier food could create immense brand loyalty for 365 and carry over to the larger Whole Foods brand. That said, if 365 turns out to be an equally expensive or lesser-quality version of Whole Foods, the concept will backfire entirely.”
The problem is that we know several potential non-produce vendors who have been approached by the 365 buying team — none of these vendors are going to fit the “traditional grocery store” price profile.
To us it sounds like the concept is already starting to blur, and what markets seem to be demanding now is clarity — Aldi means value, Trader Joe’s means a delicious epicurean approach. What will 365 mean?? It is unclear and thus, perhaps, not able to help Whole Foods.