Whole Foods Market

America’s Whole Foods Market: victim of its own organic success

The colourful chalkboards and baskets of fruit that greet customers at the entrances of Whole Foods Market’s shops paint a rosy picture. Yet shares in the American seller of organic and natural food have fallen by more than 40% since hitting a peak last October, in a period when stockmarkets have been strong. This high-profile peddler of pricey organic and natural foods now finds it has stiff competition…

It is not that the retailer is in immediate crisis: its latest quarterly figures, on July 30th, showed sales and profits both up a bit. And it is not that people are going off the idea of paying more for food produced without chemical fertilisers, pesticides or additives: the International Federation of Organic Agriculture Movements reckons that the industry’s worldwide revenues were a record of $63 billion in 2012; and Techsci Research, a market-research firm, predicts that the American market for such foods—the world’s largest—may grow by 14% by 2018.
The problem is that at Whole Foods, shoppers have been paying way over the cost of regular produce, and its success in getting them to do so has now attracted a lot of competitors, from rival organics chains like Sprouts and Trader Joe’s to mass-market retailers like Walmart and Costco. As a result, the price premium for organic produce is crashing down. On a recent shopping trip, a pound of organic apples cost $2.99 at Whole Foods but just $1.99 at Sprouts and even less at Costco.

The firm has been trimming costs to keep its margins up, but the slump in its share price reflects investors’ expectation that this cannot continue, that profits will suffer and that Whole Foods’ dominance of the market is coming to an end.

That the company has had to recall a number of products—in late July it and other grocers recalled plums and peaches suspected of contamination with Listeria bacteria—has made it harder to maintain an air of superiority over its competitors.

Organic foods’ claim to superiority is questionable anyway. Both Britain’s Food Standards Agency and the Annals of Internal Medicine, a journal, concluded after reviewing the extensive studies on the issue that there is no substantial difference in the nutritiousness of organics and non-organics. In some respects organics may be bad for the environment, because growing them uses land less efficiently than non-organics.

As for “natural” foods, there is no official definition of this, in America at least; so the label, which Whole Foods also applies to many products, is close to meaningless.

Alan McHughen, a botanist at the University of California, Riverside, argues that the whole industry is “99% marketing and public perception”, reeling people in through a fabricated concept of a time when food, and life in general, was simple and wholesome.

If true, the trick has worked nicely for Whole Foods. But its success has attracted so many imitators that it is losing its uniqueness. Even recent speculation about a takeover bid has failed to lift its shares. It may insist its food is sustainable. But it seems its prices are not.

Source: The Economist