Back in July, Whole Foods CEO John Mackey waxed nostalgic in an interview with a Washington Post reporter. Published under the title When We Were Small, Mackey shared memories of the early days of his first market:
It was this old, three-story Victorian house, very charming. On the first floor, we had some cash registers in the front, two of them, and we had a little bulk food area. In another room, we had produce, and in the next room, we had a little dairy cooler and a little frozen food section.
Mackey was 25 years old and living in a little apartment above the shop. He had a girlfriend, a bicycle, and a handful of employees. His biggest worries were the $10,000 he owed his parents and avoiding the embarrassment of failing in front of his friends and family.
Forgive him his sentimentality. These days he heads a natural food empire of nearly 400 locations with more than 80,000 employees. The whole world was watching as his publicly traded company was named this year’s worst performer in the Standard & Poor’s 500 Index.
For a while Whole Foods could do no wrong.
Natural and organic foods were just taking off and there seemed to be no end to the urban and affluent neighborhoods that could use a high-end grocer. Whole Foods was the only game in town—supermarkets didn’t even stock organic milk back then—and when they weren’t, they would buy up the competition, opening new stores and acquiring smaller natural food grocers by the dozen. Venture capital replaced the friends and family funding, and then Wall Street took them public in 1992, and the stock reached one high after another.
It was the era of Whole Paycheck.
The nickname was well-deserved. Whole Foods could practically mint money through premium pricing because there was no one else selling the same foods. A typical grocery chain has a net profit of about 1%; for years Whole Foods was banking close to 5%. Those days are over.
The competition has caught up. Whole Foods’ success spawned imitators in the premium sector and every mainstream supermarket chain now carries organic produce and natural foods. Trader Joe’s is giving them a good run, and Wal-Mart is killing them on price. Whole Foods is squeezed in every direction, slowing sales growth and narrowing profit margins. Their financial statements are starting to look a lot like those of every other supermarket. Absent a unique niche in the marketplace, many are wondering if Whole Foods’ woes are (dare we say it?) organic.
Now that their business model is indistinguishable, Whole Foods is tackling its recent challenges in the same manner as the traditional supermarkets.
Whole Foods is gearing up for its first-ever national ad campaign which will tout its programs like GMO product labeling and animal welfare ratings in hopes of steering the conversation away from pricing and toward quality and value. They’re adding online ordering and home delivery services to more markets. And they’re launching a customer loyalty program with a mobile app and rewards card, a concept that the company has resisted for decades. One thing that Whole Foods won’t engage in is a price war.
The new message is what Whole Foods staffers are calling ‘value and values.’
While they’re looking more and more like a conventional supermarket operation, the company is hoping that socially responsible business practices combined with value-added programs will distinguish them from the Safeways and Krogers of the world—at least enough to justify premium pricing.