Inside the Whole Foods Market in midtown Manhattan at lunchtime, it’s easy to forget that the organic supermarket chain is suffering its biggest crisis since going public in 1992.
A line 20-people deep waits at a juice and espresso bar near the bustling store entrance across from Bryant Park. In the food hall upstairs, the tables are packed with customers noshing on superfood salads and sushi. Too harried to stop for oysters, many shoppers order Nashville-style fried chicken sandwiches from digital kiosks and sample cold brew from Stumptown Coffee Roasters.
As grocers fight for traffic amid an intense price war and the threat of e-commerce, Whole Foods stands out among its peers with its prepared foods and in-house restaurants that make its stores destinations. The challenge for Mackey, who co-founded the company in 1980, is how to assuage Wall Street by boosting profits without ruining what made Whole Foods wildly popular in the first place.
“They have to do two things at the same time that are diametrically opposed,” said Roger Davidson, a former Wal-Mart grocery executive who works as a consultant. “They have to make sure they don’t dumb it down.”
The hubbub at newer Whole Foods locations like the one in midtown Manhattan illustrates a brand loyalty that most retailers would envy, especially when brick-and-mortar stores are closing at a record pace. Neuberger Berman increased its stake in the company in 2015 because of its rare ability to “connect in an emotional way” with shoppers, said Kantor. The firm owns about 2.7 percent of Whole Foods shares, according to data compiled by Bloomberg.
Hoping to avoid a proxy fight, Whole Foods recently announced it would overhaul its board of directors by adding five new members. The company had hoped the changes would appease Jana, but the hedge fund rejected a proposed truce, preferring to keep its options open. In a bid to reignite sales and profit growth by October 2018, Whole Foods also said it would expand its nascent loyalty program and use data to improve how it stocks products.
A few months earlier, Whole Foods abandoned its 1,200-store target, which had come under fire from Wall Street for being overly ambitious. The grocery chain is now focusing on relocating smaller stores to bigger nearby locations, banking that it can create flagships that double as dining destinations.
“We’ve had tremendous success with those stores,” Mackey said on a recent conference call, citing locations in Chicago, Philadelphia and New York.
Whole Foods also recently said it was doubling its cost-savings target to $600 million by the end of fiscal 2020, with a plan to invest some of that money in lower prices. The grocer has been dogged by its reputation for being overpriced -- customers gave it the tongue-in-cheek nickname “Whole Paycheck” -- making it tricky to bring in new shoppers.
And while the chain can’t win a price war with the likes of Kroger, Wal-Mart and the German chain Aldi, getting some of its prices more in line with conventional stores is still a key piece of a potential turnaround. Whole Foods can stand out with local cheese and olive oil that can’t be found elsewhere, but it needs to lower prices on standard fare like organic milk, industry analysts say.
“That can have a halo effect on the entire store’s pricing,” meaning shoppers will perceive value across the store, said Jim Hertel, a grocery analyst at Inmar’s Willard Bishop.
“As you start to take away people with knowledge of the market, you lose,” said Tim Sperry, a former Whole Foods executive and industry consultant.
Mackey, 63, who took sole control last year after six years of sharing the CEO post with Walter Robb, insists that he can thread the needle: reducing expenses and lowering prices on groceries while keeping his stores on the leading edge of food trends.
“We’re not making these changes randomly -- it’s very data driven,” he said in an interview, adding that shoppers will find unique local products at stores, despite the move to centralize operations in Austin.
With activist pressure looming, Mackey doesn’t have much time to show signs that he can get the company back on track.
“You can’t make these types of changes that quickly,” said Davidson, the industry consultant. “It’s a whole new way of doing business.”
This article originally appeared at: https://www.bloomberg.com/news/articles/2017-05-23/sushi-loving-whole-foods-fanatics-are-seen-as-key-to-turnaround.