Whole Foods Markets has beaten analysts’ expectations with its first-quarter fiscal earnings for 2010. As the company reported on February 16, quarterly sales rose 7% to $2.6 billion, while first-quarter profits jumped nearly 79% compared to the same period last year. Same-store sales grew 3.5%, surpassing analysts’ expectations for 2.3% same-store sales growth. The company projects up to as much as 10.5% revenue growth by year’s end.
Whole Foods’ Chief Executive John Mackey attributed his company’s Q1 successes, in part, to consumers being willing to spend more to celebrate the good times and stock up for the bad. “In general we’re seeing customers celebrate holidays and special events, such as the recent Super Bowl, in a bigger way than they did in 2009,” he said during a February 16 earnings call. “We also are seeing a shift in buying patterns around bad weather. Last year, customers didn’t ‘stock up’ as they had historically.” Mackey also cited Whole Foods’ pricing strategies as a stimulus for the company’s improved performance. “Early last year, we made the shift from being fairly reactionary on pricing to being much more strategic,” he said. “We have seen this strategy successfully play out over the last several quarters, as we have produced strong year-over-year improvement in gross margin and comps.”
In 2008, the natural & organic retail giant began cutting its prices in an effort to shed the image that a trip to Whole Foods will swallow your “Whole Paycheck.” As Mackey told investors last week, Whole Foods continues to offer “competitive prices on known value items,” while doing everything it can to provide value and maintain its margins. One area where the company has been able to do this is in the purchasing of organic fruits and natural meats. “This past year, there was kind of a flood in the market of organic fruit, as some different stores pulled back on it and a lot of the supply was coming on the market,” Mackey explained. “There also was a large supply of natural meats on the market. So we’ve been able to purchase a lot of especially meat and produce at very good prices and be able to pass those along to our customers.”
Lynea Schultz-Ela, a former longtime Whole Foods purchasing manager and owner of natural products consulting firm A Natural Resource in Hotchkiss, Colorado, told Nutrition Business Journal that she sees Whole Foods’ better-than-expected sales performance to be a “good sign” for the entire natural & organic industry. “Whole Foods is a bellwether company for the industry,” she said. “Whole Foods has been very aggressive in trying to drive down its price points, and I think that has been very impactful.”
NBJ Bottom Line
Whole Foods’ efforts to shift its image from an overpriced specialty store to one emphasizing value have coincided effectively with continued growth in the organic category. As Whole Foods Co-President and Co-COO Walter Robb noted during the company’s latest earnings call, the expansion figures for organics, though down from double digits in previous years, are “still well ahead of conventional growth rates.” Whole Foods is positioned well for the future, Robb added, because “organic continues to be a lifestyle choice or a choice that people will continue to make even in the darkest of times.” One Whole Foods product category that experienced expanded sales in recent months is natural and organic meats. “We’re selling a lot more 100% grass-fed organic beef,” Mackey said. “In the meat department we’re seeing organic as a category grow.”
NBJ estimates that U.S. consumer sales of organic products grew 5.4% to $22.3 billion in 2009. A detailed breakdown of U.S. consumer sales of organic and natural products will be provided in the upcoming 2010 Organic Issue, which publishes next month. To order a copy or become a subscriber visit the NBJ Subscription page.
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