WFM - Whole Foods Market

[DCG]

This is pretty interesting: https://www.washingtonpost.com/news/business/wp/2016/04/07/what-to-expect-from-whole-foods-new-low-price-grocery-chain/

 

Originally it sounded like the new 365 was basically a whole foods knockoff but now it seems they're pushing much harder on the prepared food. Seems like a good strategy... get people in the store for low margin groceries and then upsell them on coffee, prepared food, etc.

 

 

Couldn't they just do that at Whole Foods though?

[GregS]

This is pretty interesting: https://www.washingtonpost.com/news/business/wp/2016/04/07/what-to-expect-from-whole-foods-new-low-price-grocery-chain/

 

Originally it sounded like the new 365 was basically a whole foods knockoff but now it seems they're pushing much harder on the prepared food. Seems like a good strategy... get people in the store for low margin groceries and then upsell them on coffee, prepared food, etc.

 

 

Couldn't they just do that at Whole Foods though?

 

Their current model is get people in the store for high margin groceries and upsell them.  How long is that going to last?

[JayGatsby]

This is pretty interesting: https://www.washingtonpost.com/news/business/wp/2016/04/07/what-to-expect-from-whole-foods-new-low-price-grocery-chain/

 

Originally it sounded like the new 365 was basically a whole foods knockoff but now it seems they're pushing much harder on the prepared food. Seems like a good strategy... get people in the store for low margin groceries and then upsell them on coffee, prepared food, etc.

 

 

Couldn't they just do that at Whole Foods though?

 

Their current model is get people in the store for high margin groceries and upsell them.  How long is that going to last?

Exactly. High lease expense, high gross margin, low turnover (at least relative to trader joe's), thin margin per square foot. Small changes in comps can have a large impact on earnings. Makes sense to shed some of the space and really focus on the niche products. Will be interesting to watch from the sidelines.

[fisch777]

WFM is in tough spot.  They had low CAC/natural traffic flow as first mover in natural/organic, but this has faded with competition and public perception.  First sequential negative comps for the first time since GFC and WFM is "investing in price" to drive traffic back to stores that has trickled elsewhere due to increasing competition and perception of high prices @ WFM.  Anecdotally, 3 years ago, WFM was the only "natural" grocer in the vicinity of my neighborhood.  Fast forward to today, there is a Fresh Market, TJs and Sprouts within 2 miles of the WFM store.  Game changer.

[rkbabang]

WFM is in tough spot.  They had low CAC/natural traffic flow as first mover in natural/organic, but this has faded with competition and public perception.  First sequential negative comps for the first time since GFC and WFM is "investing in price" to drive traffic back to stores that has trickled elsewhere due to increasing competition and perception of high prices @ WFM.  Anecdotally, 3 years ago, WFM was the only "natural" grocer in the vicinity of my neighborhood.  Fast forward to today, there is a Fresh Market, TJs and Sprouts within 2 miles of the WFM store.  Game changer.

 

In my town we have had a Fresh Market for about 2 years and WFM is opening a new store literally right next door to it.  It is the next parking lot over.  It opens this weekend.  We also have 2 Hannaford's, 1 Market Basket, and 1 independent local grocery store (yes there are some of these left), all of which sell organic foods so there is definitely a ton of competition, all in a town of about 23K people.  All we need now is a Trader Joe's to move in.

 

[CorpRaider]

Saw a video hit on the rollout of the 365 concept.  Man these guys are just the best retailers in the space.  Talk myself down...selling food it a horrible business, even with the recent consolidation undertaken by Kroger and TFM getting tanked by PE...But I will say this. I don't shop there just for the "organic" bs that everyone had now.  If you shop there you at least know they made an effort to make sure you're not eating skechy food and they have the ethical rating stuff and the ethical treatment of employees.  The shiz sells to millenials (and xers) see Bux, Star.  Maybe I can just buy some SRG and get in with their landlord.

[fareastwarriors]

Whole Foods Market Inc. shares surged the most in more than two years after activist investor Jana Partners LLC acquired a stake and suggested that the organic-food grocer consider putting itself up for sale.

 

The investment firm announced an 8.3 percent stake in a filing on Monday, saying it would seek talks with management and push for a review of Whole Foods’ strategic alternatives. Jana also may nominate at least three directors in a bid to help foster a turnaround.

