Anyone hoping that Whole Foods Market (WFM) will soon shed its derogatory “Whole Paycheck” nickname shouldn’t hold their breath.
Despite stiff competition from the likes of Walmart (WMT) and Kroger (KR) in selling organic food at more affordable prices, Whole Foods co-CEO John Mackey has vowed not to get pulled into a price war, arguing that his customers get superior food and service and are willing to pay for it.
There is no doubt, the organic foods market is getting more crowded: Mackey cited data from United Natural Foods, a national food distributor, that there are 70,000 more places in the U.S. To buy such food than there were three years ago.
“Promotions and price investments [discounts] are an integral part of our conversation,” Mackey said on a conference call Wednesday evening. “But we are not participating in a race to the bottom.”
As anyone who follows the department store and specialty apparel space knows, discount wars are ultimately un-winnable and a profit-draining rabbit hole.
Besides, Whole Foods’ well-heeled clientele are happy to pay more for a differentiated product, Mackey argued.
“The reality is Whole Foods Market sells the highest quality food in the world,” he said. “It’s what our customers tell us they love most about us, and we’re not changing that.” Still, next year Whole Foods is launching a downmarket chain of stores called “365” to attract customers who are on a budget.
Meanwhile, Whole Foods’ growth engine is sputtering. Comparable sales in its most recent quarter fell for the first time in six years, as Whole Foods has been hit by more competition and overly aggressive expansion.
So the company is planning to ramp up marketing to showcase not just prices but to emphasize its quality. It is also preparing to roll out a point-of-sale system to speed up checkout times. (Something Target (TGT) is also doing.)
And Whole Foods will slow its expansion next year, acknowledging that its rapid pace of opening new stores in recent years has cannibalized business. It will open 30 stores in 2016, down from 38 this year.
Without naming names, Mackey said that many competitors are aping Whole Foods without really offering the same thing. “They are not copying our quality standards, they are copying our look and feel,” he said. “Many customers are not looking beneath the hood.”
