Whole Foods Market revises growth strategy
Fewer stores and high expectations for dunnhumby deal and category management impact.
Whole Foods Market has hit the reset button on its growth strategy amid mounting competition and persistent same store sales weakness. Same store sales declined 2.4 percent during the company’s first quarter ended Jan. 15, as fewer customers shopped its 469 stores. It was the sixth consecutive quarter in which same store sales have declined.
To remedy the situation, Whole Foods CEO John Mackey outlined several initiatives to drive growth, the primary one being a new deal with dunnhumby and an accelerated category management initiative he said was necessary to drive growth in an increasingly competitive marketplace.
“We are refining our growth strategy, refocusing our efforts on best serving our core customers, and moving faster to fully implement category management. Evolving our purchasing operating model while developing data-rich, customer-centric category management capabilities is critical to our go-forward merchandising, pricing, marketing and affinity strategies,” Mackey said.
Mackey said dunnhumby has a proven track record of using data-driven customer-led insights to create relevant shopping experiences for customers on a market-to-market basis and the strategic partnership will help the company go faster, do more, and do it better. While he didn’t offer details on the rollout, the category management emphasis is consistent with Whole Foods Market’s desire to more effectively serve its more loyal customers who account for the majority of sales.
“Core customers are dedicated to the high quality, fresh healthy foods, and transparency that we offer. While they are already highly engaged with our brand, there's still significant opportunity for growth,” Mackey said during a conference call. “And if these customers add just one more item per trip, the sales potential is significantly greater than with any other segment.”
Whole Food Market is clearly early in the process of rolling out category management but committed to an accelerated timeline as indicated by comments from A.C. Gallo during a conference call.
“We’ve done one test so far in a category management in a couple of regions, in one of the categories, and have been very pleased with the results. We are building up right now to do a second test this summer in another category,” Gallo said. “What we saw from our first results, and with the potential of what we're able to do, we felt like the amount of time it was going to take, to go through all the testing phase, and then start rolling it out to all the other regions, was just going to take too long for the benefits that we really believe are there. So we made the decision to speed this up. And the reason that we were very excited and wanted to start working -- create this partnership with Dunnhumby, is that we feel they give us the tools, to not only go faster but to be much -- go a lot deeper and be a lot more effective in the type of category management that we're going to be able to do.”
While Whole Foods Market is accelerating category management it will be slowing it pace of physical expansion. In addition to announcing the closing of nine stores when first quarter results were released, the company said it was no longer committed to a target of 1,200 stores, but declined to offer a revised target. The company also hinted that the pace of expansion of its 365 format could be slower as it prepares a second wave of three test stores to open this year.
“We remain optimistic about the future growth potential for our 365 format, but want to see how this next round of stores perform before getting more aggressive,” Mackey said.
He noted the company does have roughly 80 total stores in its real estate development pipeline and plans to continue working on those locations while moderating the number of future lease signings.