Oh goddamn, Whole Paycheck — er, Whole Foods — is in trouble and may be lowering prices

I had this MBA Strategy class last fall. It was supposed to meet 12-14 times; the professor was sick three times and one time, I’m pretty sure he didn’t show up. So we met about 10 times, and I swear to some higher power above, every class followed this format: initial BS’ing followed by “hey, name a company” (someone names company) followed by “Let’s do a SWOT on that company” followed by three hours of strengths-weaknesses-opportunities-and-threats for whatever company someone had named. I don’t think I learned a single thing about strategy, which is why most people probably confuse it with “planning” (not exactly the same thing). Anyway, 1 of the 10 companies called out was Whole Foods, so in between reading random websites and pretending to take notes (on what, exactly?), I do have three hours of Whole Foods’ strengths, weaknesses, opportunities and threats in my mind.

Here’s a weakness: their prices are too goddamn high. People have been saying that for years — I lived a half-mile from one in 2003 (2003), and even then my friends would call it “Whole Paycheck” — but the issue wasn’t really that big, because a certain type of person shops at Whole Foods (more on that in a second) and well, you know, they can probably afford it. Here’s the thing now, though: their last quarter wasn’t great and they’re starting to adjust annual forecasts, and you know what that means? Cutting prices. (More on that here.)

This is a specifically interesting case because, while the idea of fresh/organic/beautiful/new brands/etc. has become very competitive (even Wal-Mart is in that space right now), Whole Foods has always been kind of this singular entity for a lot of people. That’s backed up by these study results from Piper Jaffray:


As Quartz explains off the results:

The analysts worry that if Whole Foods keeps cutting prices, it could sacrifice margins in vain, because the price cuts it has made so far haven’t brought in more shoppers. This might be because the company hasn’t done a good job of telling customers about the price cuts; but spending on advertising is only going to be worse for the bottom line, the short term, at least.

Here’s what their CFO said, while also releasing a financial/strategic vision that goes until 2018 (to appease any worries):

Robb added, “We have a clear point of view of what we need to do to improve our value image and extend ourselves digitally to add convenience and flexibility to support our customers’ busy lifestyles. As we have successfully accomplished over the last several years, we will work to improve our cost structure to offset the impact of our value and technology investments, and expect to produce year-over-year improvement in operating margin in 2015 and beyond.”

A lot of that, when you look at it, sounds like abject BS. Extend yourselves digitally? You mean make it easier to buy stuff online and have it shipped over or do in-store pickups? Improve cost structure? You mean sell tomatoes for less than $5.80/lb? Egad. I like Whole Foods but in my adult existence, I’ve never been at a place where it could be anything more than an indulgence (hopefully I will someday). It’ll be interesting to see what happens with it going forward — is it ultimately going to get priced out of the market it helped to cement? That’s a case study waiting to happen — although we probably wouldn’t have touched it in that strategy class.




Ted Bauer

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