The organic food market is on an upsurge. People have become health conscious and want to buy food that is made of natural ingredients. Therefore, this industry is doing really well. Customers are willing to pay a premium, too, for the natural products. However, this has also resulted in a large number of players in the industry, leading to stiff competition among them.
Whole Foods Market (WFM, Financial) is a premium food retailer, which offers organic and natural food to the affluent part of the society. However, it faces competition from many new players, which affected its results. Nonetheless, it has managed to put a blockbuster fourth quarter results recently, which beat the Street’s expectations. Let’s check.
Further details
Driven by higher demand and various strategies undertaken, revenue surged 9% to $3.26 billion over last year. The company managed to register an increase in the top line despite its product prices being lowered, as people continued to flock into its stores. Its same-store sales grew by 3.1%, driven by a 1.3% increase in the number of transactions and 1.8% jump in the basket size of the customers.
But the top line failed to meet the analysts’ expectations. It decreased its product prices mainly because of increased competition from big box retailers such as Kroger as well as from players such as Sprouts Farmers Market. Because of the lower prices offered by such retailers, Whole Foods was unable to attract customers.
Lower prices also affected the margins. Gross margins fell to 35.4% from 35.7% in the previous year. But the company managed to keep its bottom line in check. Earnings jumped to $0.35 per share as compared to the earnings of $0.32 per share in the previous year. The bottom line was also in line with the expectations of the analysts.
Host of efforts made
In order to win back its customers, Whole Foods made a large number of efforts. First, it is focusing on responsibly grown fresh produce, which will be grown under certain quality conditions, making its products more reliable. Also, it will enable the company to increase its prices once again.
Furthermore, it started with the concept of having wine bars in its stores, which is not present at any of the grocers’ stores. Also, it started with home delivery services of premium wines as well as some other products. It has also taken initiatives including one hour delivery in some cities.
The company is also looking at expanding its store base. It opened 13 new stores during the quarter and 38 new stores in the entire year. It plans to renovate 70% of its older stores too.
Some other efforts include increased promotions of its products. Whole Foods recently started with its national ad campaign in order to attract more and more customers. In addition, it introduced a new affinity program, which provides reward points and discounts to its regular and loyal customers.
My take
Whole Foods Market’s turnaround efforts look increasingly interesting. The effects of the same are quite evident in the recent results. However, the company lowered its guidance for sales and same store sales growth metric, which disheartened the investors. Nonetheless, increased dividends and share repurchases, coupled with the food retailer’s measures to attract customers make me hopeful about the company. Investors should not ignore this organic food retailer.
