Whole Foods Defies Whole Paycheck Tag
By George Anderson
"Whole Paycheck? Not anymore." That was the assessment of Whole Foods' pricing position by JPMorgan analyst Charles Grom in an interview with the New York Post.
According to Mr. Grom's firm, Whole Foods has dropped its prices on food by an average of five percent since December. Of course, even with lower prices, Whole Foods is still seen as being significantly higher priced (about 14 percent) than traditional grocery store rivals such as Harris Teeter, Kroger and Safeway.
In a separate market basket analysis, Ryan Krueger, co-founder of Krueger & Catalano in Houston, concluded that Whole Foods is -- in its way -- price competitive.
Mr. Krueger told the Minyanville website, "I spent time with a store manager putting together a basket of everyday items -- stuff like chips, bread, and peanut butter. We compared 10 average products to the closest big grocery chain and it was closer than you would think: $25 vs. $21. The unknown might be that the $21 basket came from Whole Foods, and its private labels. Traditional grocery stores typically sell other company's products after the slimmest of one percent or two percent margins. Resellers in any business will tell you the real money is made by those creating a proprietary product, not a shelf to put it on. Whole Foods' private labels are now on plenty of those shelves. If they make their own peanut butter, they keep all the profit, and I am inclined to choose it because I trust them and their ingredients."
Libba Letton, a spokesperson for Whole Foods, told Minyanville, "We've long said that if you compare like for like items, Whole Foods is actually less expensive, especially in organic grocery items. In general, over the last couple of years, it's been a focus of ours to be competitive on price and highlight the value that's already in our stores."
Discussion Questions: Do you think consumers have gotten the message that Whole Foods is more price competitive than it had been in the past? Do you think the price message is compelling enough to bring more frugal consumers into the chain's stores?
[Editor's Note] As a point of contrast, Wal-Mart Stores, which just announced a price rollback on thousands of items, raised prices on food items by 2.3 percent since February according to JPMorgan's research.
Linda Blakley, a spokesperson for the chain, told the Post, "We've stepped it up where our customers need us to -- with the basics of consumables and food."
RetailWire Instant Poll Results:
RetailWire BrainTrust Comments:
Whole Foods and Stew Leonard's are not for the frugal. Their value is in selection, assortment and "cachet," something other markets can only dream about.
Bob Phibbs, President/CEO, The Retail Doctor & Associates
Interesting article today and it once again makes us all think about the importance of price. Although important, the market basket data clearly shows that the difference between Whole Foods and other retailers is small. The consumer needs to then ask themselves if that price difference is worth the experience at Whole Foods and I would hedge to bet shoppers would say yes.
Whole Foods focuses on key areas other than price (in no particular order):
1) Organic items
2) Unique Private Brand items
3) Clean stores
4) Great store help
5) Fresh and healthy ready to eat meals
Whole foods should not be influenced by others that feel the pressure of Walmart and other retailers that are competing on price, but rather continue to enhance the areas above.
A CEO of a strong retailer told me it is easy to lower prices but very tough to raise them. I agree. If Whole Foods continues to focus on what it does best, price will not be a huge factor for shoppers and the extra margin from Private Brands will allow Whole Foods to stay ahead of the cure with regards to innovation and growth.
John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC
Maybe they've changed pricing, and maybe that has had some effect, but they haven't changed their image. In our market, WF has been running radio spots advertising a great deal on one product each Friday. Now, that may be great if it draws in incremental consumers. But does anyone really think that changes their brand image?
Jonathan Marek, Senior Vice President, APT
Up here in Canada the price gap is still wide, but it is closing. But they consistently earn their premium. It's a great shopping experience that for many is worth it. It extends beyond basic commodity retailing, which is what most grocers only do. Good for them too! More retailers should look at how price isn't the only driving factor. After all, the customer experience is the new marketing powerhouse.
Kevin Graff, President, Graff Retail
Retail pricing tends to be framed as an all or nothing proposition. In the industry, we learn that a retailer has raised or lowered prices and we wait to determine which retailers experience a mass exodus and which ones welcome them with open arms. An encounter I had just yesterday confirmed to me that the reality is more complicated.
