Tuesday, May 13, 2014

Whole Foods Feels the Effects of Increasing Competition

Recently, Whole Foods has been taking a beating, with about six months of disappointing earnings. With the most recent earnings release, the company's shares have taken a nosedive. What is nice, is that Whole Foods isn't caught with their head in the clouds; the company has actually adjusted earnings forecasts down, in order to better reflect the market conditions. Where five or ten years ago, the company was one of the top brands in its industry, its space has slowly been eroded by a growing contingent of competitors.
The funniest thing about this article is that it connects very nicely to another article that was recently published, about Trader Joe's and Whole Foods Market building images as health food centers. This author tries to argue that the customers of Trader Joe's and Whole Foods is one and the same -- which, as my eBook, Trader Joe's versus Whole Foods Market, discusses, is not true. They may have similar income, education, and age, but the psychographics of these target markets are very different.

Further, the value proposition couldn't be more different; Whole Foods attracts people with "free of" (gluten, wheat, etc.), organic, eco-friendly products, while Trader Joe's attracts people using unique, curated, upscale foods at inexpensive prices. These value propositions are a substantial part of the reason why Whole Foods is suffering, while Trader Joe's is not. It's a lot easier to copy what Whole Foods does, because it depends on a marketing mix that can be assembled off the shelf. Trader Joe's has worked hard for years to build its reputation, to offer unique products and flavors, especially at such low prices.

Where Whole Foods used to have a select handful of competitors, it now is fighting for space in an increasingly crowded field, one that is already feeling the pinch from conventional grocers and discount retailers that have begun to offer similar products and services.
How many options are too many?
One thing that new competitors have over Whole Foods is a smaller footprint; one of the things that sets both Trader Joe's and these other competitors apart is that, for every square foot smaller these stores are, the amount of sales per square foot rises. Whole Foods gets mired in its own vast array of products, which is good if a customer is looking for something very specific, but is tiresome and unnecessary for customers with simpler needs.

These factors will continue to create challenges for the entire industry, and for Whole Foods specifically. While I appreciate that Whole Foods is having a bit of a reality check, investors might not be so forgiving.

Want more information about Whole Foods Market, Trader Joe's, or the specialty grocery industry?  Check out my eBook on Amazon:  Trader Joe's versus Whole Foods Market: An Organic Grocery Store Marketing Analysis.

(imgs via naturalspecialtyfoodsmemo.blogspot.com, yourbestmooove.com, cmgdigital.com)

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