Whole Foods draws new customers with 'extreme value' products

Mega naturals retailer may use discounts in commodity products to offset price hikes in other areas, company says.

Whole Foods Market posted another unbeatable performance in the first quarter of 2011. Despite increasingly tough comparisons, identical store sales growth rose more than 9 percent in Q1, the largest gains the company has seen in four years.

Whole Foods executives also noted a 7 percent increase in transaction count and a 2 percent increase in basket size on an identical store basis for the quarter, suggesting a return in confidence among repeat customers. “Our results underscored signs that consumer confidence continues to improve,” said Whole Foods Co-CEO Walter Robb during the company’s February 9 earnings call, adding that “year-over-year, branded product sales growth outpaced our exclusive brand growth, and customers continued to shift towards organic products.”

As for new customers, Whole Foods President and COO A.C. Gallo noted that a continued focus on “extreme value products” was driving new entrants into existing stores. “During the first quarter, we introduced a line of extreme value wines called Three Wishes that has done extremely well,” Gallo said. He added that Whole Foods may “introduce really great values in certain commodity areas to counteract some other areas where prices may be going up.”

Along with its impressive identical store sales growth, Whole Foods generated total sales of $3 billion for the quarter, up 14 percent, as well as a 15 percent rise in gross profit. The company opened three new stores in the quarter, and signed leases for six more going forward. Whole Foods currently operates 302 stores, but for the future Robb considers “1,000 stores to be a reasonable indication of the market opportunity.”

Balancing value with high end

Whole Foods continues to successfully fight against its pernicious “whole paycheck” image with its continued focus on stocking value products to draw new customers.

John Mackey, Whole Foods’ other CEO, waxed poetic on the balance his company strikes between high-end and value products. “If you were to think of us as running a retail symphony, so to speak, we're going to continue to play the bass note where the value is going to keep thumping,” he said. “You're going to keep hearing that bass note of the value, and we're bringing in the sweet strings of differentiation through these other areas.”

Verily. But no matter how Mackey chooses to describe his retail strategy, it’s a safe bet it’ll pay off. Whole Foods continues to set the example for natural product retail, growing sales of organic and branded products among its repeat customers alongside new value options and private-label products to claim new customers.

The company's success with value propositions has been key for the last two years and they’ve done it well. But Whole Foods has clearly seen a trend among its regulars of trading up to high-end options, which begs the question—Is the great migration to private label beginning to wane?

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