English: Entrance to offices at Whole Foods Market Headquarters (Photo credit: Wikipedia)
Another quarter has passed and while Whole Foods Market sales increased 9.7%, its comparable store sales came in lower than the historical average of 8.3%. This is the third quarter of a trending decline. Wall Street, as usual, is pulling away from Whole Foods. Everyone is talking about strong competition and how Wal Mart is adding to its organic offerings by bringing in Wild Oats (ironically a brand that was previously owned by Whole Foods).
Español: Un Wal-Mart remodelado en la Ciudad de México,México. (Photo credit: Wikipedia)
While Wal Mart may be increasing its organic product offerings, I am not sure that is the main competitor that Whole Foods needs to be watching. As Whole Foods Market, CEO Walter Robb recently stated to CNBC “Historically, of all the competitors in the market, their customers overlap the least with ours“. The organic industry is fragmented and their are several stronger competitors that Whole Foods Market needs to be aware of including Kroger, Trader Joe’s, Sprouts Farmers Market and Marianos, to name a few.
Trader Joe’s (Photo credit: JeepersMedia)
I just do not feel this is the “panic” time for Whole Foods Market but rather a time for strategy change. CEO, John Mackey stated on their recent Q2 investor call “Our business model still generated a healthy 15.6% return on invested capital and produced $282 million of operating cash flow. We invested $143 million in new and existing stores, returned $45 million in dividends to our shareholders, repurchased $55 million of stock and ended the quarter with $1.5 billion in cash and investments.”
While these are strong numbers, there were questions and concerns from the investors on this call regarding the increase in competition. Mackey seemed to rely on a long-term growth strategy aiming for increasing sales by $11 billion over the next five years and seeing demand for 1,200 Whole Foods stores. When pushed on what management is doing differently than they were a year ago, the answer was making investments on price. Well, all I can say to that is…Where? I am a Whole Foods Market shopper and frequently read their flyer. I have not seen much of any additional price reductions. I have asked a few co-workers who are also Whole Foods Market shoppers if they have seen prices reduced – they have not. If they have been investing on price, it either hasn’t reached my area or the reductions are so insignificant – no one has noticed.
It is obvious John Mackey knows how to grow a company that started with less than 20 employees. He has vision, a strong management team and can develop long-term growth. The development of this company was made with very little, if any competition. They were the only ones in the game. That has changed. Management for Whole Foods Market will need to do more than making investments on price to manage the change market now while still keeping an eye on the future.
Nina Nowaczyk 