Whole Foods' Challenge: Value + Fresh in Contemporary Food Retail
Whole Foods recently announced the impending launch of a new store format (and banner) that will focus on cheaper fresh offerings, based, in part, on its deep experience in sourcing and retailing high-quality fresh ingredients for its main banner.
We can’t comment on something that has not launched, let alone the business value of this new venture to Whole Foods. However, the market space itself is worth exploring more deeply as we await this new move.
What is the market space Whole Foods is focusing on? And who is the competition today? And what exactly does “fresh” mean?
Fresh is the most scalable demand driver in food and beverage today. Everyone can relate to freshly prepared food; you'd be hard-pressed to find a consumer who cannot tell a great story about eating freshly prepared foods on many occasions in their lives. This makes a compelling case for an enormous market space.
But the word “fresh” is a slippery, vague adjective, originating in a linguistic need to reference grocery perishables (e.g., produce, milk) or prepared meals (at home). The word gained more and more power in the context of twentieth century conversations as American diets moved to incorporate more and more processed, packaged foods. Fresh became more salient as the proportion of caloric intake and dollars spent on such items declined. With the rise of the natural/organic movement, however, the word began to take on much broader associations, transforming a very literal marker of “that which will go bad or rot within hours or days” into a metaphorical marker of food processed with only simple, real ingredients (i.e., a much shorter shelf life than preservative-enhanced foods). And, for some consumers, organic and non-GMO have further ratcheted up the standards of what ‘fresh’ now means in modern food culture.
What aspect of fresh will Whole Foods’ concept truly focus on?
- Fresh prepared foods (e.g., in-store baked goods, hot bar items, cold grab-n-go meals, etc.)?
- Fresh perishable ingredients (produce, milk, eggs)?
- Chilled packaged foods (yogurt, juice, bagged salads, meals to go, etc.)?
- Less processed ambient center-store foods and beverages (e.g., natural, organic, non-GMO)?
Which of these areas of fresh Whole Foods focuses their new concept around will end up determining the final competitive set at play. If they choose to anchor the concept around high-quality fresh prepared foods and fresh perishables, then the concept will be what we call a fresh-perimeter-mostly concept. It will compete most directly with regional independent specialty stores that have elaborate fresh perimeter operations today. Since most of these are very expensive by middle class standards, they tend to attract most shoppers on an infrequent basis and a few upmarket shoppers on a regular basis.
The white space for a fresh-biased format with significantly lower prices is clear. In fact, there is a brand incubating now in the Midwest that appears to already be there: Fresh Thyme Farmers Market. Fresh Thyme is a rapidly growing Midwest natural foods store focusing heavily on fresh perishables and prepared foods.
If too much of the new Whole Foods Market format tries to focus on fresh packaged or natural and organic packaged goods, it will have the same competitive problems the main banner is currently having. As we’ve written before, Whole Foods’ true asset is fresh perimeter merchandising, supply chain and in-store experience. Their true pricing power advantage also lies here and not in packaged goods, no matter how organic, pure, non-GMO and certified sustainable they are. The latter can all be sourced at much lower costs by Kroger, Walmart, Albertsons and others as they choose to do so. Even ALDI continues to knock off or distribute natural and organic products in more and more categories.
Yet, there is also a glass bottom to the growth of a mostly fresh perimeter concept. It is represented by high-quality hard discount operations in select portions of the country (e.g., Food 4 Less and Winco) that offer extensive prepared foods and fresh perishable operations at prices that are extremely low. While these hard discounters do not yet offer ‘premium’ quality markers, the point we are making is that there is a lower limit to how cheaply Whole Foods Market could price truly high-quality meat offerings from the same direct-from-the-farm fresh supply chain it has developed. Perhaps Fresh Thyme’s pricing represents a good approximation. The concept will not attract those consumers for whom fresh must only be cheap.
Whole Foods is a master of fresh perimeter operations, exceeded perhaps only by Wegmans. The key for them to succeed in this new midmarket concept will be to take fresh perimeter operational and merchandising learnings from a few of their high-performing urban locations (e.g., South Lake Union in Seattle) and figure out how to build something for more middle class incomes and price expectations.
We look forward to seeing what they create.