Whole Foods Market needs to do a better job explaining to consumers what differentiates it from competitors in terms of the quality of its offerings rather than trying to be more price competitive, John Mackey, co-CEO, told investors Wednesday.
A lot of retailers are trying to copy what Whole Foods does without offering the same quality, Mackey said. “They are copying our look and feel and marketing, but they are not copying our quality standards, and so far, that’s a good strategy and it’s working.
“But many customers are not looking beneath the hood, and they’re not seeing the differences. So one of the challenges Whole Foods has is to do a better job of communicating our superior quality. The differentiation is definitely there in the perishables, from our animal welfare system in meat to our sustainable seafood to our responsibly-grown produce, and we have to do a better job connecting to customers to get them to understand these are not the same things [as others offer].
“They may look like they’re the same, but they’re not.
“We don’t want to have a race to the bottom to compromise our quality to make us more price competitive. Sure, if you’re in the center store and we have exactly the same items, then we have to be price-relevant — to be very close to or to match [prices] on those items, and we’re working on that.
“And where we have price sore-thumbs and we’re out of line, we have to be more competitive and communicate that as well, and we’re determined to do so.”
Karen Short, an analyst with Deutsche Bank, New York, said focusing on points of differentiation is not the answer to Whole Foods’ pricing issues. “Whole Foods is hanging its hat on the belief that its superior quality justifies premium pricing, but consumers are voting with their feet,” she noted.
“Whole Foods does not have a marketing problem — it has a value-proposition problem, and it needs to narrow the large pricing gap that is simply unsupported by what is increasingly only a perceived quality gap. If Whole Foods wants to drive comps, it will have to invest more in price.”
Scott Mushkin, an analyst with Wolfe Research, New York, said the Austin, Texas-headquartered company is avoiding the real challenge. “The company seems to be dancing around the major issues of price and brand reputation,” he said.
In discussions with investors, Mackey defended the company’s weak comparable-store sales, which fell 0.2% in the fourth quarter and which the company projects will be negative to flat through the first three quarters of fiscal 2016 before increasing 3% by the end of the year.
Given Whole Foods’ sales per square foot of $970, Mackey said, “it’s a lot harder to build a high comp than it is to build a 4% or 5% comp at $500 a square foot. [At that level], you have a lot more running room and stores are less congested, so it’s just easier to do.
“We think we can increase our comps, and we think we can increase our sales per square foot. It’s just that our success has become a higher hurdle for us to jump over.
“And if you’re starting from a lower base, as many of our competitors are, it’s easy to show a higher comp number. The question is, can you continue to show it?
“We showed 8% and 9% comps for 20 consecutive years, so our challenge — and it’s a big challenge — is we have to do a better job communicating our differentiation so customers understand our quality superiority.”

Wall Street analysts were guarded in their response to Mackey’s comments.
Kelly Bania, an analyst with BMO Capital Markets, New York, said she questions whether the initiatives Whole Foods plans — involving cost cutting, digital investments and selected price investments — “will be enough to stabilize the business in light of a rapidly evolving competitive environment.
“We expect Whole Foods to remain an innovative food retailer but believe its multiyear transition to a more competitive-priced retailer could prove challenging,” she said.
According to Mushkin, “it remains unclear if [the initiatives the company laid out] will change the trajectory of comp sales, which have continued to slide. Indeed, management unveiled an aggressive plan last year to drive better comps, and none of those initiatives has led to a sustained change in the trajectory of the business.”
John Heinbockel, managing director for Guggenheim Securities, New York, said that, despite Whole Foods’ brand strength and a great in-store customer experience, “it is having trouble generating consistent comp and earnings growth because of the maturity of its existing store base and the plethora of shopping alternatives in the market.
“We applaud the company’s accelerated investments designed to drive sustainably stronger momentum, but we believe they will take time to bear fruit.”