Whole Foods Hopes to Draw more Consumers with Lower Prices

Whole Foods is hoping to lure consumers to its stores that may have eschewed its products due to high prices. The company says it will start offering deep discounts on produce, meat, seafood and other items in an attempt to recover from a number of financial hits it suffered this year.

Whole Foods co-CEO John Mackey said on Wednesday that the company needs to do a better job of explaining to customers why they are superior to other retailers who also offer healthy products at a lower cost. It’s an important distinction for Mackey to make because competition is fierce and widespread, which it was not when the company got started.

Competition may very well be Whole Foods’ biggest enemy. Whole Foods Market Inc. shares hit a 4-year low after quarterly sales and earnings missed estimates. Sales open at stores open at least a year (same-store sales) dropped 0.2% last quarter, which was the first quarterly drop for the company since 2009. So far this quarter, sales are down 2.1%. [1]

“If we had a magic bullet, we’ve already shot it,” Mackey said Wednesday on an earnings call. “We don’t think there’s anything we can do immediately except increase promotional activity to drive sales. We think it’s basic blocking and tackling.”

Part of Whole Foods’ plan to rise to the top again is to open a chain of stores aimed at millennials, known as 365 by Whole Foods Market. The shops will offer a range of lower-priced products. At its “regular” establishments, rather reduce prices storewide, the company will offer more limited-time discounts. [2]

Fortunately for consumers, organic food is becoming the norm in the United States. Many grocery stores offer organic products, and big box stores like Walmart and Costco have gotten onboard with offering non-GMO foods. That means consumers have safer, healthier options, but it also means that Whole Foods is no longer a niche retailer in a niche market.

“Conventional retailers can get it into their stores more cheaply, and they can be more predatory on pricing,” said Mark Retzloff, former CEO of Alfalfa’s Market, which has locations in Boulder, Colorado, and Louisville, Kentucky. Retzloff pioneered 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,” he said. [3]

Whole Foods’ nickname has long been Whole Paycheck, thanks to its somewhat outrageous prices, and it’s a hard reputation to shake.

“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.”

Even Mackey agrees with that.

“The Whole Foods Market brand may never shake that label,” he said, although he does doesn’t believe that the solution to the company’s problems are to lower prices storewide – at least not at the stores that are already in operation.

Last month, Whole Foods announced that it was cutting 1,500 jobs, 1.6% of its workforce, to bring down costs. Still, the company says it will open 3 of its new 365 stores during fiscal 2016 and as many as 10 in fiscal 2017.

Whole Foods also announced a $1 billion share buyback program and declared a 4% increase to its quarterly dividend. [4]

While all of this financial jargon sounds interesting and maybe even fairly positive to those on Wall Street, it might not be enough for some consumers who are still struggling to come to grips with Whole Foods’ $6 “asparagus water” or the allegations the company faced earlier this year about price gouging at some of its locations in New York.

Sources:

[1] Business Insider

[2] Bloomberg News

[3] CNBC

[4] Financial Times of London

Photographer: David Paul Morris/Bloomberg (cropped from original)