Whole Foods Regroups
By Denise Leathers
Despite — or, more accurately, because of — strong growth in the natural and organic space, long-time leader Whole Foods saw comparable store sales drop 1.8% during the first quarter ended Jan. 17, the second straight quarterly loss for the 438-store, Austin, Texas-based chain.
Transaction size fell 1.6% while basket size slid 0.2%. And although sales for the quarter grew 3% to a record $4.8 billion (the chain opened three new stores during the period), net income tumbled 6% to $157 million. But it’s not all doom and gloom. Whole Foods has some of the highest sales per square foot in the supermarket industry, trailing only Trader Joe’s, and the average store does nearly $700,000 a week, reports David Livingston, owner of Milwaukee-based DJL Research. “Most grocers would be envious of those results,” he adds, citing impressive growth over the long-term. So why the recent downturn? Competition.
“In 1980, only about 20 million consumers, or 8% of the population, was tuned into the natural and organic movement, and Whole Foods pretty much had them to itself,” explains Jay Jacobowitz, founder and president of Brattleboro, Vt.-based Retail Insights. Fast forward 35 years, he says, and that figure has swelled to 200 million, or almost two thirds of the population, prompting the entry of retailers from every corner of the industry. And therein lies the problem.
So not only does Whole Foods have to compete with a growing number of small local players, co-ops and farmer’s markets, it also has to contend with chains like Sprouts and Farmer’s Market that offer a similar assortment for less money, says Don Stuart, managing partner at Wilton, Conn.-based Cadent Consulting. But an even better threat is posed by strong mainstream players that have entered the segment in a big way. “Kroger, Costco, Target, even Walmart are all really upping their game in this space,” he reports. So while the pie is definitely bigger, a lot more retailers are vying for a piece of it. As a result, differentiation is crucial …
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