After posting a drop in quarterly sales, the first since 2009, Whole Foods shows concern for a migratory customer base.
While Whole Foods helped popularize the high-end, organic, all-natural grocery trend, similar products have begun to populate the shelves of mainstream grocery retailers, but at reduced price. Consumers are naturally receptive to these items at lower costs, especially if they can get them at their “normal” grocery stores. A widespread availability of less costly organic goods also plays directly into the notion of Whole Foods being overly expensive. Several highly publicized flubs by the company earlier in the year (asparagus water, pricing inconsistencies) certainly have not helped matters.
To address this consumer shift, Whole Foods is planning to increase its discount programs in the short term. Sales on produce, meats and other items should be rolled out to stores over the next few months, which is perhaps the easiest way to immediately address the issue. However, there are no plans to permanently reduce pricing, only focus on limited-time discounts. This does help to retain the image of Whole Foods as a premium brand, as they don’t necessarily want to compete on the “low end,” for all the branding messages that sends. For its part, Whole Foods reiterates that their offerings are superior to the budget-friendlier things found in Walmart or Kroger.
However, the impending launch of their new 365 stores (3 locations planned for 2016, up to 10 by 2017) should do much more to target the price conscious portion of the market, without impacting the flagship brand’s image. The 365 locations are expected to feature their own line of less expensive products, which would not be made available in Whole Foods proper. Designed to attract younger shoppers (read: millennial hipsters), these are slated to open in existing Whole Food markets, rather than new territories. Described by corporate as “simple” and “streamlined” and a “smaller” shopping experience, there may be significantly less on offer to help balance the lower product costs.
There are many ways Whole Foods might have chosen to take this problem on, and their plans favor retaining all of what they’ve built into the brand over the years. Nobody can fault them for wanting to preserve their association with premium, though not every brand can afford to spin off a new entity that speaks to a different group of consumers. Both Wall Street and Main Street are going to be watching closely to see how this plays out, and hopefully getting a good deal on fava beans in the process.