Whole Foods’ Big Top-Down Changes

Wallis Simpson — the American divorcee behind King Edward VIII’s abdication of the English throne — is famously quoted as having said that, for women, “it is impossible to be too thin or too rich.” While one might think to argue with at least one of those, her point more or less stands: There are some things that we tend to think of as impossible to have too much of.

Success is certainly on that list — or at least seems like it should be — since even the most enthused fan of failure (and its wonderful uses as an educational tool) would likely prefer somewhat less educational success if given a direct choice between the two.

But success, particularly with a new idea of concept, can be something of a double-edged sword for those who wield it. Unless there is something particularly proprietary about that new idea or concept (i.e., it is patentable, trademarkable or copyrightable), an innovator can easily find itself competing with a lot of copies. Uber spawned dozens of ridesharing imitators worldwide, Square launched an mPos Tracker that produced many competitors and Birchbox did such a good job of selling the world on beauty in a box that they are now struggling to claw market share back from both established players like Sephora and startups like ipsy that have since surpassed them in sales.

Being an original is not easy — both because original good ideas are few and far between and because these ideas don’t stay unique all that long. If they can be imitated, they will be.

This leads to the struggle Whole Foods has been enduring for the last several cycles. It’s not quite right to say that when Whole Foods went public in 1992, they were the only name in the organic game — because there were certainly other organic grocers. But Whole Foods was the only one making a big push to be the big, national standard in local, organic and quality grocery. Whole Food dared to be different in a lot of regards — they didn’t race for low prices because quality requires expenditure, and they even changed the standard walk-through pattern in their stores (clockwise instead of counterclockwise as it the norm in grocery stores).

And it worked.

Possibly a bit too well — since other grocers caught on to the uptick in organic enthusiasm and decided they, too, could offer organic, local and artisan foods, but not at the “Whole Paycheck” price point. Consumers responded to the deals — and although Whole Foods has consistently maintained that their brand of organic and artisinal is better, the quarterly results over the last few quarters indicated that consumers are less than convinced.

Whole Foods notched a 2.6 percent decline in comparable store sales in its most recent quarter — marking the fifth straight quarter of declines in that rather closely watched metric.

And so Whole Foods is making some big changes. It is dropping one of its two CEOs and rolling out a loyalty program that aims to connect its shoppers nationwide.

Will it work? Whole Foods has been promising a comeback for about six quarters now — but without much visible effect on the figures. But now that founder John Mackey is manning the control as solo CEO, he sounds pretty confident.

Goodbye, Walter Robb

The biggest and most headline-grabbing change at Whole Foods comes from the top, as co-CEO Walter Robb will be stepping down, leaving founder, foodie and organic enthusiast John Mackey alone in the top spot. The decision comes, according to Robb, after the board decided that recent earnings results indicate it is time for a more “streamlined approach.”

Translation: According to most analysts — when times are tough, as they are now at Whole Foods, the top of the firm needs to be represented by a single voice, not two dueling voices.

“When business is going great, there aren’t a lot of disagreements, and it can work. But when times get tough, that’s when you start to bump heads,” said Edward Jones grocery analyst Brian Yarbrough.

“You need clarity, and clearly if you’re [struggling], what you don’t need is mixed signals coming out of the C-suite,” said David Heenan, a visiting professor at Georgetown University’s McDonough School of Business who wrote Co-Leaders: The Power of Great Partnerships with the late leadership sage Warren Bennis.

Whole Foods, of course, is not alone in its difficulty navigating the rapidly resetting grocery landscape. Target is struggling to compete in a grocery landscape that is increasingly becoming a fistfight between Amazon, Walmart, Ahold-Delhaize and Kroger. Other specialists, like Sprouts Farmers Market Inc., saw profits take a hit last quarter, and its share price dinged 11 percent as a result.

Under Robb, Whole Foods pursued a somewhat more traditional lineup of drawing erstwhile consumers back with discounts and promotions in an attempt to shed that pesky “Whole Paycheck” moniker. However, thus far the efforts haven’t show much in the way of calculable results, and the consensus view among analysts is that they likely won’t for a few years.

Robb will remain on the board of directors as a senior advisor. And while analysts are generally bullish on Mr. Mackey’s vision, their concern is that he is not ready to face the crowded and increasingly competitive grocery marketplace.

“Will [Mr. Mackey] just go back to the basics from when Whole Foods was doing well? Because if so, he’d be going back to a time that doesn’t exist anymore,” said Jim Hertel, a grocery store consultant at Willard Bishop. “The competitive landscape has changed.”

But is Whole Foods changing with it?

National Rewards

Although the specifics remains sketchy as of yet, Whole Foods’ new strategy, as announced by its new solo CEO, is a “race to the top” in which Whole Foods is getting back to the basics of creating a unique consumer experience.

Part of that, it seems, will entail the national rollout of a Whole Foods rewards program, which it has been testing so far in Philadelphia and Dallas to positive effect, according to in-house reports.

As the deal is structured currently, new members get a 10 percent discount off of their first purchase, a one-time 15 percent discount for the department of their choice and select free products. The program in the future is meant to function as an active marketing channel between Whole Foods and the 5 million or so subscribers in its CRM database. That will involve a greater push toward targeted promotions and mobile coupons — as opposed to simply blanket price reductions.

Will it work?

As always, it’s impossible to judge from the outset. But Mackey is confident and unconcerned about the ever fuller field of grocery competitors. In the latest earnings call, Mackey compared himself to Civil War General Ulysses S. Grant constantly fielding questions about what his Confederate counterpart Robert E. Lee was doing.

“And one day, Grant said, ‘You know, I’m sick and tired of hearing what Lee is going to do. Lee needs to worry about what we’re going to do,’” Mackey said. “That’s how I feel about our competitors.”