Whole Foods Market Inc., the leading retailer of natural and organic foods, aims to combat its pricey reputation as it opens smaller stores in suburban areas.
The grocery industry is very competitive and the increased popularity of eating organically has driven small organic grocery stores to expand throughout the United States.
While less-expensive organic grocery stores expand, Whole Foods concentrates on its new store openings and is experiencing strong sale returns.
“We see great opportunities on the real estate front and are focused on continuing to build our new store pipeline,” said Walter Robb, co-chief executive officer of Whole Foods, on a conference call with analysts last week.
In 2010 Whole Foods had 299 locations and it currently has 317 locations. The company plans to grow to 1,000 stores, said executives.
Whole Foods is on its way to open 24 to 27 news stores in fiscal 2012.
Along with adding new stores, Whole Foods is trying to combat its “Whole Paycheck” reputation.
“I prefer to shop at Whole Foods, but one thing I prefer about Tom Thumb or Kroger is the pricing, so if I am ever running low on cash I choose one of these grocery stores,” said Shelby Sanderford, a sophomore at Southern Methodist University.
Whole Foods plans to fight its nickname by offering discounts and price promotions, and by holding many of its grocery prices flat regardless of its own costs rising.
The company continues to support its 365 Everyday Value brand, which is priced lower than regular grocery store prices and promote its regional “Madness Sales,” when customers can find coupons online for discounts throughout the store.
“We were very sensitive to maintaining the right price levels in our meat departments despite sharp cost increases in beef,” said Robb.
Regardless of the reduced prices, in its fiscal first quarter, Whole Foods gross profit rose to $1.18 billion from $1.04 billion, an increase of 13.5 percent. Also, sales increased by 12.9 percent to $3.4 billion from $3.0 billion in the latest quarter, the ninth consecutive quarter of growth.
Central Market, a competitor of Whole Foods, and other organic grocery stores are also cutting their prices in order to raise sales.
Central Market’s senior manager of communications, Aimee Deputy, said, “For organic and all-natural products, our line of Central Market meals, snacks and cooking ingredients are often priced less than conventional brands from national producers.
Together with our parent company, H-E-B, we have made huge investments in keeping retails low.”
U.S. sales of organic food and beverages have grown from $1 billion in 1990 to $26.7 billion in 2010. The rise in competitors for organic food adds pressure for Whole Foods to differentiate itself in the industry.
Whole Foods has generated a lot of attention for its smaller stores averaging 33,000 square feet, which is about 25 percent smaller than its traditional store.
In Folsom, one of the six new stores opened in its most recent quarter, there were 1,000 customers standing outside the store waiting for it to open, according to Robb. Folsom is located 20 miles outside of Sacramento and was hit hard by the housing collapse.
“It’s a good example of the success we are seeing with our broader real estate approach and our ability to go into some of these smaller, more suburban markets,” said Robb.
The rent at the new stores is much lower, the square footage is smaller and there is less competition than the stores located in bigger cities.
Robb said, “Rent is significantly less, and with the smaller size, our capital spend is less as well.”
In the remaining year, Whole Foods expects to increase its operating profit from 17 to 19 percent and also increase its total sales from 11 to 13 percent.
“The marketplace remains highly competitive, but we believe we will continue to gain market share through further differentiating our shopping experience, reinforcing our position as America’s healthiest grocery store, and maintaining our relative value positioning,” said Robb.