 

 

https://www.bloomberg.com/news/articles/2017-04-10/whole-foods-gains-as-investor-pressures-chain-to-consider-sale

[fareastwarriors]

Whole Foods Wanted to Be More Than a Supermarket, and Therein Lies the Problem

 

Squeezed by competitors and an activist investor, co-founder John Mackey tries cutting prices and other conventional grocery-store tactics; shedding the ‘Whole Paycheck’ image

 

https://www.wsj.com/articles/whole-foods-wanted-to-be-more-than-a-supermarket-and-therein-lies-the-problem-1492012489

[rkbabang]

WFM is in tough spot.  They had low CAC/natural traffic flow as first mover in natural/organic, but this has faded with competition and public perception.  First sequential negative comps for the first time since GFC and WFM is "investing in price" to drive traffic back to stores that has trickled elsewhere due to increasing competition and perception of high prices @ WFM.  Anecdotally, 3 years ago, WFM was the only "natural" grocer in the vicinity of my neighborhood.  Fast forward to today, there is a Fresh Market, TJs and Sprouts within 2 miles of the WFM store.  Game changer.

 

In my town we have had a Fresh Market for about 2 years and WFM is opening a new store literally right next door to it.  It is the next parking lot over.  It opens this weekend.  We also have 2 Hannaford's, 1 Market Basket, and 1 independent local grocery store (yes there are some of these left), all of which sell organic foods so there is definitely a ton of competition, all in a town of about 23K people.  All we need now is a Trader Joe's to move in.

 

 

It's funny I just noticed this post from me from last year.  Trader Joe's is opening right next door to the Whole Foods (on the other side from the Fresh Market), construction is just starting grand opening set for early 2018.

 

http://www.unionleader.com/business/trader-joes-friendly-toast-sign-leases-for-bedford-development-20170331

[berkshire101]

this seems interesting again...anyone who knows this company better than I see anything alarming in the results? I think the overcharging thing will blow over and be a non-issue long term.

 

My experience with retailers is that you have to be the lowest cost producer to have any kind of long-term competitive advantage.  In the end, you're just selling a commodity.  I haven't seen any indication that that's WFM's focus.  They're looking to provide this healthy customer experience.  Which is good and all.  But when you have WMT and COST making organic a larger portion of their sales, and at cheaper prices, how will WFM compete long-term? 

 

WFM was one of the first to move into that organic space, and it was a niche market for a while.  But now, it's a much larger market with lower cost producers moving in.

 

Maybe that's the concern with WFM?  How will they compete on price against WMT and COST?

 

Guess I said this like 2 years too early???

[CorpRaider]

Yeah, I wanted to get interested but I don't do retail, especially not food retail.  I do think they've got more than just organic and healthy.  I think they sell people on the fact that they curate and rate the food and manage the sourcing for you so you can feel better about contributing to a sustainable, ethical, local food economy.  They are basically not bastards, or at least that's their schtick. 

[DanielGMask]

Supermarkets as a general category compete on 4 main areas:

 

1. Location. Customers shop near home or work and there's a limit to how far they will drive to do it.

2. Price. If the price difference is big, customers drive a little more, if not, then they'll keep shopping where's closer.

3. Selection. There are a few brands or product lines that are not in every supermarket and that's a way supermarkets try to differentiate themselves from the competition.

4. Ambience and company image. Depending on what each company stands for and the ambience of their stores, some customers prefer some supermarkets over others.

 

Having said that, there are a few segments or categories within the industry and not one company satisfying every customer. Wal-mart is good at availability (one near almost every home) and price (always low prices). Target is good at selection (selected items available just in Target, at least in the format they sell them) and company image and ambience (nicer brand, nicer stores, better shopping experience), plus their other categories are bigger than their grocery line.

 

Costco targets big families and restaurants (bigger quantities of everything), has good pricing and a great reputation for introducing new products and new lines (lots of customers go to Costco just to see what's new without a clear shopping list). Their image and ambience is much better than that of Sam's and even though they are growing and selling a lot of money per store, many customers that shop at Costco also shop at a regular supermarket like Wal-Mart since both are a need to fulfill customer needs. So Costco and Sam's are not in the same category than Wal-Mart and Target.

 

Whole Foods is in another category also and competing with other brands as Trader Joe's, even though Trader Joe's isn't really in the exact same category than WFM. WFM has a good reputation as the leading organic seller in the country and even though they may not be the biggest seller of organic food in dollar amounts, they do have the top of mind category. The stores are beautiful and shopping there is an experience, not just going to the supermarket. Trader Joe's has a smaller format and looks more like an indie option that serves well some type of customer but not all, and I don't see Trader Joe's being a real threat to WFM.