At my local co-op (Northwest Arkansas' version of Whole Foods), a woman behind me in the checkout lane had 10-15 boxes of rice crackers in her basket. I struck up a conversation, telling her that I liked the crackers also and asking if she was having a party. She said that she wasn't; she just liked the crackers. She went on to excitedly recount her trips to area Walmart stores where she used to be able to buy them (and Burt's Bees products--"They just disappeared!" said she). When she got to the co-op and saw the rice crackers on sale ("For $1.99! Can you believe that?"), she by that time saw it as a kind of shopper's revenge and nearly cleared the shelf. I found that fascinating--how lack of availability in one retailer coupled with a sale at another escalated a purchase. She and I also chatted about how various area Walmart stores carry different brands, to the point that you think you imagined ever seeing the brand there in the first place...and which Walmart was it again? Hmmm, must have been the co-op all along.
I'm not anti-rationalization; however, price and availability go hand in hand. The perception of scarcity can drive full price sales and it can also make a deal seem sweeter than ever. Localization further complicates all of this: shoppers may think the retailer is reading their minds...or that they don't stand for anything. Whole Foods' first move may be to make a store-wide statement on price; however, from there, they are going to have to decide on differentiation by market. If they get it right, shoppers may just start clearing their shelves rather than picking and choosing.
Carol Spieckerman, President, newmarketbuilders
I'm a huge fan and regular shopper at Whole Foods and have been aware of their price moves and their excellent 365 brand since its inception. Having said that, all my friends and family, no matter what I say or show them, still believe that Whole Foods is super-expensive. Not just expensive, but SUPER expensive. "Their prices are ridiculous," is what I hear all the time. It is ingrained in their psyche.
So that makes this a brand issue -- which will therefore make changing that perception slower and more difficult to turn around. Whole Foods' brand perception is one of quality and higher prices, and that's a tough one to change as those attributes are related. They can do it, but they're going to have to be careful not to 'infect' the quality attribute while doing so. This issue is the converse of Walmart's. Their brand perception of low-price is dug so deep into the American landscape that it will never change.
Ultimately though, I believe Whole Foods will prevail as a viable business entity. They've just got too much going for them in terms of the "Ps". I'm keeping my stock.
Lee Peterson, EVP Creative Services, WD Partners
Wow. I didn't even think that was a concern for WH. Seriously. Did consumers ever expect to go there and save a few bucks? I can say that in Toronto, nobody does. You aren't shopping there if you are on a $50 a week grocery budget. I think it's great that they are stepping in and joining the price cut train. It shows the customer some love which always helps in our current retail economic situation.
Doron Levy, President, Captus Business Consulting
Whole Foods will never be seen as "price competitive" nor should they want to be. It makes as much sense as Walmart trying to position themselves as "moving upscale."
In Walmart's case, their image is low price and that is why people want to go there. Attempting to offset any perceived "negatives" that come out of consumer surveys about not having high quality merchandise is a Quixotic tilting of the first order. Same is true in the reverse for Whole Foods--they are super high quality and price be _____
Firmly established consumer positionings are the most difficult business asset to obtain. Why in the world would anyone want to try and alter a positive one?
Ben Ball, Senior Vice President, Dechert-Hampe
Well it's quite clear that Whole Foods is not pursuing the frugal end of the shopper spectrum. The fact that Walmart chooses a different strategy does not make WF somehow deficient.
I think there's room enough in this great country for a variety of retailers who explicitly target different types of shoppers and/or shopping trips. At Walmart, trimming specialty items from assortments may help it hit a lower price profile, but at the expense of sending some shoppers to Whole Foods for favorite items. It's a reasonable trade-off--gain a few trips; lose a few trips.
There is also plenty of reason for retailers to adjust their price positioning from time to time as the competitive landscape shifts or as shoppers alter their behavior. Whole Foods is still expensive by any measure I can come up with, but the tolerance of its shoppers may have some limit, which it does well to respect.
James Tenser, Principal, VSN Strategies
Each business morning, execs get plugged into industry news and issues with key insights from a "BrainTrust" panel of experts. Membership is free to retail and related industry professionals. Go to www.retailwire.com and click the FREE REGISTRATION button.
APRIL 2010
Wal-Mart Taking Hits Over Price, Selection
By George Anderson, Editor-in-Chief, Associate Publisher, RetailWire
Two separate articles conclude that Wal-Mart Stores is having a tougher go of it since the economy began to rebound, in part because it has gone too far with its SKU reduction efforts and because a wide variety of competitors have found ways to beat the world's largest retailer on price.
A Bloomberg article cites a number of product categories, including cereal, health and beauty care products, laundry detergent, pet treats and soda. According to the piece, Wal-Mart cut inventories in its U.S. stores by 7.6 percent while increasing sales by 1.1 percent.
