Whole Foods CEO finds Amazon culture "challenging"

A Forbes story last month reported that Whole Foods CEO John Mackey is struggling with the Amazon culture, describing it as "challenging" in a recent speech. Mackey announced that he has scheduled a retreat to help him and other top Whole Foods executives better align with Amazon's "higher purpose."

In a short period of time, Mackey has seen Amazon close one of the five newly opened Whole Foods 365 stores, and the four others have seemed to stall. The 365 concept was Mackey's attempt to attract shoppers and dispel the "Whole Paycheck" image. According to reports, the stores did neither.

Amazon's plan, according to CEO Jeff Bezos, is to lower prices throughout the entire Whole Foods chain, not just at the smaller format stores.

A recent survey by ChargeItSpot, which owns cellphone charging stations, revealed that 62% of shoppers were more likely to shop at Whole Foods now that it has been acquired by Amazon, and 84% had positive feelings about the merger.

The impact of the Amazon - Whole Foods deal may be far-reaching

Several media outlets and industry experts have weighed in recently with their thoughts on Amazon's planned $13.7 billion purchase of Whole Foods, including The Washington Post, in which its "On Leadership" column cited several "telling comments" made by Whole Foods CEO John Mackey. Sample comments include the following.

• Mackey admitted that Whole Foods may be too employee-focused, and although he didn't back down from the importance of treating employees well, he said that Amazon is "more customer-centric than we are... we're gonna become as customer-centric as Amazon."
• In a sharp contrast from when Zappos was purchased by Amazon and pledged to remain independent, Mackey said that "when this deal closes, we're all Amazon people."
• Mackey acknowledged that his company has been a little behind in technology as compared to Amazon, and pledged that "we'll go to the front of the class, eventually, in the grocery business."

A subsequent article in The Washington Post  reported on the deal's potential impact on small farmers and food producers, who are worried that Amazon will use its market power to further centralize production and boost larger, industrialized organic operations. In addition, industry activists and farmers advocates are fearful of the pressure Amazon may put on producers for price concessions, which could cause them to compromise on environmental and formulation standards.

According to an article written by CNBC's Chantel McGee, a data scientist claims that the merger is less about stores and more about data. Specifically, Boston College Professor Kenneth Sanford said that one of Amazon's goals should be to combine the data it already collects online and via Echo and Alexa, with Whole Foods' customer transaction data.

The data collected would enable the company to predict what customers need and automatically send it to them. "Amazon will know what's in your refrigerator already and be able to deliver extra turmeric when you need it," said Sanford.

Grocery e-commerce retailer Instacart is already working towards this goal. According to Jeremy Stanley, the company's vice president of data science, Instacart uses customer behavioral data and search activity to anticipate what a customer wants or might like.

"One of the wonderful things about groceries is that compared to other e-commerce purchases, groceries are habitual and frequent," Stanley said. "Groceries are really personal... and I think data can really change the way people buy food."

Supermarket News reported on the deal's potential impact on competitors, including Instacart, whose service generates more than $200 million in sales annually for Whole Foods. Should Amazon decide to pull out of the deal in favor of its own delivery service, it could harm Instacart, and perhaps Instacart's other customers as well. Furthermore, rather than replacing Instacart, Amazon could attempt to purchase it.

Sprouts Farmers Market has been competing successfully against Whole Foods in certain markets, and has made plans to partner with Amazon Prime Now for e-commerce. Perhaps the Amazon - Whole Foods deal could kill this partnership, or even make Sprouts an attractive Amazon target. Having Whole Foods and Sprouts under the same ownership could save Whole Foods from spending on its 365 format since Sprouts could fulfill the small format need.

Walmart's success integrating physical and digital assets, which has led to strong sales results in recent years, has not gone unnoticed by Amazon. And grocery, which generates frequent and habitual trips, has been central to Walmart's strategy, not to mention the company's expanded offerings in grocery pickup and delivery strategies. As the Supermarket News article points out, Amazon and Walmart are gunning for each other.

Lastly, natural and organic food consumers have seen big retailers like Costco and Kroger catch on to the trend that Whole Foods pioneered, and these retailers have hurt Whole Foods on price. With Amazon's buying power, that price advantage may eventually disappear - or at least lesson - resulting in Whole Foods recapturing sales at the expense of others.

Walter Robb out as Whole Foods co-CEO, will remain on board of directors

Whole Foods announced yesterday that Walter Robb, who has served as co-CEO for the last six years, would no longer serve in that position but will remain as a member of the company's board of directors. John Mackey, with whom Robb has served as co-CEO, will become the sole CEO. The changes will take effect on December 31, 2016.

The announcement came at the same time the company reported fourth quarter results that included some figures below analyst's estimates. For example, comparable store sales fell by 2.6% on a 4.2% store traffic decrease as compared to the same time period a year ago. On the positive side, sales met analyst expectations at $3.5 billion, and were up by 1.7% from the previous year.

Net income increased by 57.1% (to $88 million) as compared to the same period last year.

