'Whole Paycheck' Moniker Persists

By

Steven Hedlund

Published on
August 7, 2008

It's been a dire week for Whole Foods Market. The natural foods retailer's third-quarter results, unveiled on Tuesday, fell far shy of Wall Street expectations--its profit dropped 31 percent, to $34 million, on revenue of $1.84 billion. Then on Thursday, it watched its stock plunge to a six-year low of almost $20.

The Austin, Texas-based company projects its same-store sales to grow 1 to 5 percent next year, compared to a previous forecast of 7.5 to 9.5 percent, and it will open fewer stores in 2009.

"Today's economic environment is the most challenging I have experienced in my 30 years in retail," says Whole Foods CEO John Mackey.

Last year's acquisition of Wild Oats Markets is partly to blame for the retailer's woes, responsible for a $5 million impact on profit.

But the lagging economy and soaring fuel prices are what's truly pushing consumers away from Whole Foods, which is still struggling to shed its "Whole Paycheck" moniker, and toward value-conscious retailers like Wal-Mart and Costco, or even Trader Joe's.

Twenty percent of consumers polled by TNS Retail Forward in May had switched where they buy groceries due to the economy, while 43 percent of consumers were spending less on food overall, up from 38 percent in February. Additionally, 26 percent of consumers surveyed in May were visiting natural foods supermarkets less frequently than a year ago, and only 4 percent were visiting them more often than a year ago.

"The two biggest winners in the food business right now are Wal-Mart and Costco. Both feature price. It's all about price," says one New York retail consultant.

"Whole Foods," he adds, "is in [trouble]."

To combat its "Whole Paycheck" stigma, Whole Foods in mid-July launched a "Real Deal" program nationwide highlighting deeply discounted "Real Steals," such as Patagonia scallops for $6.99 a pound, and its lower-priced store brand, 365. The retailer is also offering "value tours" throughout its stores to show customers how to shop economically.

It's a step in the right direction. But it's clear that until the economy improves, Whole Foods will struggle just to retain its core customers.

Best regards,
Steven Hedlund
Associate Editor
SeaFood Business

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