Sales of organic and natural products are more popular than ever, but Whole Foods Market does not seem to be benefiting from the rise in demand. The specialty retailer should be thriving in a time when sales of organic foods are at an all time high, and consumers are increasingly looking for unique, artisan and natural items. However, the chain is struggling to impress investors and keep customers coming back.
The company's shares are almost 50 percent lower than they were at the start of the year, and analysts are worried it won't be able to compete against mainstream retailers that are adding more specialty items. For example, Costco Wholesale claims to be the largest seller of organic foods, while Walmart is selling its line of organic products for almost the same price as conventional items. Additionally, Kroger stated for the first time how much its rapidly expanding natural and organics business generates in sales—a total of more than $11 billion a year. That represents approximately 10% of its annual sales, and its private label Simple Truth brand for natural and organic foods continues to generate double-digit percentage sales increases every year.
Whole Foods is working to change its image, however, which has been hurt by its "Whole Paycheck" nickname and reports of overpricing at some locations. It plans to lower prices and open a new concept, called 365 by Whole Foods (named after its private label brand), which is aimed at Millennials and offers more inexpensive items. However, even the company's executives are not sure it can improve customer perceptions, as the chain's own co-founder and co-CEO, John Mackey, says lower prices may not be enough to get customers back and "The Whole Foods Market brand may never shake that label."
Analysts, on the other hand, believe the company may be ripe for a takeover. The chain has one of the highest sales per square foot in the grocery industry ($990) has enough cash flow to finance expansions, and has almost no debt. Combined with its low stock price, those factors make it an attractive company to acquire.
In its Q4 earnings call with investors, the company also released plans to reduce expenses by $300 million by the end of fiscal 2017 by eliminating costs that don't produce value for customers. It also plans to focus more on exclusive brands and prepared foods, increase promotions and price reductions, invest in digital strategies and technology, and open 30 stores in fiscal 2016.
Whole Foods does not seem prepared to throw in the towel just yet, as Mackey notes, "In the face of increasing competition, we are not standing still."
[Editor's note: OFW Law Principal Attorney Michael J. O'Flaherty provided this blog piece regarding the need for federal oversight regarding the ongoing trend of class action lawsuits filed against food companies regarding product...read more
Jennette has been with The Food Institute since 2013. As Marketing Director, she is responsible for promoting all Food Institute books, seminars and webinars, as well as writing and editing the Food Institute’s annual publications. Additionally, she writes for and edits the daily news update, Today in Food, and contributes to the weekly Food Institute Report. She has a background in non-profit and environmental marketing, programming and writing, and graduated from Rowan University in 2012 with a degree in Communication Studies.
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