"Wal-Mart cut too deep and now they're going back to manufacturers," Michael Kantor, chief executive officer of the Promotion Optimization Institute, told Bloomberg.
"In some instances, we are returning SKUs to the floor; it is evolutionary and ongoing," said Linda Blakley, a Wal-Mart spokesperson. "Based on customers' response, we may return an item to the shelf. At the end of the day, we want to have what she wants at a good price."
Having a "good price" may not be good enough for consumers who have come to think of the chain as having the best price and now learn that others may save them more money.
Kantar Retail's Management Ventures has been tracking prices on 40 items sold in Wal-Mart and Target stores. Target has beaten Wal-Mart in two of the three surveys taken to date. In the latest comparison, Target came in 2.5 percent lower than Wal-Mart or $7 in real money.
Interestingly, 71% of respondents to a RetailWire poll last month said their perception was that Wal-Mart's prices were somewhat or much lower than Target. Only two percent believed Target had better prices while 27 percent thought the two chains were evenly matched.
Target isn't Wal-Mart's only concern. A recent survey by WSL Strategic Retail found three-quarters of shoppers in dollar stores believe they are getting better prices than if they shopped at Wal-Mart.
Burt Flickinger, principal of consulting firm Strategic Resource Group, said he also saw Wal-Mart losing ground to conventional supermarkets who offer superior selection and cut prices in key categories to drive traffic.
"The consumer has figured out that Wal-Mart's prices are too high in key categories. ... The consumer is confused. When Sam Walton and Doug Degn [who formerly ran merchandising for Walmart's grocery products] ran things, the consumer understood she would save in every category every day," Mr. Flickinger told Advertising Age.
Discussion Questions: Do you see Wal-Mart as being more vulnerable to competition today than in the past? Where is its market share most at risk and what will it need to do to address its weaknesses and the strengths of its competitors?
RetailWire Instant Poll Results:
RetailWire BrainTrust Comments:
Yes, Wal-Mart is more vulnerable to competition today than in the past because the supply chain efficiency driven by Wal-Mart is helping other suppliers and retailers also. Wal-Mart's early mover's advantage is beginning to erode as others are taking advantage of supply chain efficiencies.
Pradip Mehta, Principal, Mehta Consulting, LLC
Price transparency is the hallmark of retailing in the age of mobile computing. That's why EDLP is a dying quail as a price strategy. There are no longer any secrets and EDLP does not engender trust. Tailored promotions are much more interesting.
The truth is, Walmart has been vulnerable since 2005, since other retailers figured out that customer-centric initiatives really matter. Last year SHOULD have been Walmart's time, but it turns out it wasn't. Why? Lack of innovation really, and despite pitch-perfect advertising, a lack of a compelling value statement.
There's another issue--Walmart may well have saturated its market, particularly in the U.S.
Its recent announcement of the regionalization of real estate to "find locations in seemingly saturated markets" is a real red flag to me. It means the company will have to work harder to keep existing customers, with not-too-much likelihood of acquiring new ones.
Paula Rosenblum, Managing Partner, RSR Research
Walmart has put itself in a tough position. The dollar stores, like Family Dollar and Dollar General are less expensive on most items when compared to Walmart. And they now carry many of the major brands, with products produced specifically for this low-priced channel. Target has a higher perceived quality, and a greater perceived selection, along with a better shopping experience than Walmart, which places Walmart right in the middle.
Being in the middle is a very tough position in which to be, and a difficult position to defend. Interesting how Walmart has boxed themselves in this way. Should we count Walmart out? I hardly think so. But it does show how they have lost their way a bit. They need to rethink their strategy, and figure out what message will best resonate with the consumer.
Joel Warady, Principal, Joel Warady Group
I don't see Walmart as being particularly vulnerable for a few reasons:
1. International presence and diversification. Walmart's international growth is currently offsetting domestic dips. Target is still make-or-break in domestic markets.
2. Newfound nimbleness. I have heard that Walmart is concerned about going "ditch to ditch" on rationalization; however, course corrections will be relatively easy to execute. Buy more.
3. Dollar stores and hard discounters are not a new threat and there have always been shoppers for whom Walmart is a luxury; Walmart is by no means the bottom of the barrel and they have not positioned themselves to be. For some shoppers, the tiers start with garage sales and flea markets then move up to dollar stores and to Walmart for special occasions.
