On the money: US retailer Whole Foods Market increases value focus

Natural and organic US retailer Whole Foods Market has increased its focus on value to drive its same-store sales gains. 

The company, which booked an 8.4% increase in fourth-quarter same-store sales this week, said the growth was largely a reflection of its price investment strategy aimed at improving the value it gives to consumers.

Speaking during a conference call with analysts following the release of results on Wednesday (7 November), founder and co-CEO John Mackey said Whole Foods now occupies its "most competitive position" for three years. 

"The success of this ongoing strategy is reflected in our continued sales momentum and the results from our most recent competitive survey. The survey indicates we meaningfully improved our pricing position versus our competitors during the quarter, resulting in our most competitive position in more than three years," Mackey revealed. 

According to Mackey, an "important element" of the group's value strategy comes in the expansion of its private-label offering. 

“We are very excited about our recent launch of 70 new 365 and Whole Foods Market exclusive brand frozen items. These high-quality dishes are at a value price point and cover key categories such as skillet meals, pizzas, appetizers, desserts and ice creams," Mackey said. 

The new products were launched in late September and the company revealed that initial sales indicators are "very positive".

According to Barclays Equity Research analysts, the move to improve its value offering - while remaining focused on product quality and store experience - is a positive one for Whole Foods.

"We believe Whole Foods Market runs beautiful stores full of high-quality product and in the past several years has taken the right steps to provide better value to its customers. In fact, management said the company's price gap with key competitors was the narrowest it has ever been this quarter," the analysts wrote in a note to investors. 

However, according to Barclays Capital, Whole Foods' space expansion of 8% is more conservative than investors would like. During the fourth quarter, Whole Foods Market opened seven new stores and signed 11 new leases. 

"The market would want square footage growth above 10% [and] a more aggressive use of US$1.5bn of cash," the analysts suggest. 

Another cause for concern for investors is the slowing rate of comparable sales, which dipped to 7.3% in the first quarter of the new year William Blair analyst Mark Miller said. 

"Comp-store trends have slowed modestly over the past five weeks, although this may be largely attributable to disruption from Hurricane Sandy," Miller observed. "Given all of these elements, and considering shares are up nearly 40% year-to-date, it would not be surprising to see the stock take a breather."

Whole Foods stock has dropped from an open of $96.77 on Wednesday to a close of $90.31 yesterday.