Whole Foods fans seen as crucial key to turnaround
INSIDE the Whole Foods Market in midtown Manhattan at lunchtime, it’s easy to forget that the organic supermarket chain is suffering its biggest crisis since going public in 1992.
A line 20-people deep waits at a juice and espresso bar near the bustling store entrance across from Bryant Park. In the food hall upstairs, the tables are packed with customers noshing on superfood salads and sushi. Too harried to stop for oysters, many shoppers order Nashvillestyle fried chicken sandwiches from digital kiosks and sample cold brew from Stumptown Coffee Roasters.
Whole Foods Market, facing pressure from restless shareholders after nearly two years of sliding sales, still has cachet in New York and other pockets of the US. That unique foodie appeal is key to a turnaround if Chief Executive Officer John Mackey is able to improve operations, said Charles Kantor, a managing director at Neuberger Berman, one of the grocery chain’s 10 biggest investors.
“He got all the hard things right over the years, but he didn’t get the easy stuff right,” Kantor said. “There hasn’t been laser-like focus in a long time.”
As grocers fight for traffic amid an intense price war and the threat of e- commerce, Whole Foods stands out among its peers with its prepared foods and in-house restaurants that make its stores destinations. The challenge for Mackey, who co-founded the company in 1980, is how to assuage Wall Street by boosting profits without ruining what made Whole Foods wildly popular in the first place.
“They have to do two things at the same time that are diametrically opposed,” said Roger Davidson, a former WalMart grocery executive who works as a consultant. “They have to make sure they don’t dumb it down.”
The hubbub at newer Whole Foods locations like the one in
Whole Foods Market, facing pressure from restless shareholders after nearly two years of sliding sales, still has cachet in New York and other pockets of the US
mid-town Manhattan illustrates a brand loyalty that most retailers would envy, especially when brick- and-mortar stores are closing at a record pace. Neuberger Berman increased its stake in the company in 2015 because of its rare ability to “connect in an emotional way” with shoppers, said Kantor.
The firm owns about 2.7 per cent of Whole Foods shares, according to data compiled by Bloomberg.
There was a time, before the current slump, when the arrival of a Whole Foods store meant shoppers would get access to products that weren’t widely available elsewhere. The stores became magnets for foodies and affluent customers who were more likely to buy kale than iceberg lettuce. And usually there was little competition to lure them away.
Now, the competitive ground has shifted. Whole Foods, which has about 450 US stores, is getting pummeled by Kroger, Wal-Mart, Costco and other retail giants that have muscled into a market that it helped create. Sales have dropped for seven straight quarters, and shareholders are getting agitated.
Jana Partners, the activist hedge fund, announced a stake in Whole Foods last month, pushing for wholesale changes including a possible sale of the company. The news sent shares soaring 10 per cent on Apr 10. They slipped as much as 2.7 per cent to US$ 35.25 ( RM159) in New York last Tuesday. The stock had gained 18 per cent this year through Monday, after three straight years of declines.
Hoping to avoid a proxy fight, Whole Foods recently announced it would overhaul its board of directors by adding five new members.
The company had hoped the changes would appease Jana, but the hedge fund rejected a proposed truce, preferring to keep its options open. In a bid to reignite sales and profit growth by October 2018, Whole Foods also said it would expand its nascent loyalty programme and use data to improve how it stocks products.
A few months earlier, Whole Foods abandoned its 1,200- store target, which had come under fire from Wall Street for being overly ambitious.
The grocery chain is now focusing on re-locating smaller stores to bigger nearby locations, banking that it can create flagships that double as dining destinations. — WP-Bloomberg