Whole Foods Market Inc. shares dropped double digits in trading after the Austin, Texas-based company reported weak profits, same-store sales growth and a lowered earnings outlook in the second quarter.
Same store sales were 4.5%, down from 6.9% a year ago and profits were $3.3 billion, up 10% from the second quarter last year, $10 million less than analyst estimates, according to the company during a May 6 conference call.
Competition is expanding, co-CEO John Mackey said, and that’s pushing Whole Foods to make price adjustments.
“With the growing demand for fresh, healthy foods, the offering of natural and organic products is expanding everywhere — in new stores, existing stores and online,” he said.
That competition is coming from multiple channels, Mackey said.
“It’s important to understand that yeah, competition has accelerated — there’s no question about it,” he said. “We’ve seen conventional supermarkets like Kroger, Wegmans and H-E-B have really upped their game in natural and organic foods. We’ve seen new interests get public money such as Sprouts, The Fresh Market and Natural Grocers.”
Mackey remained positive about the increased pressure from other retailers.
“Whole Foods Market is still gaining share,” he said. “We’re just not gaining it as fast as we’ve gained in previous years. We still remain the leader in this category by a pretty significant margin. The market is expanding as well, and this is why all these guys are jumping in on it.”
To keep competitive, Whole Foods has been pushing its value image, a big part of which has been price reductions, which the company plans to expand. The company has mainly focused on center store for these so far, Mackey said.
“We still have some gaps in perishables,” he said. “That’s where we’re going to focus going forward in terms of pricing.”
Whole Foods plans to pay close attention to the market for its pricing, said president A.C. Gallo.
“For example, the California cherry crop is really short this year, but we don’t really know what we’re going to charge,” he said. “It depends on where the market breaks. If retails stay really low, we’re going to stay competitive. It’s really going to be how the overall market responds to it.”
The pricing structure hasn’t been something that’s instituted across-the-board, Mackey said.
“We respond to each market based on our competition, based on feedback we receive from the customers,” Mackey said.
New produce standards
Co-chief executive officer Walter Robb told analysts on the call that part of the company’s plans to boost market share include a new produce standard program.
“We’re working on new produce standards we’ll roll out this fall on conventional produce, giving customers greater transparency of the quality of the product and the standard of the product,” Robb said.
The standard, announced to the supplier community last fall, are planned for a September launch. A three-tier rating system (good/better/best) in produce and floral departments includes information on:
- Pest management
- Farmworker welfare
- Water conservation
- Waste, recycling and packaging
- Energy use.