Whole Foods is getting squeezed out of its own market
Thursday, February 23, 2017
Today's trend may become tomorrow's necessity, and necessity breeds competition. This is the truth behind Whole Foods' struggling numbers.
Whole Foods introduced the concept of organic food to the public, and in the process changed the way Americans eat today. Between 2005 and 2015, sales of organic food saw a growth of 209 percent, according to the Organic Trade Association. The organic food industry reported $43.3 billion in sales in 2015.
Ironically, this phenomenal growth has spelled disaster for Whole Foods. The Texas-based brand not only saw sales drop in the first quarter of 2017 but also announced the closing of nine stores, a stark difference from the promising future it saw just over a year ago. In late 2015, Whole Foods was looking at robust expansion from 470 U.S. stores to 1,200. But declining sales over the past six quarters show huge losses ranging from 2.4 percent to 3.9 percent during this time.
It's difficult to fathom that a behemoth like Whole Foods would witness a drastic fall in such a short time. While most retailers are facing competition from digital counterparts, Whole Foods is being challenged by other brick-and-mortar grocery stores.
The concept of organic food has transitioned from fancy to mainstream. Since its founding in 1980, Whole Foods started the trend and subsequently pretty much monopolized the market for years. They rightly predicted that once people became aware of the health benefits, they would pay a premium for organic food.
Over the years Whole Foods' competitors increased — all offering a variety of options, both regarding choice and price. First, it was other stores like Sprouts and Fresh Market, which have also made a name for themselves in providing quality organic products. Then, came the conventional big-box competitors and, with that, the market was wide open to stiff competition.
Yes, the consumer is willing to pay more for organic, but given a choice they will try to buy in bulk or save more — it's a natural phenomenon. Today, these mass-market retailers account for close to 55 percent of the total organic food sales.
When millennials showed more inclination toward "clean" eating, mainstream grocery chains like Walmart, Kroger and Aldi jumped onto the bandwagon, not to mention Costco which reportedly sold $4 billion of organic produce and packaged foods in 2015.
Lower prices offered by the latter brands have hurt the prospects of retailers like Whole Foods. It's tough for Whole Foods to beat these numbers in the face of high-volume sales and still keep their trademark quality intact. Industry leaders are even worried this competition may harm the integrity of organic food items, and we may end up with products that don't quite meet the strict definition of what organic should be.
Despite the bad news, all is not lost. Whole Foods loyalists will be happy to know the company plans to focus more intensely on "365 by Whole Foods," a relatively new venture that aims to target the "value-conscious" consumers. The new stores under this banner will not just feature lower prices but also robots and vegan restaurants.
Whole Foods plans to focus more intensely on 365 by Whole Foods, a relatively new venture that aims to target the "value-conscious" consumers. (Image: Whole Foods)
In a recent press release, the company also announced a strategic partnership with dunnhumby, a leading global customer science company, to evolve their category management and merchandising based on customer data and insights.
Time will tell whether this organic food innovator gets pushed out of its own market.
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