Re: Whole Foods Market in 2008
Jackie Huba, a fanatical Whole Foods Market customer evangelist, asked What Should Whole Foods Do? in response to its dismal third-quarter financials and its under-performing stock.
I was going to comment on her post but my comments were lengthy enough for a blog post. (So here it goes …)
As someone who has spent time inside Whole Foods Market (WFM), I have a few thoughts.
FIRST, comp sales for WFM are the lowest they have ever been at 2.6%. Next quarter, comp sales will get a boost because the acquired Wild Oats locations will enter the WFM comp store base. From the conference call with analysts (transcript here), I learned the acquired Wild Oats stores are comping at 7.0%.
Even with the addition of Wild Oats locations to its comp base, sales comps will still be below the upper single-digit territory WFM is accustomed to earning.
SECOND, since Starbucks and WFM appeal to consumers with discretionary income, they merit comparison. Starbucks is implementing discounting programs like a Treat Receipt happy hour ($2 iced coffee drinks) and doing far-from-coffee brand extensions like smoothies to drive sales. WFM, instead, is continuing to be guided by its “quality compass.”
When asked by a Wall Street analyst if WFM was considering loosening its quality standards (i.e. selling products with artificial ingredients) to help improve sales and margins, the company emphatically said … NO!
In particular, co-coo Walter Robb said, “Quality is our compass and we’re going to continue to steer by it because that’s who we are and that’s who we are in the marketplace and I think customers know that and appreciate it.”
Robb continued, “We’re not going to just start selling price items that’s not who we are but we are clearly offering the value items if that’s the choice that you want to make.”
Starbucks, on the other hand, is abandoning its quality compass and kowtowing to the drug of low price gimmicks and far-out brand extensions to drive sales. Kudos to WFM for staying true to its purpose. Mucho kudos.
THIRD, my advice to WFM is to keep following its “quality compass” and not engage in unhealthy discounting tactics. The economy will rebound and when it does, so will WFM.
However, this financial hit should cause WFM to rebalance how much autonomy it gives regions and individual stores to make business-impacting decisions ranging from procurement, distribution, merchandising, marketing, and training.
Because regions and stores are given the freedom to make so many business-impacting decisions, redundancies galore exist. And those redundancies result in WFM spending excess monies to recreate the proverbial wheel to serve its regions and stores. This excess was never an issue when sales were strong. With sales slowing, these expensive redundancies become exposed.
The answer for WFM to better compete in rough economic times might be to centralize more business-impacting decisions in order to reduce costs and improve profits. Problem is, the WFM corporate culture isn’t about centralization … it is all about decentralization.