How The Popularity Of Organics Is, Quite Ironically, Hurting Whole Foods
Organic food has become so mainstream that Whole Foods is losing sales to conventional big-box players.
Just 16 months earlier, Whole Foods forecasted a growth from its 470 U.S. locations then to over 1,200.
This Wednesday, the organic retailer posted what could arguably be its worse performance in 10 years, disclosing its sixth consecutive quarter of dipping same-store sales and slashing its outlook for the year. Whole Foods is also poised to close nine stores — the most it has closed at once, reported the Washington Post.
The retailer earned an adjusted 39 cents per share in the first quarter, but its revenue came in at $4.92 billion or short of the expected $4.98 billion. In the same period last year, it earned 46 cents per share on its $4.83 billion sales.
Dubbing it an “increasingly competitive marketplace,” co-founder and CEO John Mackey said they are committed to improving comps and delivering higher shareholder returns. The focus is on refining Whole Foods’ growing strategy.
“Evolving our purchasing operating model while developing data-rich, customer-centric category management capabilities is critical to our go-forward merchandising, pricing, marketing and affinity strategies,” Mackey said in a statement.
Following its slow sales growth and added costs, Whole Foods also decreased its full-year outlook, now only expecting 1.5 percent or greater in sales growth versus an earlier forecast of 2.5 to 4.5 percent climb.
The struggle to bring organic shoppers into Whole Foods stores can be attributed to one thing: competitors offering lower prices or discounts for organic stuff that the natural food stores helped popularize almost four decades ago.
Like Whole Foods, large retailers such as Walmart and Costco sell organic products — typically at a friendlier price tag than those of Whole Foods, farmers market, or other natural food sources.
In 2015 alone, according to the Organic Trade Association, 53.3 percent of organic food sales were from mass-market retail companies compared to just a bit more than 37 percent for natural retailers such as Whole Foods.
Whole Foods created the space and reigned in it for years, with organic food sales soaring 209 percent from 2005 to 2015. Last year, it peaked at $43.3 billion, but a lot of competition has entered the market in the last five years, said analyst Brian Yarbrough.
It’s not just Whole Foods feeling the heat but also fellow organic stores Sprouts and Fresh Market, both facing falling stock prices.
Two things figure in this difficulty, namely dropping food prices that meant slightly lower selling prices for Whole Foods, as well as intensifying competition in online orders. The retailer still partners with same-day delivery service Instacart, but there are other choices such as Amazon Fresh and Jet.com.
Mackey, however, remains trusting of their core customers, which he calls the Whole Foodie customer.
“[W]e’re going to do the best job that we can to keep our core customers from migrating back over to those guys,” he said.
Millennials are seen as the primary driver behind the popularity of organics, where consumers 18 to 34 years old remain the largest buyers and the most likely to consider themselves “knowledgeable” about the food they eat.