Whole Foods Market (WFM, Financial) is a very popular name in the organic retail space. The retailer has pulled off stunts that several big box retailers such as Wal-Mart (WMT, Financial) and Target (TGT, Financial) failed to do. Industry experts, consumers and analysts believe Whole Foods to be the pioneer of organic retail. Surely the company struggled in the initial years, but now for the past few years has had a great run and finally it has started contesting the bigger rivals of the retail space. But is Whole Food’s ambition to fly high taking a toll on its core values of offering healthy organic food? Here’s a look at that.
What’s going on?
Whole Foods has decided to grow and compete head to head with the biggies off the retail space. As a result of this growth, the retailer is no more able to keep itself confined within the periphery of organically grown food products. Retailers who deal in organic food items are generally smaller in scale, fetch their offerings from locally grown markets and cater to a niche segment of buyers. But keeping all these things intact, the retailer can’t move up in size and scale. Automatically the need to cater to greater number of consumers and need to provide larger quantities and varieties arises. The same is the situation with Whole Foods. Keeping itself confined to just organically grown food products won’t quench its thirst to grow. So, what’s the retailer doing? It’s turning to conventionally grown food items.
A recently introduced rating program by Whole Foods classifies food items into three categories – good, better and best. The classification is levied on all produces be it organic or conventionally grown and two items – one which is grown organically and one which is grown conventionally – can have the same rating. There can be situations where the conventionally grown item can have a higher rating than the item grown organically. This is possible since Whole Foods has outlined a couple of parameters which if a producer meets can get the food items labeled as better and best. A farmer who uses conventional techniques of growing food items can get a better ranking compared to organically grown items if he sets up a garbage recycling program, uses alternative source of energy and stops using certain pesticides.
However, this goes against the notion that organically grown food items are better and healthier – something that Whole Foods has always preached through its customer awareness ad campaigns, its subtle marketing techniques and word of mouth marketing.
Is growing big taking a toll?
Whole Food’s new rating scale has attracted huge amount of criticism from its very faithful suppliers. The argument that the suppliers have is, even without changing the way in which food items are grown, and by just using better technique in overall management of the farming activity, how can a farmer’s offering get a better rating – ultimately the nutrition value of the product remains same even if a garbage recycling system is introduced. What makes the matter more debatable is the fact that using such technology attracts costs – something that smaller players may not be able to accommodate. Despite offering organically produced food items, is it correct to get a lower rating? Farmers believe not.
Industry experts and analysts closely following the stock believe all this comes as a part of Whole Foods’ attempt to grow large. As per a recent report, Costco (COST, Financial) has surpassed Whole Foods as the largest retailer of organic products. According to a report on Eater.com, “Costco's most recent earnings call included the tidbit that its sales of organic goods now exceed $4 billion annually. Conversely, industry analysts estimate that Whole Foods sells around $3.6 billion in organic products per year.”
The report also mentions the organic food sales in the U.S. is estimated to be close to $36 billion. That being the gross figure, Whole Foods accounts for 10.00% while Costco accounts for 11.12%. The market may have started realizing now, but Whole Foods understood this long back that competition is increasing and to beat competition it needs to expand offerings both in terms of quantity and variety. Thus promotion of conventionally grown food products become important as they can help the retailer in reaching a certain scale.
The move may be a crucial for Whole Foods, but it has caused dissatisfaction to a huge number of suppliers. These suppliers believe, “Whole Foods is quietly using its formidable marketing skills and its credibility with consumers to convey that conventionally grown produce is just as good — or even better — than their organically grown products.” So is this move a necessary evil? Well, how all this will affect the retailer’s functioning is something that only time will tell.
