ORGANIC PROBLEMS

Charted: Whole Foods’ organic problem—shoppers naturally prefer cheaper options

In this case, it’s all about quantity. Not enough people are walking through the front doors of Whole Foods Market anymore.

When the supermarket chain went public over two decades ago, it experienced growth driven largely by growing interest in organic foods. In short order, the Austin, Texas-based grocer became a darling of upper-middle class shoppers, earning a reputation for being expensive along the way.

It was inevitable that Whole Foods’ success would change the grocery market, where chains often engage in aggressive discounting when battling each other for customer foot traffic. Over the years, consumer demand drove more chains—including places such as Kroger and Walmart—to include organic options, and the supply chains found ways to accommodate. Fast forward to 2017 and almost all grocery stores across the US have an organic food section with lower prices that what shoppers will find in most of Whole Foods’ more than 430 locations.

Consumers reacted as one might expect. Average sales growth at Whole Foods Market locations open for more than one year declined.

Luckily for Whole Foods, some investors haven’t lost faith. Edward Kelly, an analyst with Credit Suisse, wrote in a report this week that he had hopes for the grocery chain, especially as news this week broke that Jana Partners, a group of activist investors, has built up an 8.8% stake in the company. Jana has said it wants to talk with Whole Foods management about its corporate structure and brand development, among other things. The idea is that a shakeup could wind up spurring some positive changes.

“We believe [Whole Foods Market] has superior brand value but has arguably been mismanaged as the company failed to adapt to the evolving food retail landscape,” Kelly wrote. “Good brands don’t underperform forever.”

Still others are more skeptical. UBS analyst Michael Lasser wrote this week that Whole Foods’ new line of millennial-driven “365 by Whole Foods Market”-branded stores may wind up causing more harm than good. The company started that chain to attract value-driven shoppers. Even if Whole Foods becomes more price competitive with competing brands, the presence of 365-brand locations may wind up cannibalizing some of the sales that would otherwise go back to the flagship stores.

“These challenges aren’t likely to abate soon,” Lasser wrote.

home our picks popular latest obsessions search