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Whole Foods takes fresh to the middle market

3 min read

Food Retail

Whole Foods Co-CEO Walter Robb said recently that the chain plans to grow in part through high-grade conventional produce offerings, a move that goes well beyond recognizing that organic is now mainstream and no longer a viable way to differentiate itself. Robb highlighted produce in particular — an excellent place to reach shoppers in the less educated/affluent zip codes where it is now expanding.

Like most natural/specialty grocers, Whole Foods no doubts wants to increase the number of people who regularly fill carts, not just baskets, at its stores. Its successful 365 private-label program has helped in that endeavor, offering lower-cost commodities that still uphold the brand’s natural, less processed promise — but that is mostly happening in the center store.

The part of Whole Foods that shoppers fall in love with is its fresh perimeter, and that’s where we think the value proposition needs to be carefully designed. Here’s why:

  • As discounters siphon off center-store dollars, fresh is driving long-term volumetric growth in conventional supermarkets
  • Fresh is also where conventional players have weak execution because of labor deficiencies and lack of vision
  • Players like Whole Foods are much, much better at operating fresh departments (meat, seafood, baked goods, prepared foods, restaurant eating venues, short shelf-life refrigerated prepared foods) than anyone but a select group of local, independent specialty grocers
  • Premium quality markers like fresh have greater long-term, market-moving potential than narrower purity markers like organic

If Whole Foods can do in the perimeter what it did with 365 in the center — create value without sacrificing quality — it can make a value strategy work in the long term.

One risk is that it will slash prices too deeply to gain near-term volume and same-store sales. It also needs to keep quality higher than conventional players can match. We believe this is less about justifying prices and more about managing total sensory experiences in-store, in communications and in the mouth. Getting new, more impressionable shoppers to let go of absolute dollar benchmarks brought from conventional grocery shopping is a seductive art that retailers like Whole Foods are extremely good at, once shoppers get in their stores. The brilliant use of flash sales on high-quality local produce and seafood is one of the smarter tactics it uses to communicate value without underselling itself throughout the store.

Ultimately, upmarket grocers don’t win purely on price plays or through flyers and marketing campaigns about great deals and prices. They adapt their fresh perimeter, their primary profit and traffic driver, to the local trade-up habits of their operating zip codes and always, always upsell, even if less modestly per shopper than in years past.

As long as Whole Foods continues its impressive store-level tailoring and neighborhood adaptation, it can push upmarket fresh food trends deep into the midmarket at a pace local shoppers will allow. If it ensures that its in-store and product-quality excellence remain impossible to match by the bigger chains, shoppers’ sense of value will be sustainable.

However, a note of caution: Downmarket insurgents, like WinCo and other high-touch discounters, are succeeding at growing super-cheap fresh outlets and could eventually move into natural/organic as prices come down.

Harvey Hartman is founder and chairman of The Hartman Group. James Richardson, Ph.D., leads Hartman Strategy, which works with global food and beverage companies to identify, create and seize white-space opportunities that align with constantly evolving food culture.