Blog: Katy AskewWhole Foods Market a victim of its own success

Katy Askew | 7 May 2014

Whole Foods Market lowered its outlook for the third time today (6 May) as the group missed second quarter expectations, sending shares plummeting.

The company had revenue of $3.32bn for the quarter, up 9.7% but missing consensus estimates of $3.34bn. The group lowered its full-year EPS guidance to $1.52-1.56. Shares dropped by almost 17% in New York following the announcement.

To an extent, the pioneer of the natural and organic food sector in the US has been damaged by its own success. Organic and natural foods have moved from a niche area championed by foodies and hippies to become part of the mainstream discourse in middle class America.

Organic sales in the US are expected to benefit from a CAGR of around 14% through to 2018. But these strong growth prospects - coming atop an ever-expanding base - have caused mainstream retailers to sit up and take note.

Traditional supermarkets like Kroger have stepped up their activity in the channel - resulting in increasing competition and price pressure. The fact that Wal-Mart, an icon of low-price sprawling suburbia, has plans to launch around 100 lines under the Wild Oats brand means the competitive environment only looks set to intensify. 

Whole Foods is unlikely to be able to compete with the might of Wal-Mart on price despite its best efforts - including the launch of an entry-level own brand range. The group does, however, have a number of strategic initiatives that mean it is well placed to continue to strengthen its appeal to upper middle class Americans.

The firm is innovating in the retail space and has entered into a strategic tie-up with payments firm Square, who also services Starbucks, to create more convenient "on-the-go" shopping. 

Whole Foods is also driving space growth apace. The company currently operates something shy of 400 stores in the US and Canada. Management believes it will hit 500 outlets by 2017 and has preciously indicated that it sees scope to operate a total of around 1,200 stores before hitting saturation point in the market.

Whole Foods future growth trajectory will depend on whether these efforts will be enough to win through in a more price sensitive market.

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