Whole Foods Aims to Cut Prices but Keep its Cachet

4-16-17 7:14 AM EDT | 

By Annie Gasparro and Heather Haddon 

Whole Foods Market Inc. wants to cut prices without sacrificing the local products that define its healthy image.

Investors are pushing the organic food pioneer to boost profit by operating more like a big-box grocer. Some smaller suppliers and industry consultants say the shift to a more centralized distribution structure and other changes risk compromising Whole Foods' ability to keep stocked with the latest foodie trends and hot local brands.

"Shifting to national buyers can certainly deliver cost savings to Whole Foods, but at what price to the soul of the banner?" said Jim Cusson of brand consultancy Theory House.

Many of the changes are being spearheaded by Don Clark, a former Target Corp. executive hired in November 2015 to run Whole Foods' grocery operations. The data analytics, centralized purchasing and strict shelf management he brought from Target could save money that Whole Foods can use to lower its relatively high prices, addressing a key customer complaint. But matching its competitors on price could also mean limiting how often it updates the products Whole Foods stocks.

Whole Foods has long divided its 462 stores into 11 regions, each with distinct product offerings like local maple syrup and gourmet pickles. A quarter of Whole Foods shoppers that visited the chain in the past month did so for items they couldn't find elsewhere, according to a survey by Kantar Retail. For those who also shopped at Wal-Mart Stores Inc., only 3% said exclusive brands were a top draw.

The shift comes as Whole Foods looks for a way out its longest stretch of same-store sales declines since going public in 1992. Whole Foods is under pressure from Jana Partners LLC, which last week said that along with allies it had amassed an 8.8% stake in Whole Foods. The firm is pushing for faster operational changes.

Major grocery stores like Kroger Co. and Albertsons Cos. have seen annual sales increases of more than 10% in recent years for natural and organic foods, eating into Whole Foods' core business. Stealing that business from Whole Foods and other specialty stores has been a rare bright spot for big grocery chains battling more competition and falling food prices, which has sparked a price war that has eaten into profits.

Whole Foods co-founder and Chief Executive John Mackey said his chain remains a specialty store even as it adopts more conventional techniques.

"Our culture is still very unique," Mr. Mackey recently told The Wall Street Journal. "What Whole Foods needs to do is to take the best ideas of the traditional supermarket industry and integrate them into our company."

He said his new strategy strikes a balance between the remaining autonomy of regional executives and an easier process for national brands to pitch their products just once at Whole Foods' Austin, Texas, headquarters. That streamlining will lead to lower prices, he said.

"We think there are tremendous savings we can have that we can pass on to our customers with lower prices," he said.

But smaller brands and people who work with them say they have less incentive to put up with a more impersonal Whole Foods. "It's not a great launching pad for brands anymore, and there are plenty of other options," said brand consultant Jeff Grogg.

Aaron Glassman, owner of SOL Natural Foods, said that as a small company, the changes are making it harder to get on shelves at Whole Foods. "They have condensed the purchasing powers into less people. It makes it more challenging," he said.

A.C. Gallo, Whole Foods' president and chief operating officer, said small suppliers will still have access to the brand's national store network, and that the approach will allow executives to better monitor how well local products are performing.

And some big brands say Whole Foods' regionalized approach made it tough to negotiate a nationwide strategy for their brands.

"It's always been difficult for everyone to commit the resources and big ideas to Whole Foods when it took a region-by-region" approach, said John Foraker, chief executive of Annie's Homegrown, a large Whole Foods supplier of macaroni and cheese and snacks like crackers.

Rick Cunnington, a 63-year-old retiree in a suburb of Tucson, Ariz., said he is glad Whole Foods plans to focus on price over the diversity of its offerings. Though he has shopped at Whole Foods for years, he said, he buys many items like cheese and vegetables at Trader Joe's where they are cheaper.

"I'll keep an open mind, especially if there are coupons involved," Mr. Cunnington said about Whole Foods's efforts to appeal to more shoppers. "My wife and I are value shoppers."