Nutrition Business Journal
Whole Foods is growing. Are you?

Whole Foods is growing. Are you?

If Whole Foods can return to strong sales growth in the midst of what continues to be a rather bleak economy, the belief is that the rest of the natural, organic and healthy products industry will be able to as well. What remains to be seen, however, is whether Whole Foods and other retailers can lure the non-core consumer back into the natural & organic fold in a truly meaningful way.

In a year when many food retailers have struggled to squeeze sales growth out of an environment dominated by soft pricing, Whole Foods Market has beaten analysts’ and its own expectations for revenue, profits and same-store sales growth.

For its 2010 fourth quarter, ended September 26, Whole Foods posted revenues of $2.1 billion on 15 percent growth. On a same-store basis, sales increased 8.7 percent, which surpassed the company’s anticipated growth range of 6.5 percent to 7.5 percent; the retailer’s gross profits climbed to nearly 35% of sales. Only growth in new Whole Foods stores has flagged of late, with the company opening just one store in Q4. On a brighter note, Whole Foods’ long-term plan calls for the opening of 15 new stores in 2011 and another 20 in 2012. The retailer closed out its 2010 fiscal year with $9 billion in sales and 301 stores in the United States, Canada and the United Kingdom.

“We attribute much of our success to the progress we have made in our relative price positioning and to our initiatives in areas such as healthy eating, animal welfare and sustainable seafood,” said Whole Foods co-CEO John Mackey in a statement. “These initiatives are aligned with our core customer base and reinforce our position as the authentic retailer of natural and organic foods.”

A particularly positive point for Whole Foods’ fourth quarter was its ability to balance sales growth with price cuts. The company reported an increase in customer basket size, as well as of branded products and higher-priced options in natural & organic food categories such as cheese and seafood.

Consumer confidence is rebounding, at least for some

What continues to drive Whole Foods’ sales and profit successes is its ability to shake off its old “whole paycheck” reputation that once scared away converts and irked the company’s faithful shoppers.  “[Whole Foods’] Top-line momentum has been due to a substantially improved value image, coupled with a relatively more upbeat demographic,” said Andy Wolf, an analyst with BB&T Capital Markets. “This has led to a return of customers and new customers to the channel and the store. Increased transactions drove nearly 80 percent of the same-store sales gain in Q4, while more items per basket drove the rest of the sales productivity growth.”

If Whole Foods can return to such growth in the midst of what continues to be a rather bleak economy, the belief is that the rest of the natural, organic and healthy products industry will be able to as well. Whole Foods grew nearly 9 percent in the last 12 weeks without expansion of its store base, reflecting growing confidence among its core fellowship of natural & organic customers. A sales increase in branded products at Whole Foods might also suggest that consumers are moving away from the recession-motivated private label scramble of the last several quarters. Perhaps most important is the fact that the organic market is showing signs of recovery too. Increases in food categories such as seafood and cheese suggest that core customers who had traded down from organic options to natural or even conventional are beginning to trade back up. Organic seafood and cheese both suffered in 2009, with cheese sales shrinking 3.2% from 2008 levels and fish sales falling flat after years of double-digit growth, according to Nutrition Business Journal's 2010 Organic Report featuring Organic Trade Association data. 

What remains to be seen, however, is whether Whole Foods can lure the non-core consumer back into the natural & organic fold in a truly meaningful way. Wolf notes recent independent polling that suggests upscale shoppers are gaining confidence and are more likely to spend than the average consumer. Only time will tell if these spendy customers are ready to flock toward Whole Foods, but we sure wouldn’t bet against the brain trust in Austin.

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