How Whole Foods plans to save itself
Whole Foods Market is speeding up the rollout of a new loyalty program and overhauling its board in an effort to return to earnings growth in fiscal 2018.
The company is embarking on a new strategy in order to lure more shoppers, including new pricing initiatives, enhanced marketing and Affinity programs, and more innovative digital efforts.
Whole Foods is also overhauling its board in an attempt to show activist investors that it is serious about its turnaround strategy.
Last month, investment firm Jana Partners disclosed a nearly 9 percent stake in the Austin, Texas-based chain and increased pressure on management to deliver better results. In April, rumors of a Whole Foods takeover by Albertsons, Kroger and others swirled.
In response, Whole Foods announced it is bringing in five new board members and a new chief financial officer to carve out a vision forward. Those new members include big names in retail, including Ron Shaich, the founder of casual bakery Panera, which has performed well. Others include Ken Hicks, CEO of Foot Locker; Joe Mansueto, executive chairman of Morningstar; Sharon McCollam, the former executive vice president and CFO of Best Buy (a turnaround strategy maven); and Scott Powers, CEO of State Street Global Advisors.
“We are accelerating our path to enhanced value creation to deliver better returns for our shareholders,” said John Mackey, co-founder and CEO. “Today’s announcement is a powerful combination of accelerated initiatives and new cost savings with clear timelines to deliver. We are on a path to return to positive comparable store sales and earnings growth next year. Our increased dividend and new share repurchase authorization demonstrate our board’s confidence in our long-term growth strategy and continued ability to generate strong cash flow. The board will continue its comprehensive review of all opportunities to create value. We look forward to continuing our dialogue with shareholders and providing future updates on our progress.”
But the larger question for Whole Foods remains: Can the brand ever get back to offering a sufficiently unique and differentiated value proposition that it can rely on to grow sales?
It used to be that Whole Foods Market was the shiny new toy: aisles and aisles of gleaming natural foods, a salad bar with fresh organic veggies, and strong ethical credentials for a national retailer. Then Whole Foods started selling what shoppers perceived to be overpriced and mediocre products, offering an inconsistent store experience, and facing intense competition in the organic and natural foods retail space.
Nowadays, almost every food retailer has a strong organic section and rivals like Sprouts have, at least in part, succesfully replicated Whole Foods' healthy stance. In other words, there are few areas where Whole Foods stands way above its rivals, and the imbalance in Whole Foods' value proposition has become significant. The retailer may have to think about adding more value to the store experience before shoppers will return in droves.
Whole Foods has high hopes that a new loyalty program will attract shoppers, however. The company says the program will combine the best elements of the company’s My 365 Rewards and pilot programs, which have successfully driven increased trips and bigger baskets from participants by providing more personalized and relevant communications as well as new digital experiences.
For the second quarter ended April 9, Whole Foods marked its seventh consecutive quarter of negative comps, down 2.8 percent.
In a call with analysts, Mackey said the company's new smaller-format 365 stores are doing well.
"We understand that we need to do much more, and faster," said Mackey. "Initiatives in operational improvements we're undertaking will drive sales, EBITDA, and EPS growth and shareholder value."
Whole Foods currently has over 460 stores in the United States, Canada, and the United Kingdom and has previously indicated it sees the potential for as many as 1,200 locations.