AUSTIN, TEXAS — Life has handed Whole Foods Market, Inc. its share of organic lemons lately, particularly in the form of increased marketplace competition in recent years. To remain competitive, Whole Foods Market is undergoing “far more evolution in our company than ever before,” said John Mackey, co-founder and co-chief executive officer.
|John Mackey, co-founder and co-c.e.o. of Whole Foods...|
“Everybody's continuing to try to copy us because the innovations are still occurring at Whole Foods Market,” Mr. Mackey said during a May 4 earnings call with financial analysts. “That’s how we’re differentiating… Sure, we are copying some of the things that some of our competitors do. We are learning from everybody. And competitors are doing some things better than Whole Foods. We’re going to learn from that and make our company better. But we are not standing still.
“And the final and probably the most important point: nobody, nobody comes close to matching our quality standards. We’re the only supermarket in America that’s 100% cage-free eggs; that has a welfare system that’s top rated in Greenpeace for seafood sustainability. We’re doing over $3 billion a year in prepared foods and bakery. We are a large restaurant operator. Our stores are very different than our competitors.”
In the second quarter ended April 10, Whole Foods Market had net income of $142 million, or 44c per share on the common stock, which was down 10% from $158 million, or 44c per share, in the prior-year period. Sales reached a record $3,696 million, up slightly from $3,647 million. Comparable store sales decreased 3%.
“We are facing ongoing headwinds from a highly competitive environment as well as cannibalization, but the negative impact of our value strategy was the primary factor for the moderation in our comps from Q1,” Mr. Mackey said. “Approximately 80 of the 120 basis point moderation was due to a lower increase in average price per item, which at less than 1% was our lowest increase in five years.”
During the quarter, Whole Foods ramped up its value efforts with increased promotions, broader and deeper price investments in select categories and the roll-out of digital coupons.
“We have increased our marketing spend to raise the visibility of these investments and are seeing a lift in unit volume,” Mr. Mackey said. “We believe improving our value perception is one of the key components to regaining our sales momentum. While we expect some continued sales impact, we plan to expand our price investments and add weekly deep discount promotions in select categories, which will be actively marketed nationwide.
“Food retailing is evolving at an incredibly fast pace, and consumers have more options than ever before. In addition to becoming more competitive on price, we are making measurable progress in fundamentally evolving our business and providing an enhanced experience for our customers across all platforms before, during and after their visit.”Based on recent sales trends and additional planned investments in marketing and technology, the company now expects to be at or below the low end of its previously stated sales and earnings per share ranges. The company is targeting sales growth of up to 3% for the full year, reflecting a comparable store sales decline of 2% or less.