IS WHOLE FOODS STILL THE STANDARD?
Whole Foods may need to make radical changes in order to maintain its standing as a natural and organic leader.
By Len Lewis
FOR WHOLE FOODS this seems to be the best of times and worst of times. The best of times because of the exponential growth in
demand for natural and organic products
by a multi-generational army of shoppers.
The worst of times because everybody else
knows it too—and does it for less than a
Let me state upfront that I am a fan of
Whole Foods. They have put natural and
organic on the mainstream map and its
stores still set the standard. They are a
beacon of health and wellness marketing
and merchandising and an icon of retail-
ing that deserves its own chapter in indus-
try history books.
However, as we have
seen time and again in
retailing and a lesson that
has yet to be learned—no
one is too big to fail.
I was speaking with an
industry insider recently
about Whole Foods. He
jokingly said: “Maybe it’s
A&P all over again.” But
equating these two is like
comparing apples and
oranges. A&P’s demise
was a case of hubris, outsized egos and greed.
With Whole Foods, the hunter has
become the hunted.
As the company prepares to open
its modestly priced 365 store aimed at
younger shoppers in suburban South
Chicago, the question is whether Whole
Foods can create a new identity in a mar-
ket that has such retail powerhouses as
Mariano’s, Walmart and Meijer? Or will this
just dilute its brand?
No one can fault Whole Foods for
attempting to broaden its store portfolio
with a smaller format and narrower assortment. It is a case of less is more—less cost,
more profits. But there are those who feel
that the chain would have been better
served by becoming more aggressive in
pricing—or at least more agile—
something that industry observers, and consumers, say the chain has failed to do.
So, is this Whole Foods going “on
the attack” as co-CEO Walter Robb has
said, or running to catch up with everyone else who has jumped on the organic
I rarely turn to Wall Street as a source
of information, but a recent analysis by
Deutsche Bank made some cogent points.
Declining comp-store sales are a strong
indication of the pressure that the chain
is under from other retailers in the natural and organic space. However, analysts
also believe that Whole Foods’ long-term
growth target of 1,200 additional stores
is overstated by about one-third. Overexpansion has been the cause of more
retail failures than anyone likes to admit.
Overall, the bulls and bears are about
evenly split on Whole Foods’ future. Bears
are most concerned about the chain’s
pricing, the narrowing of the quality gap
between them and competitors, and the
threat of an activist investor rearing his
head. They are also starting to question,
and rightly so, whether natural and organic
really needs its own format anymore given
the ubiquitous nature of these categories.
Even the most bullish investors are not
expecting that much and hoping that man-
agement is working on other initiatives.
They seem to be hoping for a surprise.
Deutsche Bank believes, as do many
observers, that Whole Foods is a company
in transition and severe price-cutting is the
only way to juice up comp-store sales. As
one observer put it: “The chain is no longer
a big fish in a small pond.”
As the bank’s latest report noted: “This
transition is always harder when the found-
ers are still entrenched, because many
of the moves and strategies that made
them so successful are no longer relevant.
A complete re-thinking of the business is
required as it matures, and the founders
often do not recognize the need for radi-
cal strategic change, which can impede
the transition to ‘Lifestage 3’ and damage
I am not sure this is the case at Whole
Foods. Co-CEO John Mackey may not be
Wall Street’s favorite executive, but he is
a smart, dedicated merchant who is not
going to let his creation whither on the
vine. But radical changes are needed now.
The lesson here goes beyond Whole
Foods. It’s no longer enough to tell people what you have and expect them to
beat down your door. You have to tell
them why you are better than the guy
down the street in order to be the destination of choice.
Len Lewis is a regular Grocery
Headquarters columnist and
veteran industry journalist.