Growing Specialty Grocery Industry Puts Whole Foods Against the Ropes

By Brian Harris

I don’t usually cringe when I read something a CEO says because they’re usually very careful; however, this was one of those exceptions.  In January, I came across a Phoenix Business Journal article, “Why Whole Foods’ CEO Isn’t Worried About Sprouts.”

The story centered around Whole Foods competing with Sprouts Farmers Markets Inc. in the Phoenix market, and the quote was as bad as the headline sounded.

“They’ve done well,” Whole Foods’ co-CEO Walter Robb said about competitor Sprouts. “They are not Whole Foods. They don’t have the same standards, though sometimes they would represent that they do. We are going to continue to be the leaders in this space. We are the leaders, we’ll continue to be the leaders.” He added that his remarks were a “competitive throwdown.”

To me, Robb’s comments embodied something that I warn our customers about: Success breeding false confidence. Fast-forward eight months later, and Whole Foods’ growth sales are suffering due to increased and well-positioned competition, as well as a pricing scandal that was avoidable.

In response to its competition, the grocery retailer will open smaller-format stores called 365 by Whole Foods with more competitively priced items geared towards a younger generation of shoppers. It’s a major investment, but it’s a gamble Whole Foods has to make if it hopes to survive, especially considering the fact that German competitor Aldi, known for its curated product selection and reasonable prices, plans to operate 2,000 stores in the U.S. by 2018.

Company Culture is the Saving Grace

It is for Phil Lempert, a contributing writer to Forbes who covers issues on supermarket and agriculture sectors. He argues that Whole Foods’ exceptional customer service and high quality food are what used to set this retailer apart. That’s not the case anymore, as documented by Consumer Affairs.

Whole Foods simply can’t settle for the operational status quo if it hopes to continue its position as the leaders in this space, as its co-CEO said. Something has to change—quickly and drastically. and it begins and ends with fundamentals of price and quality at the store level.

Watch out for Wild Oats, warns Lempert. This is an aggressive retailer that’s in the process of converting former Fresh & Easy stores and has the possibility of teaming up with Walmart, which has been searching for a smaller format store to increase their natural/organic market share.

It’s been a tough year for Whole Foods—a retailer against the ropes. Is this a company that’s ready to swing back?

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