Right now, Whole Foods is successfully balancing offering its customers value in some product categories while passing off price increases in others. But could a tipping point be coming soon?
As I reported last week, Whole Foods Market closed out its 2011 fourth quarter and fiscal year on some pretty high notes. The retailer finished the year with more than $10 billion in sales and nearly 9 percent growth in comp-store sales for the fourth quarter. Impressively, Whole Foods has seen eight consecutive quarters of comp-store sales increases.
Whole Foods’ work to become more price competitive is often cited as a factor fueling the company’s recent sales success. “Whole Foods has done great work on improving our value image with customers,” Walter Robb, Whole Foods’ co-CEO, said during a Nov. 2 earnings call.
The retailer’s financials definitely support this statement, but the fact remains that many consumers continue to view Whole Foods as an expensive place to shop. (Perhaps that's why more than 1 million people bought the retailer's "$20 for $10" LivingSocial coupon in September.)
Case in point: Here’s what one Los Angeles-based member of Nutrition Business Journal’s LinkedIn group had to say about Whole Foods and its prices last week:
“Whole Paycheck operates on very high margin and other retailers like Trader Joe’s offer identical products for at least 30 percent less cost to the consumer. There is a retailer called Sprouts in my area and they are very competitive with Whole Paycheck on their entire range of products. For example, Whole Paycheck sells avocados at $2.99 each and they can be purchased elsewhere for $1.35. Vitamins are sold at top prices without any discounts ever offered. Nuts are sold at about twice the price compared to Trader Joe's. Same exact product. Whole Paycheck hurts the industry by setting an example that eating healthy organic food means that one must pay 2-3 times the price over the price for conventional produce.”
Another member of the same LinkedIn group came to Whole Foods’ defense on the margin point: “[Whole Foods] offers many competitive products at competitive prices, but the higher margins on other items pay for the customer experience that people who choose to shop there prefer—rich customer service, beautiful stores, community areas.”
Certainly, over the last several years Whole Foods Market has had to walk a pretty thin tightrope between offering value (which the retailer does very well with its growing 365 private-label line) and finding strategic ways to pass off price increases to consumers—who are proving increasingly willing to drop more money shopping at Whole Foods, based on the company’s growing comp-store sales.
A Nov. 7 blog post on ChicagoNow.com by Amy Negussie offers insight into how shoppers themselves walk this same tightrope in an effort to shop at Whole Foods. “Whoever first called Whole Foods ‘Whole Paycheck’ was up to something,” Negussie writes. “But, if you shop carefully, you can enjoy the luxury of Whole Foods without going under.” The Chicago author cites alcohol and meat as categories where good value can be found at Whole Foods.
Al Roker told LearnVest.com that he has no problem splurging at Whole Paycheck because he would “rather have a smaller amount of really good food than a lot of okay food.”
A quick Google search shows that, whether Whole Foods Market likes it or not, the Whole Paycheck stigma continues to have legs. Yet, as Whole Foods' latest earnings report demonstrates, the retailer is thriving nonetheless.
Still, given the rising cost of food and the stagnant economy, I’m wondering how long Whole Foods can convince shoppers to fill their baskets with the necessities and still spring for that $15 bottle of olive oil and $12 artisan cheese.
What do you think?