Whole Foods’ announcement that they are planning to open up a chain of smaller, less expensive stores in 2016. Co-CEO Walter Robb says the new store concept will be designed to attract Millennials who “are looking for a different shopping experience” (read: cheaper prices).
The entire supermarket industry is under pressure to change. Forecasts from Willard Bishop Consulting predict that by 2018, conventional traditional supermarket dollar share is expected to decline to 36.2% (from 39.1% in 2013) while other formats including C-stores, Warehouse, Drug, Fresh Format and Dollar stores continue to steal away their shoppers.
Aldi, the European cousin to Trader Joe’s, announced that by 2018 they would operate 2,000 here in the U.S. and fellow German retail Lidl has also earmarked our shores for growth. Both chains are discount formats, with the Aldi and Lidl store brands that continue to win culinary awards for their wines, chocolates and other foods; certainly fodder to attract those food obsessed Millenials who seem to never want to eat the same food twice in their lifetime.
At the same time, Whole Foods is seeing more competition from the better-for-you offerings from Kroger’s Simple Truth (which quickly became a billion dollar brand), Costco, Target and even Walmart (more on Walmart coming later) as these more conventional retailers add more produce and organics which are competitively priced – especially critical to Millenials who feel they have poor paying jobs (or looking for work) and may be living at home.
Shoppers of all ages also seem weary of conventional supermarkets that can be 60,000 square feet or larger and tell us that the supermarket shelves are lined with too many choices, many of which offer little differentiation and often lead to over spending.
Whole Foods’ declining stock value comes as no surprise to Forbes readers who have read about the tumultuous relationship the chain has had with Wall Street; but even more telling is to hear from former Whole Foods shoppers who complain not just about prices but poor service. Whole Foods in the early days was simply brilliant. From personal experiences I can tell you that most if not all their store employees were well-versed in answering all questions food and health; and prided themselves on knowing more than their shoppers. Today, sadly, the chain has lost that advantage. As the saying goes, you can always build a newer, better, cheaper store across the street from the most successful supermarket in town – the only asset you have that is unique is your relationship with your shoppers. Whole Foods, in their quest for growth, seems to have forgotten that.
Consumer Reports publishes the magazine’s annual Supermarket Survey in which over 62,000 shoppers voice their likes and dislikes on everything from cleanliness to prepared foods to selection. Whole Foods ranked 8th (when including tie scores) with a score of 81 out of 100 and was tied with Aldi achieving the worst ratings possible for price satisfaction and price paid for natural/organic. For comparison Costco’s achieved a score of 84 and Walmart 64.
Many pundits in both the Wall Street and supermarket Industry are calling Whole Foods new concept a mistake; I disagree. They have no choice. This is a smart move that, depending on timing and execution of the launch, may stave off Aldi and Lidl encroachment.
And then there is the elephant in the room that could turn the entire “better-for-you” retail channel on its tail. Ron Burkle’s high quality and well-priced Wild Oats brand now selling well at Walmart. Burkle is co-founder and managing partner of The Yucaipa Companies and has specialized in taking over underperforming food companies, turning them around and then selling them at a profit. He managed a brilliant deal to take over Fresh & Easy’s 167 stores from Tesco and now is in the process of testing and converting stores to the Wild Oats banner (the Wild Oats stores were sold to Whole Foods in 2007 and quickly converted them to Whole Foods). Walmart has been looking for a small format store and to increase their market stake in organics/natural and to attract new shoppers. If and when Burkle, along with Fresh & Easy CEO Jim Keyes (who had a brilliant success as President & CEO of 7-Eleven), makes the chain profitable, replicate-able and builds a loyal shopper following, I would think that a spin off to Walmart a very interesting purchase that would certainly put Whole Foods concept on a very shaky foundation and finally give Walmart what they need to compete in today’s changing food world.
