At the same time, the premium grocery chain appears to be angling to restore some of the pricing power it lost in the face of increased competition in the organic space by reminding consumers in a new advertising campaign how its “values” set it apart from mass and big box stores that now sell organic products.
A recently launched “Responsibly Grown” produce ranking system as well as new perks like one-hour delivery in some cities, a wine-club and the ability to purchase products with Apple Pay also appear to be helping restore sales and the chain’s premium status, company executives said Nov. 5 during a conference call with investment analysts to discuss the firm’s fourth quarter earnings.
Many of these initiatives are only a few weeks old, and some are operating only in limited test markets, but already the chain is seeing promising results.
Executives report comparable stores sales growth is up 4.6% in the first five weeks of the first quarter, which began Sept. 29. This is up 1.5 percentage points from the 3.1% sales growth the firm reported in the full fourth quarter.
Likewise, transactions and basket size are up 2.1% and 2.5% respectively during the first part of this quarter compared to 1.3% and 1.8% respectively in the full fourth quarter, according to the chain’s most recent earnings report filed Nov. 5.
“It is true that natural and organic products are increasingly available in stores and online, yet no one does what we do,” John Mackey, co-founder and co-chief executive officer of Whole Foods Market, told analysts.
“The last few months have been an incredibly exciting and rewarding time for our company as we opened a record number of new stores and launched several strategic initiatives, expanding choices for our consumers and reinforcing our values as America’s Healthiest Grocery Store,” he added in a written statement.
He further explained on the call: “We are evolving and differentiating our shopping experience faster than ever before,” and as the numbers for the first part of Q1 show, these efforts “have led to extremely high team member moral, heightened brand visibility and positive sales momentum.”
Overall for the fourth quarter the firm’s total sales increased 9% to $3.3 billion, beating many analysts’ expectations. In addition, same store sales grew 3.1% for the fourth quarter, which most firms would be happy with but which are significantly lower than the 5.9% increase it saw during the same time last year.
Lower prices drive foot traffic
Lowering prices on produce and select other items is one of the most direct strategies Whole Foods is exploring to change its reputation of being too expensive.
Six weeks ago it lowered prices on perishables in its five Austin, Texas, stores and based on “very good results” it plans to extend the experiment to other markets in the second half of next year, said Walter Robb, co-chief executive officer of the chain.
The price cuts have allowed the chain to go “toe-to-toe with all our competitors where we’re doing these tests, and our customers are responding: transactions are up, unit growth is up and it is [still] early days,” said David Lennon, co-executive VP of operations.
He added consumers are excited to buy the lower priced items and once they are in the section “then they continue to shop throughout the rest of the store. So it’s definitely making us more nimble in those markets and we’re taking advantage of it.”
That said the chain still is unsure how it will price produce long term.
“What exactly is the right produce [pricing] strategy? Should we be the leader? Should we just be a little bit off? Or should we be very way off? It’s really kind of hard to say because we’re going to try all of the above and whatever works the best we will do more of it and whatever doesn't work very well, do less of,” Robb said.
The store’s produce strategy “is not just price” though, said co-executive VP of operations Ken Meyer. It also includes setting the quality standard and demonstrating that value with the “Responsibly Grown” produce and flower rating system that will assess the suppliers’ growing methods’ impact on human health and the environment as “good,” “better” or “best.”
Consumers eager to participate in loyalty program
The chain also plans to expand nationwide by the end of 2015 a loyalty program it is testing in 11 stores.
The program is evolving “as people tell us what they value and don’t, but so far it is pretty clear that it is driving a higher basket,” Robb said. He added Whole Foods is pleased with the high percentage of active consumers registering for the program and has plans on various ways to use the data the program is culling.
Other perks the firm hopes will garner favor with consumers include a partnership with Instacart in 15 major U.S. cities to deliver groceries in one hour, the launch of a new wine club with curated wines for home delivery and the ability to buy food with Apple Pay, the executives said.
The firm also recently launched an advertising campaign that is generating “lots of publicity” and “beginning to have a positive lift,” Robb said. (Read more about the national branding campaign HERE.)