Target has done a terrific job of shifting its messaging to value both in-store and in national marketing and their new focus on food is obviously paying off in more traffic and encouraging shoppers to look around a bit more. After waves of restructurings that will impact every aspect of Walmart's operation from sourcing, to online, to in-store marketing, I believe that Walmart may be getting its sea legs back in short order. Counting them out would be foolhardy.
Carol Spieckerman, President, newmarketbuilders
This discussion is timely for me as I travel North America visiting top supermarket retailers to discuss programs that can help them compete with Walmart on price. The great news for traditional supermarkets is price is not the only factor Walmart needs to be concerned with over the next few years.
1) Pricing - Several retailers beat Walmart on pricing across multiple categories. HEB is probably the best example.
2) Experience - Stores that have focused on shopping experience will benefit as the economy improves. Visit a Hy-Vee, Meijer or Stater Bros. and you will see what I am talking about.
3) Sourcing/Quality - All retailers need to be careful of this. Just look at the Walmart brand cat food Special Kitty's recall as an example of price effecting quality and safety. The scariest part about that recall is the Ontario based manufacturer for that brand, Menu Foods, actually was a contract manufacturer for over 150 PL and national brands. (Source: "Cornered" by Barry Lynn)
4) Private Brands - When a retailer makes an outstanding private brand that can compete with national brands it is truly a barrier of entry. Great example is Trader Joe's and Ahold.
5) Consumer Programs - There are some exciting options available now to retailers that can help them drive prices down for shoppers and still make money. Retailers and manufacturers need to keep an open mind and explore new ways of working together creating a win, win. Not to mention a 3rd win for the shopper.
John Boccuzzi, Jr., Managing Partner, Boccuzzi, LLC
Did Wal-Mart go too far in SKU rationalization? Of course they did.
Why? Because you can never know for sure how far is right until you go too far. Then
you adjust.
This is classic Wal-Mart. Push the limits, either through testing multiple concepts or implementing in-store experiments with things like in-store TV. Read the results fast and react accordingly. That's why they are at the top of the retailing world. And as long as they don't change either that management practice or their single-minded focus on lowest prices every day, they will stay there.
Ben Ball, Senior Vice President, Dechert-Hampe
It has been my belief that there can only be one price leader in a category. In retail, Walmart is of course the leader.
The weakness in this strategy is that, if the price advantage is lost, secondary measures including customer experience and selection that influence purchase decision may not be in place to defend against competition.
I recently reviewed a survey taken among delegates to the Loyalty World UK conference this past fall and over 58% indicated that the key opportunity to improve loyalty strategy in the business during 2010 was through investment in customer experience.
Walmart should concentrate its efforts on reestablishing its leadership (real and perceived) in pricing but should take steps to enhance the shopping experience in-store as a measure to mitigate risk for the future.
Bill Hanifin, Managing Director, Hanifin Loyalty LLC
My instinct is that it's much too early in this cycle to be drawing any significant conclusions. As Walmart concedes, their SKU rationalization program is an on-going process that's really in its early stages. Others here today have pointed out that Target has been trying to cherry-pick prices for a while. And we still don't know how those consumers who traded down to Walmart when the recession hit are going to respond when they begin to feel they no longer have to shop there.
Ted Hurlbut, Principal, Hurlbut & Associates
Walmart doesn't necessarily need to have the lowest prices. Instead, they need (and own) the best price perception. In my Wednesday newspaper, I always find price-oriented ad inserts for three of the major local supermarket chains. But not for the big guy, Walmart. That's because WM is light on specifics and heavy on image, and it's obviously worked for them.
Research over the years shows that, at most, shoppers can remember the prices of only twenty items. Most shoppers remember far fewer. When it comes to pricing in grocery, it's
the image that's important, not necessarily the specifics. Ever see price ads for Aldi or
Dollar-format stores? Rare if ever. Instead, they count on perception, not specifics. Extend
that thought to conventional supers. When they advertise specials, are they saying "come get this special?," or are they saying "we always have a lot of great specials?" Unfortunately, most conventionals predicate their marketing plans on the former, not the latter, and that affects
their ad mix negatively. If a conventional wants a low-price image, then concentrate on that image and not so much on specific prices. If that's not the conventional's bag, then focus on the specifics.
M. Jericho Banks, Ph.D., President, CEO, Forensic Marketing LLC
Read the entire story and RetailWire discussion at:
