Grocery stores are starving, and despite a strict diet that eliminates the least successful venues, some businesses may not be able to save themselves. Whole Food Market, however, isn’t giving up the ghost without a fight.
Whole Foods has been losing ground as its less-expensive competitors beef up their organic offerings. They may have done the natural thing first, but that doesn’t mean they’re doing it best, and customers have been turning away from the health-food hipster in droves.
While the number of transactions may be down, the average basket size is up, according to a press release by Whole Foods Market’s investor relations department. Revenue has also grown by 1.1 percent year-over-year, totaling a record $3.7 billion in sales this quarter and beating estimates by $10 million. the chain saw 30 million unique visitors in its stores last year.
The company slashed costs by $270 million this year and is on track to reach its goal of $300 million in savings by the end of the fiscal year, with plans to save $300 million more between now and 2020. Co-founder and CEO John Mackey said Whole Foods is on track for positive comp sales and earnings by the end of fiscal year 2018. He expects revenue to grow to more than $18 billion by 2020.
“We understand that we need to do much more, and faster,” Mackey said during the Whole Foods Market Q2 earnings call on May 10. “Our competitors are not standing still. We need to ensure our company remains a leader in this fast-growing sector.”
A new Chief Financial Officer and new faces on the board of directors should contribute to reaching this goal. Whole Foods just announced the hire of Keith Manbeck, former Senior Vice President of Finance, Strategy and Business Transformation at Kohl’s Corporation, as CFO and added five new directors.
Mackey said the company was in the process of restructuring its purchasing program to ensure it has the right assortment and pricing, leading to lower costs, lower prices, and higher sales.
In addition, the rollout of a new and improved rewards program has been accelerated to capitalize on the most effective elements of the 365 Rewards and pilot programs, which have been driving bigger baskets as core customers realize a more personalized and relevant experience.
“What sets us apart is our customer-centric approach and relentless commitment to our core values,” said Mackey. “No other grocery store matches the promise Whole Foods Market stakeholders have come to expect from us, the industry-leading food standards, the differentiated offerings, and the outstanding customer experience.”
Still, with all these measures in place, Whole Foods has set its minimum comp sales goal low for the rest of fiscal 2017, hoping for -2.5 percent or better. That’s a prayer for “not too much loss” as opposed to “gain,” even as sales and other benchmarks remain north of zero.
It’s rumored that some competitors are talking about buying Whole Foods. Bloomberg reported that Amazon had considered a takeover of the chain last fall, experts speculate that Kroger is mulling a bid, and Boise, Idaho-based company Albertsons’ parent company Cerberus Capital Management may be in preliminary talks with bankers about making a bid of its own.
Into the midst of these rumors stepped New York-based investment firm Jana Partners, along with several food retail experts, who collectively purchased a 9 percent stake in April. Jana said it hopes to work with the market’s board and management about reconfiguring leadership, advancing brand development, and tackling key deficiencies such as customer loyalty.
Whole Foods isn’t the only grocer with an uncertain future.
Albertsons also has its eye on northeastern grocery chain Price Chopper, which was rumored to be up for sale last year. Reuters reported in November that Albertsons was in “advanced talks” to acquire the chain for about $1 billion, although this is still unconfirmed by the companies.
Price Chopper has been owned by the Golub family for over eight decades but is now exploring a sale due to the pressures imposed by big box stores like Walmart, discount chains like ALDI Inc., and online retailers such as Amazon.
Albertsons merged with California-based Safeway in 2015. It also owns Vons, Jewel-Osco, Shaw’s, Tom Thumb, and United Supermarkets.
Joliet, Illinois-based grocery cooperative Central Grocers announced in April that it will be selling 22 Strack & Van Til stores, nine Ultra Foods locations, and its warehouses. The stores will go to Jewel-Osco.
The struggle is real, but this week brought good news for many grocers as Walmart’s rising tide lifted grocery stocks across the board. The media traced the boost back to optimistic remarks made by Walmart CFO Brett Biggs during the company’s quarterly earnings call on Thursday, May 18.
“The grocery business continued to improve, with food categories delivering the strongest quarterly comp sales performance in more than three years, due in part to a lack of market deflation in food, excluding price investments,” Biggs reported. “All store formats had positive comp sales.”
After Biggs’ comments, Kroger stocks climbed 1.43 percent, Supervalu rose by 1.34 percent, and Target went up 1.20 percent.
Closing out Q1, Ahold Delhaize reported a 65.1 percent increase in net sales, with stocks up 0.45 percent Friday afternoon (May 19).
Costco is due to report earnings May 25.