Wednesday, February 15, 2012

Whole Foods Aims to Alter 'Price Perception' as It Expands

Whole Foods Market Inc. doesn't want to be known as the pricey grocery store for well-  heeled, organic-food sophisticates.

The grocery chain, which mostly entices young, trendy city dwellers, is now moving into smaller, suburban areas where its new, smaller stores are seeing stronger returns. But to make it work, Whole Foods has to rid itself of its top-dollar reputation. A nickname like "Whole Paycheck" will make it tough to draw in the new demographic, since lower-priced competitors are homing in on the fresh-food fad.

In its recent quarter, Whole Foods opened six stores, focusing on these new markets where its says rent is lower, square footage is smaller and competition for natural, organic food isn't as heated. The new stores saw sales per square foot rise 29% from a year earlier. In general, total sales at Whole Foods stores that have been open at least 53 weeks rose 8.7% in the quarter compared to the year before.

"We've done surprisingly well in some of these secondary markets; a lot better than we thought we were going to do," said Co-Chief Executive Walter Robb on a conference call with analysts last week. "It's a very powerful economic model, so I think we're going to open a lot more of those types of stores."

To counter its reputation for being expensive, Whole Foods is offering more price promotions and discounts in all of its stores, and lately it has held many of its grocery prices flat despite its own costs rising. The idea is for customers to feel that while there may be certain product prices that are going up, they are finding plenty of good deals to make up for that, said executives, who call the strategy "price perception."

But broadening the chain's appeal to customers with a wider range of incomes, education and ages has its drawbacks. Core customers at Whole Foods spend, on average, nearly three times more than new customers, the company said.

Whole Foods also is facing new competition. Lower-priced organic grocer Trader Joe's is expanding its geographic reach from the two coasts, adding stores in Kentucky, Tennessee and Texas. And chains such as Winn Dixie Stores Inc. and Supervalu Inc. are remodeling their grocery aisles with a particular focus on fresh produce.

1 comment:

Anonymous said...

Wow, by reading this article, I learned that I've been overpaying for my groceries by not shopping at Trader Joe's. I will hereby change my ways and shop there, because Trader Joe's is just as much out of my way as Whole Foods is. Thanks for the tip!

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