ind of shopper Whole Foods Market Inc. craves.The 44-year-old stay-at-home mom, who typically shops at Aldi and Price Chopper, has never seriously considered shopping at Whole Foods because of its “Whole Paycheck” reputation. Instead, she has discovered somewhere she can buy organic or natural food without breaking her budget: Sprouts Farmers Market.
“Price is the first priority, and then quality,” Xie said at the Sprouts in Overland Park, Kansas, where she now shops about once a week. “I like the vegetables here. It tastes good, and the price is not very high.”
That pairing of appealing produce and bargain prices is making Sprouts Farmers Market Inc. the strongest challenger to Whole Foods, the country’s biggest organic grocer. Whether Sprouts, which went public last year, can unseat its larger rival and manage increased competition from Wal-Mart Stores Inc. and Kroger Co. remains to be seen. Yet Sprouts’ practice of heavily discounting its fruits and vegetables is winning shoppers and forcing Whole Foods to cut prices as well.
“Getting great, fresh products at good prices is about as on trend as you can be,” said Scott Mushkin, an analyst at Wolfe Research in New York. “The desire to eat fresh and healthy foods transcends income now.”
Americans have for decades been turning toward organic and local produce as they become increasingly concerned about their health and the environment. Whole Foods has been the most successful grocer to latch onto the trend, going from one store in 1980 to about 390 locations and a projected $14.2 billion in revenue this fiscal year.
Organic Sales
Organic food sales jumped 12 per cent to $29.5 billion last year, the biggest annual gain since 2008, while total food sales rose 2.9 per cent, according to the Nutrition Business Journal.
About three-quarters of conventional grocers now carry organic goods, according to the USDA. Wal-Mart in April started selling Wild Oats brand organic spices, chicken broth and applesauce, while Kroger sells organic and natural products under its Simple Truth private label.
The new competition has taken a toll on Whole Foods, which has cut sales forecasts three times this year, sending its shares down 33 percent, while Sprouts has slid 22 per cent this year. Austin, Texas-based Whole Foods has responded by lowering prices, especially on fruits and vegetables.
Whole Foods is “like the Saks of food, and that poses some problems for them,” Mushkin said.
That perception has provided an opening for Sprouts. The retailer has turned conventional industry practice on its head and makes most of its profit from packaged goods, such as cereals, sauces and vitamins, while accepting narrower margins on produce.
