Whole Foods: Why The Recent Profit Increase Means More Trouble Than Good

The Wall Street Journal reports that Whole Foods, the upscale health-focused grocery store, often nicknamed “Whole Paycheck” reported Tuesday it has posted 3.1% increase in quarterly profit after three consecutive quarter of decliningtypepa sales at stores open at least a year.

The WSJ reports WF CEO, John Mackey, achieved this growth by instituting cost cutting initiative. Mackey is also said to be implementing a health initiative to help employees lose weight, reduce cholesterol, and live better. 

I love Whole Foods. I really do. I especially used to appreciate its no-nonsense, customer-focused approach in previous years. But a recession will force anyone to fallback mode and it seems that Whole Foods is no exception.

First, let’s tackle a few basic numbers. While WF reported a 3.1% increase in quarterly profit, the average quarterly profit for the industry is 9.2%.

Second, Whole Foods’ cost-cutting didn’t just apply to internal efficiencies and improved operations—it visibly transferred across to customers. Examples include lower grade (and lower price) ingredients in Whole Foods’ readymade baked goods and reduced variety in the the prepared foods section.

Third, while Whole Foods recently lowered some product prices, it is still enjoying an average industry profit margin on organic products of 100% (and higher in some cases).

Fourth, Whole Foods’ measures most obviously impacted employee morale and performance. Long gone are the cheerful loudspeaker calls for employee training sessions, announcement of special tastings at the food section, and overall customer service has declined.

That the industry as a whole experienced a sharp decline as a result of the economic downturn earlier this year is undeniable. But Whole Foods, I would argue, has acted too late and has been focusing on tactical measures instead of on a strategy, compromising its once stellar customer experience, and tainting its once solid gold brand.

Instead of focusing on spinning the story around a new employee health-fix initiative and cost cutting, Whole Foods should focus on the following:

1. Acknowledge it is time to change its focus and meet customer needs in light of the new economy.
2. Overhaul its brand messaging and communication strategy to focus on value to the customer. A focus on meal’s cost is so Chef Boyardee—Whole Food should instead communicate it commitment to continuing to serve organic products at the highest quality at best prices it can achieve to its customers. At times like this it’s about partnership with customers—not about devaluing their lives.
3. Experiment with daily specials such as lower priced prepared foods and sell volume. Let customers know ahead of time through community building efforts of these specials to encourage return to stores.
4. Increasing inventory management efficiencies and cost of product is good—but it would be even better if Whole Foods could base it on customer preferences rather than on internal price calculation.

By focusing on the customer, evolving the Whole Foods brand while maintaining its core strength, Whole Foods can once again be a leader in providing healthy, organic, quality groceries to health conscious customers wherever they are.

Comments

[Michael Bowers]

Great analysis of the situation by looking inside the numbers. The businesses that have performed the best through this economy have focused on strategic issues over short-term cost cutting. Unfortunately for most public companies they only have one quarter to address performance before the markets attack them.

[SeoNext]

Its really a great analysis.Really an informative post,Thanks for sharing it with us.