Facing recessionary pressure and prospects of more frugal consumer spending,Whole Foods MarketInc. has decided to reemphasize the healthy eating element of its proposition to consumers and deemphasize the gourmet, a development with potential consequences for suppliers and competitors.
To press health and value simultaneously, the Austin, Texas-based retailer is expanding organic and using private label. As a result, vendors of natural and conventional items may see some of their brands squeezed out and even remaining organic suppliers may feel pressure to lower prices in merchandising sets building with own-brand products.
Meanwhile, Whole Foods' lower prices and better-for-you introductions could make the company more competitive with the range of upscale but less expensive operations. That's because others such as Safeway, Supervalu, Delhaize, A&P, Meijer and Target already have been modifying assortments around better quality and better family nutrition elements.
During its recent third quarter conference call (transcribed by SeekingAlpha), CEO John Mackey noted, “While some competitors appear to be pulling back on organic as they emphasize value more, we are refocusing on our core customers and expanding our organic offerings. Our sales growth in organic products is out pacing growth in natural products two to one. This is driven in part by organic private label products.”
Mackey also stated that the company’s same store sales skid was moderating. Top line sales in the company’s third quarter increased two percent to $1.9 billion but comparable store sales decreased 2.5 percent and identical store sales decreased 3.8 percent or 3.3 percent if foreign currency rate impact is factored out. Diluted earnings per share actually improved, coming in at 25 cents per share versus 24 cents in the year earlier, and beating analyst estimates.