Sales for stores open one year or longer have now declined for the fourth consecutive quarter, and the latest ~2.6% drop is steeper than analysts had been predicting.
Company profits have slid more than 20% since the same time last year.
One bit of good news is that Whole Foods’ total sales have increased by around 2%. It isn’t exactly the double-digit growth experienced up until a couple years ago — but at least it remains a gain.
In a nutshell, the problems faced by Whole Foods, which describes itself as the “World’s Healthiest Grocery Store,” is a maturation of the market for high-end groceries and other foods. In the words of Stephen Tanal, a vice president at Goldman Sachs, as reported by Forbes last week:
“Wellness has gone mass, and it’s not coming back – never again to be relegated to niche specialty retailers serving price-insensitive early adopters.”
Underscoring Tanal’s contention is the fact that ~75% of Whole Foods store locations now have one or more Trader Joe’s located within five miles. More than half of them have a Kroger store within five miles, and nearly 85% have a Costco outlet located within ten miles.
In response to the heightened competition, Whole Foods is speeding up implementation of its plans to open a line of smaller outlets called 365 by Whole Foods Market. According to the company, these are “value-driven” locations that feature a streamlined operating model while benefiting from centralized buying and auto-replenishment of inventory.
Reportedly, pilot locations in California and Oregon have been positively received, and a third location will be opening soon in the Seattle suburbs.
Other initiatives being undertaken by the company fall under an umbrella described by co-founder and co-CEO John Mackey as a “back to basics” program including refocusing on the customer experience as well as improved store layouts and wayfinding, signage and the like.
… And lower prices, too, one would presume – if the company is serious about reclaiming the mantle of “good for you” food market leader from Kroger, Wegmans, Redners and other “mainstream” chains that have been encroaching on Whole Foods’ turf.
Will Whole Foods regain the momentum … or continue to be on the defensive? We’ll see how it plays out in the coming quarters.