For 2017, Whole Foods is planning for sales growth between 2.5% and 4.5%, and comps from -2% to flat. 30 new stores are planned in 2017, including six relocations and four new 365 stores.

The company also announced that CFO Glenda Flanagan would retire at the end of 2017. Flanagan has been with Whole Foods for nearly 30 years.

Whole Foods overcharging is "worst case of mislabeling" inspectors have seen

Not surprisingly, the New York Daily News story about alleged overcharging by Whole Foods started off with "Rip-off on aisle four."

The newspaper reported that New York City officials launched a probe of Whole Foods after investigators claimed the eight city stores routinely overcharged customers for groceries during dozens of inspections dating back to 2010.

According to the story, inspectors from the Department of Consumer Affairs weighed 80 different types of items and found that every label was inaccurate, with many resulting in customers being overcharged.

Although Whole Foods wasn't the only offender, it was the most egregious one, according to Consumer Affairs Commissioner Julie Menin.

Initially, Whole Foods said they disagree with the city's findings, but in a video released this past week by Whole Foods Co-CEOs John Mackey and Walter Robb, the two execs admitted to mistakes, saying that some customers had been accidentally overcharged for sliced fruit, fresh squeezed juices and sandwiches by workers who made errors. They claimed that mistakes were made both in the customer's favor and in the store's favor.

Commissioner Menin said her inpectors described the mistakes as "the worst case of mislabeling they have seen in their careers," and said they found only a few instances where customers actually benefited from underpriced food.

Whole Foods to launch value-focused format

It was widely reported last week that Whole Foods plans to launch a new value-focused format that will be "unlike anything that currently exists in the marketplace," according to Co-CEO Walter Robb.

Robb added that the company has already begun negotiating leases, is building a team to focus exclusively on the new concept, and expects a fairly rapid expansion.

According to Co-CEO John Mackey, "We think a streamlined, hip, cool, technology-oriented store that has lower capital, perhaps a little less labor cost and lower prices is going to be very, very attractive to that millennial generation, though it will still have the Whole Foods quality standards."

Later in the call, the company reported that average weekly store sales are exceeding $720,000, and that stores are still highly profitable and producing strong returns on invested capital.

Competition gaining on Whole Foods as organic and natural markets grow

Whole Foods officials told analysts last month during the company's earnings conference call to expect profits to be under pressure for the next couple years. The company cited growing competition for sales of natural and organic products, and what could be a prolonged period of price investments and internal cost reductions.

"I think it's important to understand that competition has accelerated, there's no question about it," said Co-CEO John Mackey. "We've seen the conventional supermarket companies like Kroger and Wegmans and H-E-B, they certainly have upped their game in natural and organic foods. We've seen new entrants get public money such as Sprouts, Fresh Market, Natural Grocers, and they're expanding more rapidly. Trader Joe's continues to expand."

"We still remain the market leader in this category, I think by a significant margin," he added. "And the market continues to expand, which is why all these guys are jumping into it... I think for a long time Whole Foods had the field to ourselves pretty much. That was nice. But we don't any longer."

It should be noted that Whole Foods is still gaining market share and same-store sales continue to climb. However, their market share gains are at half the rate they used to be, and same-store sales have gone from high single digits to mid-single digits. Wall Street doesn't like that, nor do Whole Foods executives.

Perhaps most disturbing to Whole Foods, although they won't admit it, is Walmart's entrance into the organic food arena. Walmart's buying power and value-pricing may bring lower prices to natural and organic foods overall, and could lead to price competition typically reserved for the conventional supermarkets.

As Analyst Neil Stern of McMillan Doolittle pointed out, "even Aldi has a private label for natural and organic."

Despite these challenges, Mackey pointed out that Whole Foods has a record 114 new stores in its development pipeline and was poised to approach 500 stores by 2017.

Analyst Chuck Grom of Sterne Agee believes a more tepid store development approach is required, and expressed concern over Whole Foods' ability to communicate a lower price image, stating that the company "will need to get very loud with its price message, which would almost certainly lead to lower operating margins."

Whole Foods' inner city concept opens in Detroit

Whole Foods opened a 21,000 square foot store in Detroit last week that features lower prices and a larger selection of private-label items as compared to its standard stores, and frozen and prepackaged foods designed to appeal to budget-conscious shoppers. The store opening follows classes that the company has been offering in Detroit community centers about how to shop more effectively.

According to Co-CEO John Mackey, similar stores are planned for New Orleans and Chicago.

Whole Foods to consider a larger range of store sizes

Whole Foods Co-CEO John Mackey said this week that the company may consider opening stores of "mixed sizes" in the future. Mackey said larger stores opened between 2007 and 2009 "are still competing strongly as they get older... and have higher long-term potential than smaller stores because they offer more parking, less spoilage and greater efficiencies."

These 4-6 year-old stores are mostly in the 40,000 - 45,000 square foot range, compared to the smaller (30,000 - 35,000 SF) stores the company has focused on in the last few years as it entered smaller markets.

