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Whole Foods isn’t half the brand it used to be

Whole Foods isn’t half the brand it used to be

In Ernest Hemingway’s 1926 novel, The Sun Also Rises, one character asks another, “How did you go bankrupt?” The other answers, “Two ways. Gradually. Then suddenly.” Failure in a brand happens the same way … very small missteps and breakdowns in the brand experience that initially reveal themselves as slowing same-store sales growth or softening market share. Then, all at once, the bottom falls out. That’s what happened to my former favorite grocer, Whole Foods.

I first experienced Whole Foods in the mid-1990s when it moved into the mid-Atlantic states by acquiring Fresh Fields. Whole Foods stood out from the mundane Safeways and Giants of the world for a few reasons:

  • It had fresh, organic, high-quality food.
  • Its displays “romanced” the food, making it look more beautiful and more delicious than most stores did.
  • It introduced customers to new and interesting foods, flavors, and meal ideas.
  • It had a terrific service culture, with employees who knew about the products and who had a friendly, can-do attitude.

This formula may not sound revolutionary, but at the time, it definitely was. I changed my shopping habits, as did many other people. I would buy produce, meats, cheeses, and breads only at Whole Foods because I perceived the quality to be much higher than that of Safeway and Giant. And, I was willing to pay higher prices. At those other “mass market” stores I bought paper towels, diapers, toothpaste, and trash bags. In other words, things you don’t eat.

For years I was a happy Whole Foods customer. Yet, in the past year or so, small signals began to appear that things were off track. That was the “gradually” part of the Hemingway line. After a recent frustrating experience at a store, I read about the company’s performance and wasn’t surprised to find the “suddenly” part of the Hemingway line. The company’s stock has dropped 40% in the past 18 months, and management has implemented a nine-point plan to turn around the brand.

So, how did Whole Foods go from changing the grocery landscape as well as consumers’ tastes and shopping habits to a brand fighting for its life in a relatively short period of time? There are four basic reasons, and each can serve as a lesson to brands in any category:

  1. The brand didn’t continue to innovate and thus differentiate itself. In the early years, Whole Foods was a breakthrough concept. But similar concepts like Trader Joe’s and Fresh Market entered the market with better pricing. Others, like Balducci’s, delivered even better quality. The “mass market” grocers upped their game by offering more gourmet items … prepared foods, fresh baked breads, interesting cheeses. While all that was happening, Whole Foods seemed to stand still. The menu, for example, in their prepared foods section, even though representing almost 30% of sales and generating high margins, became dull and predictable.
  2. The brand lost its service culture. Whole Foods appears to have lost the hearts and minds of its employees. In the early years, smiling employees offered interesting information about the food and genuinely seemed to want to make customers happy. No longer. Today, looking more and more like the disgruntled Safeway check-out person with the blank stare, the employees act as if they are just doing a job.
  3. The brand never seemed to value its customers’ business. For almost 20 years, Whole Foods has been an integral part of my shopping routine … two, three, and sometimes four visits a week. I have turned to them for both basic and special-occasion shopping, such as Thanksgiving and Christmas dinners, birthday cakes, and bouquets of flowers. There’s no telling how much money I’ve spent there over time. Yet, they’ve never thanked me for being a customer, never asked my opinion, and never offered me any special benefits or treatment. Balducci’s, a local gourmet store where I shop much less frequently, periodically sends me a newsletter highlighting seasonal foods and its holiday catering menu, and includes several coupons. While the coupons aren’t huge discounts (perhaps 10%), they’re enough to draw me in … even to a store where filet mignon in the prepared-foods section costs a whopping $45 per pound.
  4. The brand lost sight of its operational basics. Failing to keep stores and bathrooms clean, make sure items are in stock, get rid of older produce or expired products, and have a parking garage payment system that works consistently may seem like small irritants. But they accumulate over time into larger pains for customers, who ultimately defect to the competition.

Perhaps the most important question is, how did management fail to recognize all of those gradual failures in the brand experience that I, as a customer, was seeing on a weekly basis? Why did they not connect the dots to see that numerous, basic failures were going to add up to the company’s stock price “suddenly” dropping 40% in 18 months?

Whole Foods is now in the process of rolling out a sub-brand of stores, called 365, which are intended to appeal to a more value conscious shopper and Millennials. This move will prove to be a distraction for the company and potentially could result in cannibalization of the core brand. Rather than launching a sub-brand in the midst of a core brand crisis, Whole Foods should focus on fixing the fundamental brand problems. If Whole Foods could give customers the exceptional experience it delivered 10 years ago, people would be willing to pay for it.

In a recent earnings call, Whole Foods’ founder and co-CEO John Mackey said, “We need to up our game. Retail is detail is the cliché, and it’s a very appropriate one.” He nailed it. Retail is detail, and keeping your brand strong means focusing on fundamentals like innovating, serving and valuing customers, and operating with excellence.

Let’s hope it’s not too late for Whole Foods. If it is, I may finally have to learn to cook.