News Feature | August 5, 2013

Whole Foods Posts $3 Billion In Sales But Falls Short Of Expectations

Source: Retail Solutions Online
Sam Lewis

By Sam Lewis

Whole Foods Logo

Organic grocer expecting growth in coming quarters

Whole Foods — the Austin, TX-based organic grocery chain — saw a 12 percent increase in revenue for the third quarter of 2013, posting $3.06 billion, but fell short of the $3.09 billion prediction by analysts polled at Thomas Reuters. Despite missing the projection, revenue increased over a quarter billion dollars against the same quarter of 2012, when Whole Foods reported $2.7 billion in revenue.

Whole Foods, which has 355 locations, says net income increased 21% to $142 million in the third quarter of 2013, with comparable store sales growth of 7.5 percent. Data from the first month of quarter four has shown this figure has slowed to 5.8 percent, but the grocery chain is confident that number will rebound as it continues to develop ways to make its prices more competitive and broadening its target audience of shoppers. It plans to do this by focusing regional sale strategies, expanding brands of natural and organic foods, fresh produce, and customer service.

The high-end grocer’s plan for growth also includes the opening of new stores. Co-CEO Walter Robb says, “We have signed 50 new leases over the last 12 months, increasing our development pipeline to 94 leases, and expect accelerating square footage growth for several years to come.” The first quarter of the 2014 fiscal year is projected to show continued growth, 17 to 18 percent being the consensus, with many new locations opening. In the long-term, Robb sees the potential for up to 1,000 U.S. stores as the demand for fresh, organic, and natural products continues to rise.

Growth can be attributed to the company tailoring its strategies to different regions. For instance, in the recently opened Detroit store, more non-organic foods are stocked, which keeps prices low. “Price investments,” a.k.a. sacrificing profit margins to keep prices low and attract shoppers, are also being employed. “We are able to enter markets as diverse as suburban Danbury, CT, to urban Detroit, MI, by tailoring our store size, product selection, and pricing strategy to the particular community,” said Robb on a recent conference call. Lower prices have also enabled Whole Foods to expand its store-brand offerings, most of which are under the 365 label.

Lowering prices can run the risk of hurting profit margins, but Whole Foods is attempting to offset this impact on its bottom line. Escalating buying power during company growth and decreasing potential wasted revenue are a couple of the keys to its plan. By selling fresh produce early, through old retailer tricks like “one day sales” or “three day sales,” the company can execute both of these tactics.