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Whole Foods Nurtures Value Image

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wfm_store.jpgIn this week’s conference call reporting Whole Food Market’s Q4 and year-end results, co-CEO John Mackey noted a strong increase in $50-plus basket sizes. I don’t know about you, but I can count on one hand the number of times that I've left my local WFM with anything but a $50-plus basket.

I’m sure the executive team would be somewhat chagrined to read that kind of remark, since there’s been such a relentless focus on value. Since the recession, Whole Foods has doggedly pursued this quality in every department. Private label, for instance, pulled level with branded sales in some categories. Co-CEO Walter Robb attributed the success to an increase in SKUs from 2,200 to 2,600, to updated packaging for some products and an ongoing reflection “that people turn to private label when they’re looking for value. And so I think we’ve got a nice balance going on right now.”

At the same time, Mackey noted that some of basket growth was due to uptrading by some customers who opted for organic instead of conventional, brands over private label and premium-priced products in more discretionary categories.

All of this helped the chain cap a stellar year, breaking $10 billion in sales, racking up 8.7% in comps and an average 4% increase in basket size (Mackey noted some of that 4% came from select price pass-throughs to offset inflation).

Yet, the principals kept returning to one word, over and over: Value.

“Whole Foods has done great work on improving our value image with our customers,” said Robb. “We are far more competitive than we were a couple of years ago, so that’s working in our behalf as well.”

And Mackey: “We attribute much of our market share gains to our well executed value efforts, which have positively impacted our price image, while continuing to raise the bar in areas that matter to our customer, particularly our quality standards in health and wellness.”

Another interesting trend is the company’s growing preference for smaller stores. According to the conference call, new stores are 11% smaller in size, averaging 40,000 square feet… yet they’re producing more sales per square foot than stores built the prior year. Both Mackey and Robb talked about the tremendous potential these smaller units hold.

“While the sales per square foot may be at or slightly below some of those bigger markets, the economic case for the smaller markets is really compelling because the rent is significantly less and the capital spend is less as well because we are building smaller storage,” said Robb.

But it’s Mackey’s point that goes to the heart of the chain’s strategy. Mackey recalled a visit to a 35,000-square-foot store in Oklahoma City just this past week, where “the interesting thing about going into some of these slightly smaller markets is that in some sense, there is less competition.”

He went on to say that these smaller markets tend to be homogenous when it comes to food retailing. Someone like Whole Foods “stands out more than it does in some of the other larger markets.”

If Whole Foods is serious about its goal of eventually operating 1,000 stores, the secondary and tertiary market areas are going to be the route to take.

[Photo credit: Whole Foods Market]

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