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Whole Foods © Erik Freeland/Corbis // Whole Foods © Erik Freeland/Corbis

Extra7/31/2009 2:46 PM ET

How Whole Foods profits in lean times

The purveyor of gourmet foods has retained customers without slashing prices through an effective promotional campaign stressing the 'values' to be found in its aisles. 

[Related content: food prices, Safeway, groceries, economy, retail]
By The Big Money

If green shoots are what you seek, stop by the Whole Foods store in Paramus, N.J. Wander past the multihued display of locally grown flowers and into the oasis of produce for which the upscale grocer is known -- more than 20 types of leafy greens and pristine arrangements of flawless fruit, from rolling mounds of kiwis to deep bins of shiny crimson cherries.

Beyond that, the store stretches on and on. At 63,000 square feet, it's one of the biggest Whole Foods ever.

It opened in March as the recession was in full swing. Skeptics predicted it would elicit an underwhelming consumer response, but thus far the store has exceeded the company's expectations; in the words of CEO John Mackey, customer volume has been "phenomenal."

If Whole Foods Markets (WFMI, news, msgs) were perishable, it probably would have expired this past year. But instead, it’s holding its own in what's now been a yearlong assault on any store considered expensive.

While Whole Foods' most-recent earnings report wasn't dazzling -– year-on-year revenue was flat -– it wasn't dismal, either. And many analysts foresee increased sales when the Austin, Texas, company posts third-quarter financial results on Aug. 4. "We haven't been hearing that anywhere else in the luxury retail space," says supermarket analyst Scott Mushkin at investment bank Jefferies.

Such optimism has fueled the grocer's soaring stock price, up 159% this year. In the same period, shares of traditional grocers Safeway (SWY, news, msgs) and Kroger (KR, news, msgs) have each lost 19% of their value.

What's kept Whole Foods healthy? "We have shown that we can adjust if we have to," co-president and COO A.C. Gallo said.

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Weathering the recession © Photographers Choice/SuperStock
Weathering the recession
Business is down at Whole Foods stores, but the company has responded by lowering its costs and stressing value to its customers, says analyst Simeon Gutman of Canaccord Adams (May 14)
One adjustment was to slow the pace of expansion. The company now expects to open half the stores it had planned for 2009. "We are moving a little more slowly," says Whole Foods spokeswoman Libba Letton. "We're (also) opening smaller stores."

The Paramus store was one of just three Whole Foods outlets opened in the second quarter. And the sprawling store may be one of the last of its kind as Whole Foods shifts from the megamart model and focuses on less labor-intensive stores, like one recently opened in Capitola, Calif., which, at 23,000 square feet, is half the size of most new Whole Foods outlets and about one-third the size of the Paramus store.

Continued: 'Everyone was trying to save money'

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Friday, July 31, 2009 1:41:43 PM
Whole foods also opened a store about 2 miles from the Capitola store just a few months ago, seems weird opening two stores so close to each other in such a short time frame.
Friday, July 31, 2009 1:49:38 PM

My family and I shop at Whole Foods because we care about what we put in our body. If you have to pay a little more so that you are in good health the choice should be obvious.

 

Yes, there are stores that offer items at lower prices, but you're often paying less $ for more: artificial color, preservatives, and food that will not taste as good than if it is in a natural state.

 

More importantly and what's unfortunate is that consumers often have to pay more $ to be healthy.

Friday, July 31, 2009 2:25:06 PM
Picky, how nice for you and your family to be able to shop at Whole Foods.  I care about my body too, and that of my 2 year old baby boy - but, I simply cannot afford Whole Foods....
Friday, July 31, 2009 3:16:19 PM

Everyone can afford to shop at whole foods. Look for the 365 products and 365 is Whole Foods Markets brand name. The prices are equal or lower than most grocery stores. Whole Foods has a whole line of food and other products that are very reasonable for everyone.

Special diets are more expensive , but Whole Foods grocers have no preservatives and are better for you. Whole Foods has there 365 products that are organic or all natural so I recommend them for your family. Also Whole Foods has a large amount of Gluten Free Food so give them a try. Go have fun looking in there stores and trying everything, samples everywhere or ask for one.

mtvj
#5
Friday, July 31, 2009 3:21:15 PM
Littleone79:  Don't worry, it's actually we who are smart enough to realize that you get the same food at other stores for less money.  True some of their produce (about 2/3 of which is NOT even organic) is of better quality, but that's about where it stops.  My local Publix store has far better quality meats than Whole Foods.  And that hot bar at Whole Foods along with their other prepared foods are grotesquely over priced and tasteless.

There will always be a market for Whole Foods.  I bet I could open up "Green Electronics" and rebrand some Walmart TVs and sell them for double the price and people would actually buy them.  Whole Foods is basically the same concept.

Friday, July 31, 2009 3:26:02 PM

My first and only visit to a Whole Foods was two weeks ago in Gainesville, FL.  Many of the prices there were lower than my local Winn-Dixie in Alabama.

Friday, July 31, 2009 4:04:10 PM

I went to Whole Foods - once upon a time when I could afford to eat! - and I have to say their sushi was fresh.  I could order just what I wanted and the sushi chef would make it fresh for me.  I also found their salmon filets to be extremely fresh.

 

I didn't find all the foods to be of "stellar" quality at Whole Foods, and some of the items were very over-priced.  However, the store was always packed.  Of course, if anyone can afford to live in the Annapolis, Maryland area, I assure you - they can afford to buy just about any doggone thing they desire.

 

Other than that, I could buy food I found to be of equally good quality at Giant or Safeway; at least in my area of the country.

 

Friday, July 31, 2009 4:11:41 PM

We continued to shop Whole Foods during the recession. We are actually spending more there now, because we eat out less.  I could not shop any other grocery store, the produce is better, the meat and fish is fresher that any store in area.  We also love their cheese selection. 

Friday, July 31, 2009 4:58:44 PM

We shop at Whole Foods in Annapolis, MD because my wife wants fresh fruit and veggies.  However, more than half the time we come away empty because their prices are grossly overstated and the product is just not much better than Trader Joe's.

 

An even bigger complaint is that week after week they show one price on their products on the shelf, but when you check out the price in their system is higher.  Despite having caught this and pointed it out to customer service desk they continued to charge the incorrect price in their system, more than the price on the shelf.  One product in particular were the Chocolate Sundrops in their bulk food department.  This went on for 5 consecutive weeks of being overcharged, reporting it and then repeating the cycle.

 

I expect Whole Foods shows great profits because many of the people that shop there never check their receipts and take them at face value.  For us, Whole Foods is one B-I-G Rip-off!

Friday, July 31, 2009 5:00:51 PM
Once a month, I drive 45 miles one way to go to the nearest Whole Foods.  I am gluten intolerant, and none of my local grocery stores has a decent (if any) selection of gluten free foods like cereal, bread, and flour.  I never went to Whole Foods until I was diagnosed gluten intolerant, but I'll continue to go there because of their selection and the prices on their 365 brand as compared to name brands.  Now if a little fairy granted a wish of mine and got rid of my gluten intolerance, I wouldn't shop there anymore.  It's too expensive.  I spend about $40/month on gluten free alternatives just for me.  Sure I could give up bread and stuff, but dang it, I like toast with my eggs and a sandwich once in awhile, so I'll pay the prices as long as I can.
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