Wednesday, April 26, 2017 by Vicki Batts
Will setting up shop in Target be what saves Whole Foods from its dramatic decline? One analyst from Bernstein, a prominent investment firm, certainly seems to think so. The recommendation to abandon the opening of stand-alone stores, and transition to satellite markets within Target, comes on the heels of Whole Food’s “worst sales slump in more than a decade.”
Whole Foods was once the end-all be-all of grocery stores, and was the place to go for organic produce and other healthy foods. But as the popularity of organic, healthy eating has continued to increase, so has their competition. When it comes to the sale of organic foods, it seems that Whole Foods is no longer at the top of the marketplace; in 2015, their sales were surpassed by Costco, a popular wholesale retailer.
Over the last few years, Whole Foods has been subject to quite a bit of controversy. In addition to falling sales, the high-end grocery chain has also been scrutinized for their apparent support of Monsanto and crooked GMO labeling legislation that would favor the GM industry over concerned consumers.
Given all of this, it is really no surprise that analysts are saying the once-beloved food giant should stop opening stand-alone stores — it’s a big risk for a company that’s been stuck in a downward spiral. By opening satellite shops in Target, the Bernstein analyst believes that Whole Foods could build more “brand awareness” and also gain access to coveted purchase data without the risk that would come with building a regular-sized store. Whole Foods is not the only one that would benefit from this arrangement, however.
As the Bernstein analyst Brandon Fletcher explains, Target would be further differentiated from its main competitor, Wal-Mart, through an action like this. By having a Whole Foods Market inside their stores, Target would be significantly stepping up their grocery game, at least in the eyes of most consumers. Plus, survey data has shown that 65 percent of Whole Foods shoppers also shop at Target.
Whole Foods’ brand image has suffered over the years, so this low-investment method of expanding is an affordable way for the company to try to repair their reputation. But is it too little, too late?
Earlier this year, it was revealed that Whole Foods had experienced six straight quarters of consistent declining same-store sales. During the last quarter, the decline was expected to be around 1.7 percent, but instead it reached a devastating 2.4 percent. Now, the company reportedly expects their decline in sales to reach as high as 2.5 percent for the year. In February, it was reported that same-store sales had dropped by another 3.2 percent for the current quarter. To put it simply, things are not looking good for Whole Foods, and whether or not the chain will be able to recover from these dramatic losses is looking rather questionable.
Due to the substantial losses, nine stores were shut down early on this year, and it’s unknown if more stores will be closing their doors in the future — though it certainly seems like a possibility. Whether or not new satellite stores will be opening in Target remains up in the air, though sources say it looks like Target is set on upping their grocery offerings independently.
Brian Yarbrough, an analyst at Edward Jones, commented, “This is a company that owned the space for a long time, but there’s way too much competition now. They’ve done several things to try and drive sales, and it’s just not working.”