Whole Foods has a big, business problem it desperately needs to solve
WHOLE Foods Market has known for some time that it is a business in need of course correction.
But its imperative to do so may have gotten more urgent this week, after an activist investor and some affiliates disclosed a nearly nine per cent stake in the company and urged it in a regulatory filing to explore dramatic moves to stage a turnaround, including possibly putting itself up for sale.
Jana Partners, the investor, encouraged the organic grocery chain to do a top-to-bottom reevaluation of its strategies and practices. Jana said it hoped to have discussions with Whole Foods management about everything from its real estate portfolio to customer analytics to inventory management and labor scheduling.
It remains to be seen which of those steps Whole Foods will take, and whether any of them will make a difference.
In a statement,the grocer said: “Whole Foods Market welcomes investment in the Company and is open to the views and opinions of all of our shareholders. We value constructive dialogue toward our shared goals of creating shareholder value, successfully executing on our strategic priorities and taking actions that will position the Company for continued success.”
One thing, though, seems hard to ignore: Jana has a point. The retailer saw a 2.5 per cent decline in comparable sales last year, a measure of sales at stores open at least a year. Its forecast for 2017 isn’t too cheery, either; the company predicts it will deliver comparable sales of “-2.5 per cent or better.”
That’s a concerning pattern for a chain that has every reason to be successful in this moment, in which shoppers are gravitating toward healthy food, and when an increasing share of the grocery industry’s sales are coming from the fresh items such as produce and meat that Whole Foods built its reputation on.
Whole Foods’ challenges are wide-ranging, but one of its biggest hurdles is attracting more customers. According to data from Kantar Retail’s ShopperScape survey, the organic grocer had a seven per cent penetration rate back in 2009 when it had some 273 stores. In other words, seven per cent of respondents in Kantar’s customer survey said they shopped at Whole Foods on a monthly basis. Since then, the chain has been on a breakneck march to open more stores, its fleet now numbering more than 430 locations. So what is its market penetration now, with all those added stores? Just eight per cent, according to Kantar. It’s practically unchanged.
That means its major capital investments in building those stores - and the ongoing expense of staffing and maintaining them - have not done much to grow its share of devoted shoppers.
Diane Sheehan, a grocery industry analyst with Kantar, said this might in part reflect the fact that Whole Foods stores are sometimes clustered close together. For example, she pointed to the suburbs of Chicago, where the chain has three stores in a four-mile range. That means those stores probably are not expanding the base of Whole Foods shoppers; they’re just fighting among themselves for the same crowd.
Across the wider retail business, talk abounds of being “overstored,” the industry’s term for having too many stores. Whole Foods doesn’t have that problem, exactly, but it has its own version of it. It is over-stored in certain neighbourhoods.
Meanwhile, as Whole Foods aggressively courts millennials with in-store wine bars and datenight cooking classes, Kantar’s research finds that it has lost some Generation X and babyboomer shoppers over the past five years. —WP-Bloomberg