 

So looking at WFM and stating that their basket size is too high to compete with Kroger or Wal-mart or Costco is not looking at this in the correct way. Comparisons aside (since it's clearly not the same), saying that is like saying that McDonald's and Dunkin or 7-eleven are taking Starbucks out of business because their coffee is way cheaper. When you are capable of selling an experience packaged in a good store ambience with a different product that your competition (at least slightly different), you redefine a category or create a new one, and then price is no longer your only KPI.

 

I'm long WFM.

[fareastwarriors]

Yeah, I wanted to get interested but I don't do retail, especially not food retail.  I do think they've got more than just organic and healthy.  I think they sell people on the fact that they curate and rate the food and manage the sourcing for you so you can feel better about contributing to a sustainable, ethical, local food economy.  They are basically not bastards, or at least that's their schtick.

 

Being on the front line (as a cashier) at WFM for 4 years, I actually do believe most of their marketing. I mean they were always inviting local brands to the stores to demo products. Lots of artisanal/seasonal products were from local sources. Many of the produce were local as well.  The food cooked in store were pretty good by most standards. They were actually cooking and not just heating up things.

 

They treat their employees well. Even as a part timer, I had their 401k plan and they match. I could buy subsidized health insurance, PTO/etc. They paid better than their competitors. I was making $10+ while most of the other grocery stores were only paying minimum wage (~$7).

[Jurgis]

I think I posted this in the past, but anyway.

Our (possibly way non average) grocery shopping:

- Stop&Shop < 1 mile. - pretty much all day-to-day shopping. Not great store/selection/etc. but convenient

- WFM ~3 miles, went 2 times or so, don't go there. Nothing special, pricy.

- Target ~4 miles - never go there

- Market Basket ~4 miles - never go there on purpose, sometimes shop when we are there for another reason

- Trader Joes - ~8 miles - go there every month or two or so

- Wegman's - ~8 miles - go there every 4 months or so

- Hmart -  ~8 miles - go there every 4 months or so

- Russian grocery store - ~16 miles - go there every 2 months or so

 

We do not grocery shop anywhere else.

 

IMO WFM is worse than Wegman's in every way. If it was within a mile from our place, we might shop there a bit though.

 

Good luck with your positions.

[rkbabang]

Supermarkets as a general category compete on 4 main areas:

 

1. Location. Customers shop near home or work and there's a limit to how far they will drive to do it.

2. Price. If the price difference is big, customers drive a little more, if not, then they'll keep shopping where's closer.

3. Selection. There are a few brands or product lines that are not in every supermarket and that's a way supermarkets try to differentiate themselves from the competition.

4. Ambience and company image. Depending on what each company stands for and the ambience of their stores, some customers prefer some supermarkets over others.

 

Having said that, there are a few segments or categories within the industry and not one company satisfying every customer. Wal-mart is good at availability (one near almost every home) and price (always low prices). Target is good at selection (selected items available just in Target, at least in the format they sell them) and company image and ambience (nicer brand, nicer stores, better shopping experience), plus their other categories are bigger than their grocery line.

 

Costco targets big families and restaurants (bigger quantities of everything), has good pricing and a great reputation for introducing new products and new lines (lots of customers go to Costco just to see what's new without a clear shopping list). Their image and ambience is much better than that of Sam's and even though they are growing and selling a lot of money per store, many customers that shop at Costco also shop at a regular supermarket like Wal-Mart since both are a need to fulfill customer needs. So Costco and Sam's are not in the same category than Wal-Mart and Target.

 

Whole Foods is in another category also and competing with other brands as Trader Joe's, even though Trader Joe's isn't really in the exact same category than WFM. WFM has a good reputation as the leading organic seller in the country and even though they may not be the biggest seller of organic food in dollar amounts, they do have the top of mind category. The stores are beautiful and shopping there is an experience, not just going to the supermarket. Trader Joe's has a smaller format and looks more like an indie option that serves well some type of customer but not all, and I don't see Trader Joe's being a real threat to WFM.

 

So looking at WFM and stating that their basket size is too high to compete with Kroger or Wal-mart or Costco is not looking at this in the correct way. Comparisons aside (since it's clearly not the same), saying that is like saying that McDonald's and Dunkin or 7-eleven are taking Starbucks out of business because their coffee is way cheaper. When you are capable of selling an experience packaged in a good store ambience with a different product that your competition (at least slightly different), you redefine a category or create a new one, and then price is no longer your only KPI.

 

I'm long WFM.

 

 

Thinking about myself.  About 8-10 years ago my wife and I used to drive 35 miles to go to a WFM about once per month.  But today there is one right in the town we live in and we never go.  The reason is that back then you could buy things at WFM that you couldn't find anywhere else.  This is no longer true.  Not only do the other grocery stores in our town have everything we want, but they are cheaper as well.  And the ambiance in the newer Market Baskets and Hannafords are almost as nice as WFM.  Not shopping at WFM doesn't mean that you have to shop at Wal Mart along side the toothless people in their pajamas.

