Moody’s Investors Service gave a vote of confidence Tuesday to Whole Foods Market, saying it expects the company to maintain and strengthen its lead in the organic and natural specialty foods sector despite short-term performance declines.
“Even though intense competition will continue, Whole Foods has the first-mover advantage in this market and is the brand consumers associate most with the organic food movement,” Moody’s said.
“The company is also implementing a long-term plan to broaden its appeal to more price-conscious consumers and alter the perception that the natural and organic lifestyle it promotes is only accessible to a higher-income demographic.”
Moody’s said it expects Austin, Texas-based Whole Foods to experience flat comparable sales growth during fiscal 2016 as it implements its strategy to open its 365 by Whole Foods Market stores later this year.
However, it said it expects comps to improve to 1.5% to 2.5% in 2017, “and the benefits of other measures to streamline operations, reduce overhead and scale back capital spending will also start to boost financial results in 2017.”
According to Moody’s, Whole Foods will still maintain a healthy 5.5% operating margin — compared with 2.5% to 5% for its peers — over the next year or so despite margin pressure.
"Toward that end, the company is streamlining its operations and investing in its 365 private-label brand,” Moody’s said. The 365 brand accounts for about 15% of total retail sales, and that share is “poised to increase” as the chain rolls out its 365 by Whole Foods Market format, the investors service noted.
“There is some execution risk for Whole Foods with this strategy, along with the possibility of cannibalizing its existing customer base,” Moody’s said. “However, we believe the company will implement this strategy conservatively and that it will help cement customer loyalty and increase its Millennial customer base.”
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