Not Just a Grocer to the Elite

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Not Just a Grocer to the Elite

By Pan Demetrakakes - 09/01/2013
Shoppers can order groceries online and pick them up at this Whole Foods in Plymouth Meeting, Pa.

Whole Paycheck. Yuppie grazing grounds. Organic Eden.

Whole Foods has made its image and its reputation as the nation's biggest retailer of organic and natural foods. That's a good role to play, at least according to conventional wisdom. The edges of the quality/value spectrum are generally considered safer than the middle, and the players on the high-quality side, like Whole Foods, cater to customers with more money.

Top quality produce, locally grown when possible, has always been an attraction at Whole Foods.

The company's recent financial performance would seem to bear that out. Earnings in the most recent quarter shot up 49 percent over the previous year, to $112.7 million. Much of that growth came in the best possible way: through increases in same-store sales, which went up 8.5 percent, marking the 14th consecutive quarter of growth.

But being America's biggest pricey grocer carries some challenges, which may be why Whole Foods' stock dropped 11 percent from its record high immediately after the quarterly earnings report. In the conference call that accompanied the report, co-founder and co-CEO John Mackey admitted that the lingering bad economy was affecting consumer confidence and that the company is facing increased competition in what is already a hypercompetitive industry.

The strategy of having a good collection of upscale products extends to the beer cooler.

Another downside of catering to affluent consumers is that it can lead to a tag of elitism. Whole Foods is sometimes seen as the place where fussy urban trendsters buy their groceries. It didn't help matters when two workers at a store in New Mexico alleged this summer that they were suspended for speaking Spanish on the job. (After some initial confusion, the company countered that the employees had been punished for "rude and disrespectful behavior," not Spanish.)

INTO THE CITIES

The company is fighting back on two fronts. One recent initiative is opening stores in distressed urban areas, where the stereotypical Whole Foods shopper is nowhere to be found and there is a dire need for fresh, healthy food. The company opened a store in midtown Detroit this year, and announced plans to open others soon in Newark, N.J., and in an impoverished neighborhood on the west side of Chicago.

The Detroit outlet, Whole Foods' first in any inner-city neighborhood, is operating "far above our modest projections," co-CEO Walter Robb told the Detroit Free Press. He acknowledged that the store sees customers with food stamps at a rate three to four times higher than the rest of the region, but added, "I'm glad about it. It makes me happy that we're able to stretch a bit." The Chicago and Newark stores were avidly welcomed by their cities' mayors, who went out of their way to court Whole Foods.

In that regard, the mayors are not unusual. The single most common request Whole Foods gets from consumers is to open a store in their neighborhood. Petitions for Whole Foods stores have been started on Change.org by people in Grand Rapids, Mich.; Austin, Texas; Cary, N.C.; Westerly, R.I. and Dover, Del., among other locations.

Whole Foods is also trying to edge away from its elitist image by catering a little more to the value-conscious shopper. It's offering more discounts and is stocking lower-priced items like frozen meatballs and vacuum-packed fish filets. One recent initiative is the "flash" sale, lasting only a few hours, promoted on Twitter and Facebook.

"The recession was a wake-up call for us," Robb told the Wall Street Journal.

The company is also dipping a toe into the online-ordering pool. A click-and-pick program, where customers can buy groceries online and collect them at the store, is being tested at the Whole Foods in Plymouth Meeting, Pa., near Philadelphia. The company says it will roll out a similar program next year at its store in Laguna Niguel, Calif., near Los Angeles.