According to Executive VP of Operations David Lannon, the company is now shifting back to a 35,000 - 45,000 square foot range. In addition, Whole Foods may look to acquire smaller stores like the 16,000 square foot former Johnnies Foodmaster store it recently acquired and opened in Boston.

Mackey said he expects a "sea of change" in the industry as smaller independents look to sell, providing opportunity for chains like Whole Foods.

Net income at Whole Foods rose to $142 million in the quarter that ended April 14, a 20.3% increase as compared to the same period a year ago. Sales increased 13.3% to $3 billion, and identical-store sales rose 6.6%. Average sales per gross square foot totaled $991 for the quarter.

Whole Foods planning a health resort

USA Today reported last week that Whole Foods plans to open an upscale health resort where guests could stay and learn about a healthier lifestyle. The resort would most likely open in Austin, Texas, where the company plans to expand its headquarters.

The story says Whole Foods co-founder John Mackey is negotiating for real estate and searching for the right hotel chain to operate the resort, and that additional resorts would depend on the success of the first one.

Mackey is hoping the health resort concept turns out better than the education-focused wellness clubs that opened in stores in the last year. "It wasn't a total bomb," he said, "but we couldn't reach critical mass."

"To move from natural foods to natural spas works," says brand guru Robert Passikoff, who pointed out that Whole Foods ranks first in brand recognition in the natural foods category. "Whole Foods is really a category unto itself."

Whole Foods reports "best results in history"

Last week Whole Foods Market reported another outstanding quarter, "producing the best results in our company's 32-year history," according to Co-CEO John Mackey.

For the quarter ended April 8, 2012, Whole Foods reported a profit of $117.7 million, a 31% increase over the same quarter last year. They also reported the following:

• Sales up 14% to $2.67 billion
• Gross margin widened to 36.3% from 35.6%
• Same store sales up 9.5%

Although the natural and organic foods sold by Whole Foods tend to be more expensive than the groceries at traditional supermarkets, its sales have continued to grow, which has helped shield the company from higher food costs. At the same time, Whole Foods has been trying to come across as more value-oriented in order to attract more price-conscious shoppers.

The company's continued success has resulted in a "positive" outlook from Standard & Poor's.

Whole Foods resurgence due to cost cutting, more cash in the bank

Brian Gaar of the Austin American-Statesman (Austin, TX) interviewed Whole Foods Founder John Mackey last week, who explained that spending cuts, prudent store openings, a renewed focus on value and an increase in cash reserves are key factors in the company's rising stock price and strong recovery from the recession.

Mackey also weighed in on the Occupy Wall Street protesters.

"I'm sympathetic to some of their ideas, but not all of them," he said. "For me, I think the issue is less about inequality in the distribution of income and more about the inequality in the distribution of free market capitalism, of economic freedom."

The entire article can be found here: Whole Foods founder Mackey weighs in on grocer's resurgence, future

Whole Foods opens first membership-only wellness club

Back in February we learned that Whole Foods was planning to open Wellness Clubs in select stores. Last week, USA Today reported that the first club opened in Dedham, MA, and additional sites are coming soon at Whole Foods locations in Princeton, Manhattan (Tribeca), Chicago and Oakland.

The membership-only clubs will cost $45 per month plus a one-time fee of $199. Members will have access to lifestyle evaluations (I assume shopping at Whole Foods will garner initial high marks) and access to nutrition, cooking and health classes. They will also get discounts on 1,000 "better-for-you" foods sold in the stores.

Whole Foods Founder and Co-CEO John Mackey says 10 additional Wellness Clubs could be rolled out in 2012 if the first five are successful, and the program could go national in 2013.

There is no doubt other retailers will pay close attention. If Whole Foods finds the program successful - meaning that thousands of customers forked over $739 for the service in year one - similar programs are bound to pop up at other retailers who are health conscious, or at least want to be.

Whole Foods targets smaller stores, more locations

The story below quotes Whole Foods co-CEO John Mackey as saying the company ultimately plans to triple the number of stores to 1,000 and decrease the average store size to approximately 40,000 square feet.

According to the story, Whole Foods opened 16 stores in 2010 averaging 42,600 SF, and seven stores so far this year, averaging 40,000 SF. In addition, the 61 stores currently in development average just under 40,000 SF.

The Packer - Whole Foods targets smaller stores, more locations - Retail

Whole Foods posts best earnings results in 5 years

After posting their strongest quarterly results in the past five years, Whole Foods may accelerate store growth, raise the dividend or repurchase stock, according to C0-CEO John Mackey. Here are some of the key stats from the company's fiscal second quarter:

Net income rose 33.3% to $89.9 million.
Sales increased 12% to $2.4 billion.
Comparable and identical store sales increased 7.8%.

For the first half of the year:

Net income rose 45.7% to $178.7 million.
Sales increased 13% to $5.4 billion.
Comparable and identical store sales increased 8.5%.