Whole Foods Market in Olathe, Kas.
In the third quarter, Whole Foods net income was $120 million, down from $154 million in the prior-year period.

AUSTIN, TEXAS — Is meal kit delivery in Whole Foods’ future? Maybe. Executives of Austin-based Whole Foods Market, Inc. hinted at potential participation in the burgeoning, $1.5 billion category.

Ken Meyer, Whole Foods Market
Ken Meyer, executive vice-president of operations for Whole Foods

“It’s part of what we’re looking at with what we call our ‘meal solution spectrum,’ which we’re really excited about because it’s going to address all aspects in which we want to bring food to our customers,” said Ken Meyer, executive vice-president of operations, during a July 27 earnings call with financial analysts. “We obviously study and see all the trends out there around how that’s changing, and we know that we have a long history of leading in the food culinary side. We’re going to continue that with what we’re doing around looking at the option of meal solutions and the ways in which we want to do that. We’re not going to announce anything today, but we will say that we’re committed to this category. And we think we have a good strategy for it. It will be revealed.”

Leading the effort is Tien Ho, a veteran of the restaurant and hospitality industry, who recently was hired in the newly created role of global vice-president of culinary and hospitality at Whole Foods.

Walter Robb, Whole Foods
Walter Robb, co-c.e.o. of Whole Foods

“For the first time in the history of the company (we) have a world-class person from the restaurant hospitality business reporting directly to David (Lannon, executive vice-president of operations) and Ken that’s crafted this roadmap for this group,” said Walter Robb, co-chief executive officer. “We’re going to have a lot to say about this area.”

The move into meal kits would represent one of many initiatives Whole Foods Market has considered or executed recently to remain competitive as mainstream retailers offer more natural and organic options.

John Mackey, Whole Foods Market
John Mackey, co-c.e.o. of Whole Foods

“There’s a lot more competitors in the marketplace,” said John Mackey, co-c.e.o. “There’s a lot of new formats in the marketplace from home meal replacement through meal kits, fast casual restaurant growth, more entrants in the natural and organic food space, the mainstreaming of natural and organic, which has been well reported. These are all factors. Whole Foods Market being the leader having very high sales per square foot, we probably feel the brunt of it as there’s a bit of a regression to the mean. As we lose customers from a convenience standpoint.

“People don’t drive as far as they used to drive because … there’s good enough alternatives in many cases close by to them. So, people may not be driving as frequently as far as they used to because they can stop by a Kroger or an H-E-B or a Wegman’s to get products that they used to only be able to get at Whole Foods. Now, there’s some overlap in our product base from other competitors. I think there’s no sense in denying it. Competition is bigger, and we’re responding to it as we think in an intelligent measured way, and we still remain very bullish about our future prospects.”

Whole Foods Whole Meals to Go
Whole Foods is looking at meal kits as a possible addition to its ‘meal solution spectrum.'

In the third quarter ended July 3, Whole Foods net income was $120 million, equal to 37c per share on the common stock, down from $154 million, or 43c per share, in the prior-year period. Sales increased to $3,703 million from $3,632 million.

Comparable store sales declined 2.6%. During the quarter, Whole Foods Market opened 12 new stores, including the first 365 by Whole Foods Market location, the company’s smaller-format value concept.

“As we discussed last quarter, we expanded our produce price investments and launched weekly, deep discount promotions in several categories,” Mr. Robb said. “We supported our efforts with an enhanced ad campaign, which in addition to produce, featured weekly meat, seafood and prepared foods offers, and highlighted our quality differences.

365 by Whole Foods Market
During the quarter, Whole Foods Market opened its first 365 by Whole Foods Market location.

“We produced a 45-basis-point improvement in comps from last quarter, as a significant improvement in items per basket more than offset decreases in transactions and average price per item. The combination of our value strategy, disinflation in some categories, and customers trading down to lower-priced items resulted in a year-over-year decline in average price per item.

“While our value strategies continued to negatively impact comps and gross margin, we are seeing a broad-based lift in items per basket and are encouraged with improving traffic trends in certain key departments, particularly produce.”

Ugly produce sold at Whole Foods Market
Whole Foods is testing imperfect produce in its California stores.

Another initiative under way at Whole Foods is the testing of imperfect fruit in California stores.

“Given the broader focus on food waste in the world, I think this is one of the really proactive, responsive ideas around how to respond to that,” Mr. Robb said. “See how it turns out.”