Increased competition in the natural and organic space led to fewer transactions at Whole Foods Market, Inc. during the company’s most recent quarter. Facing pressure from both traditional grocery stores and new natural food players, the company said the fight for market share is more intense than ever.
“We’ve seen the conventional supermarket companies like Kroger and Wegmans and HEB, they certainly have upped their game in natural and organic foods,” said John Mackey, co-chief executive officer of Whole Foods, during a May 6 call with financial analysts. “We’ve seen new entrants get public money, such as Sprouts, Fresh Market, Natural Grocer, they’re expanding more rapidly. Trader Joe’s continues to expand.”
While Whole Foods remains the category leader, the retailer said it is not gaining share as quickly as it has in previous years.
“I think for a long time Whole Foods had the field to ourselves, pretty much,” Mr. Mackey said. “That was nice. But we don’t any longer, so we’re adapting to the reality of the marketplace, which is increased competition and important that we continue to innovate, differentiate, while paying more attention to value.”
To recapture market share, Whole Foods has developed a five-year plan that includes accelerated store growth, pricing adjustments and investments in technology. Offering a differentiated product selection remains a critical component of Whole Foods’ strategy.
“Customers look to us to create and curate new and existing products,” Mr. Mackey said. “We offer thousands of items that can only be found at Whole Foods Market.… As we raise the bar on differentiation, our customers have responded with sales of mission- and attribute-based products such as organic, non-G.M.O., whole-trade guarantee, responsibly farmed seafood and grass-fed beef, along with sales of our exclusive brand products, continuing to grow faster than the store average.”
For the second quarter ended April 13, the company’s net income remained flat at $142 million, equal to 38c per share on the common stock, reflecting no change in reported earnings from the prior-year period.
Sales rose to a record $3,322 million, up nearly 10% from $3,027 million in the year-ago quarter.
Even with a negative impact from the shift in Easter timing, comparable store sales increased 4.5% during the quarter.
During the quarter, Whole Foods opened three stores for a total of 379. The company said it expects to open seven more in the third quarter and another 11 to 14 stores in the fourth quarter, with a long-term goal of 1,200 locations in the United States.
Looking ahead, Whole Foods has lowered its expectations for full-year results, but on the strength of its longer-term competitive strategy, the company projects sales to reach $25 billion over the next five years.
“I think Whole Foods has a great track record — not maybe every single quarter in the last 35 years, but if you look at the long-term trends, we deliver what we say we’re going to do,” Mr. Mackey said. “And this is what we’re going to do in the next five years. So there you have it.”
