market movers

Whole Foods Ditches Upscale Image and Adds Revenue

Posted by Mark J. Miller on May 8, 2013 02:45 PM

Back in January, Whole Foods Market co-founder and co-CEO John Mackey made it known that he wasn't a fan of Obamacare, comparing it to fascism. The move by Mackey had plenty of folks vowing that they'd boycott the 350-store upscale market, but the company's second-quarter earnings report says something completely different.

Second-quarter net income grew 20 percent to $142 million, according to Reuters, and total sales rose more than 13 percent to $3.03 billion. The company also raised its full-year expectations per share to between $2.86 and $2.89. Since the end of the quarter in mid-April, same-store sales have gone up 9.4 percent.

Not too shabby for a retail brand that is gaining more and more competition. Part of its success is because the chain decided to reach out to more customers by adding more locations and lowering prices in a bid to beat its "Whole Paycheck" reputation. The long-term expectation is for Whole Foods to have 1,000 stores in the U.S. and beyond.

Bloomberg points out that its competitors have ambitious growth plans, too. Fairway Group Holdings Inc., which started with one market on New York's Upper West Side and a number of locations regionally, had an IPO last month that brought in $177.5 million. Sprouts Farmers Market LLC, which currently has 150 stores and is owned by Apollo Global Management LLC, is considering an IPO.

As for Whole Foods' main competitor, Trader Joe's, things aren't going as well. In recent weeks, it has been the target of a lawsuit that claims the grocer and a host of other retailers have been selling candy that contains lead, and it also felt the heat from Consumers Union last week when the advocates took out a full-page ad in the Los Angeles Times to tell the world that Trader Joe’s was selling meat that came from animals that had been fed antibiotics.

Touting its own brand of authenticity and transparency, Whole Foods is expanding, which could include the grocer taking over more hefty real estate holdings. “(Larger stores) have higher long-term potential than smaller stores because they offer more parking, less spoilage and greater efficiencies,” said Mackey in the earnings call with analysts, Supermarket News reports. “Many of those stores [of 40,000 square feet to 45,000 square feet] opened when the economy dipped, but sales are up and they are performing well enough that we’re considering opening some bigger flagship stores in certain markets.”

Other stores will come through acquisition. It purchased six Johnnies Foodmaster stores last year in the Boston area and has reopened one of them, which is now the smallest Whole Foods in the country at 16,000 square feet. The store is doing well, Supermarket News reports, and the company is expecting to capitalize on smaller independents who may be looking to close down and sell off locations.

Sales aren't the only factor behind the spurring its growth plans. In addition to expanding into a lifestyle brand with plans for a branded resort, the chain is working on opening a location in Detroit, called a "food desert" by critics, so residents can have greater access to fresh meat and produce, Co-CEO Walter Robb told an audience in Los Angeles last month. 

"In Detroit, within the 138 square miles, the life expectancy is 12 years less than outside the city limits," Robb said, according to The Huffington Post. "That just happened to be … why we started there. We have a particular set of skills. We're going there to participate in the community."

Comments

Brand identity firm United States says:

It will be interesting to see how Whole Foods handles this growth. If they lower prices to attract a wider audience, they may risk alienating a lot of their base. I think premium brands are always walking a fine line between keeping their brand cache and growing the bottom line.

May 13, 2013 09:31 AM #

VIv United States says:

Agreed. I'm a huge fan of Whole Foods and have noticed lower prices on some products.  While I'm sure that will attract a wider audience, most of the Whole Foods locations here in New York City are still in upper-scale neighborhoods like Chelsea, TriBeCa, Columbus Circle, Union Square.  By default, their cache will always be there and I'm sure their bottom line in these locations is/will be fine.  I'm particularly interested to see how their Detroit efforts pan out.

May 14, 2013 10:00 AM #

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