MarketLine Blog

Whole Foods: A victim of its own success?

Whole Foods, the US-based organic food retailer, is not now nor will it ever be a cheap shopping experience. Despite its high prices, the company has seen its revenues rise in recent years, as demand for healthy, natural foods has constantly increased. However, despite a whole paycheck being needed to shop at this organic food giant, recently only a fraction of one has been needed to buy the company’s stock. The company has seen its shares fall almost 35% in 2014.

The main reason for the stock’s poor performance is the competition from larger retailers, which is eating into Whole Foods’ earnings. Retailers such as Walmart, Costco and Kroger, encouraged by the fast growth of organic food sales and Whole Foods’ increasing revenues, are also venturing into this lucrative segment and are able to offer cheaper prices.

Walmart unveiled a new partnership with organic food company Wild Oats in 2014. Ironically, this company was previously purchased by Whole Foods in 2007. However, in 2009 the Federal Trade Commission ruled the deal was violating antitrust laws and Whole Foods was forced to sell the chain and the brand name.

Undoubtedly, some customers will abandon Whole Foods for other merchants if they can get exactly the same goods for a better price. In a way, it can be argued that Whole Foods is a victim of its own success, as big retailers’ expansion into organic foods validates the business, even if it could potentially spell the end of Whole Foods’ growth story.

Asked about Whole Foods’ strategy to climb back on the competitive ladder, its executives stated that the company will be more attentive to competing on price; however, this is not the focus of its growth plan. It will not engage in a price war, nor leave its niche as the high-end grocer of choice in urban areas. Most of all, the company plans to convince customers that it has the total package, including better selection, top-notch service, and good, clean stores. Whether it will be successful remains to be seen.

For more on Whole Foods, click here for an in-depth SWOT Analysis.

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