- In its recent 13-D filing, Jana Partners, which announced this week it had taken a nearly 9% stake in Whole Foods, said it will push the retailer to adopt many of the traditional retailing practices the company has long resisted, including centralized purchasing and loyalty card use, according to the Wall Street Journal.
- Whole Foods and its founder and current CEO John Mackey played a pivotal role in bringing natural and organic products into the mainstream. But according to analysts interviewed by the Journal, the company didn’t heed its competitors and never evolved on pricing. “They failed to recognize that as the category matures, price becomes more important,” one analyst said.
- Whole Foods has instituted layoffs, cut prices and begun centralizing its procurement, but these measures may diminish the service and quality that core customers value.
After a long and successful run, it’s understandable that Mackey and Whole Foods didn’t want to change the way they did business. “When you average 8% same-store sales [growth] for 35 years, it can breed a sense of, ‘Why do we need to change? Things are working,’” Mackey told the Journal.
In hindsight, Whole Foods should have reined in its pricing and growth strategy, and it should have paid closer attention to its competitors. But these are steps typical retailers take, and for many years Whole Foods was not a typical retailer. It was a successful premium supermarket with a mission to sell not just products, but also values.
Now the movement Whole Foods started has caught up with it. Mainstream competitors such as Kroger and Wal-Mart offer a wide range of high-quality, low-price organics, while a new generation of natural and organic retailers like Sprouts have taken a value-first approach to natural and organic retailing. Costco now says it sells more organic food than Whole Foods, or any other grocer for that matter.
As foot traffic has declined and comp store losses have piled up, Whole Foods has finally begun implementing strategies from the standard grocery playbook, including layoffs, price cuts, TV advertising, coupons and target pricing promotions. Jana Partners will likely push Whole Foods to seek even deeper cuts and greater efficiencies — to make it perform even more like a typical grocery store, in other words.
If the company isn’t careful, though, it could end up in no-man’s land. Whole Foods has stated it wants to focus more on its core customers, who value the high-quality local and gourmet products that might diminish under austerity measures. Centralized procurement could mean fewer local products in stores, while layoffs could impact store service. A relentless focus on efficiency and cost-cutting seems to go against Whole Foods’ core identity, which is never a good sign for a retailer.