 

[Guest roark33]

I have probably looked at WFM 10 different times over the years and each time I look Trader Joe's just haunts me.  As it should Jana....

[Guest Schwab711]

IMO WFM is worse than Wegman's in every way.

 

Jurgis knows what's up

[DTEJD1997]

IMO WFM is worse than Wegman's in every way.

 

Jurgis knows what's up

 

Wegmans is the best grocery store I've ever been to...They have nothing to worry about from WFM or just about anybody else.  Their prices aren't the cheapest, but they are reasonable.  Selection is simply unrivaled.  Wegman's also has tremendous prepared food selection, way better than WFM even, and WFM is good.

 

I shop at Trader Joe's 10 times for every 1 time I go to WFM.  That is going to be the fly in the ointment....

[fareastwarriors]

Whole Foods Rallies on Report That Albertsons Is Mulling Bid

 

https://www.bloomberg.com/news/articles/2017-04-24/whole-foods-rallies-on-report-that-albertsons-is-exploring-a-bid

[ebdem]

Maybe that's of interest: https://www.gwinvestors.com/2017/05/14/retail-ripe-for-and-resistant-to-disruption/

[rkbabang]

If anyone listens to the How I Built This podcast by NPR, the latest episode featured John Mackey on starting WFM.

 

[Liberty]

If anyone listens to the How I Built This podcast by NPR, the latest episode featured John Mackey on starting WFM.

 

Here's a direct link (the NPR page sadly doesn't have direct links, all eps are on the same page):

 

https://overcast.fm/+HKGG7PQAg

[atbed]

Hey all -

 

I visited the WFM location in Bryant Park yesterday, and boy was it crowded for dinner. We millennials seem to love paying 10.99 a pound for their hot and cold buffet. The sitting area overlooking the park was full. The margins on that are ridiculous. The chopping station was dead though. But the whole eating at a supermarket or taking food home from a supermarket thing seems muy bueno

[JayGatsby]

Hey all -

 

I visited the WFM location in Bryant Park yesterday, and boy was it crowded for dinner. We millennials seem to love paying 10.99 a pound for their hot and cold buffet. The sitting area overlooking the park was full. The margins on that are ridiculous. The chopping station was dead though. But the whole eating at a supermarket or taking food home from a supermarket thing seems muy bueno

After living in New York I'd be careful about extrapolating New Yorker food habits across the wider population. Few factors that make it different than the wider population: i) The average household income in that area is significantly above the national average, ii) a lot of millennial types in New York are eating lunch/dinner at work fairly regularly so there really is no need for regular grocery shopping, plus there is more money left over to eat out and a higher premium on the time available outside of work, and iii) the logistics of New York make it a pain to get groceries.

 

Having said that, I think the WFM prepared foods business is great. If their whole chain was just that I'd be a buyer. I think the 365 concept is a good one. It's the large square footage grocery that concerns me. I like their stores though and wish them the best, so hopefully I'm wrong!

[atbed]

Hey all -

 

I visited the WFM location in Bryant Park yesterday, and boy was it crowded for dinner. We millennials seem to love paying 10.99 a pound for their hot and cold buffet. The sitting area overlooking the park was full. The margins on that are ridiculous. The chopping station was dead though. But the whole eating at a supermarket or taking food home from a supermarket thing seems muy bueno

After living in New York I'd be careful about extrapolating New Yorker food habits across the wider population. Few factors that make it different than the wider population: i) The average household income in that area is significantly above the national average, ii) a lot of millennial types in New York are eating lunch/dinner at work fairly regularly so there really is no need for regular grocery shopping, plus there is more money left over to eat out and a higher premium on the time available outside of work, and iii) the logistics of New York make it a pain to get groceries.

 

Having said that, I think the WFM prepared foods business is great. If their whole chain was just that I'd be a buyer. I think the 365 concept is a good one. It's the large square footage grocery that concerns me. I like their stores though and wish them the best, so hopefully I'm wrong!

 

No arguments here on extrapolating NY and CA. The WFM prepared food biz is great, and others seem to be doing similar thing. The entire grocery industry is exploring a shift toward more prepared foods. No bone in this one. Just an interested consumer, who was a bit surprised by the new Bryant Park location. It seemed more like a food court, with a supermarket attached than the other way around.

 

http://www.duffandphelps.com/assets/pdfs/publications/mergers-and-acquisitions/industry-insights/consumer/food-retail-industry-insights-2016.pdf