Whole Foods Speeds Up Process Toward Enhanced Value, Expanded Brand Loyalty

Earlier this year, Whole Foods CEO John P. Mackey talked about “re-setting and refining our growth strategy and moving faster in fully implementing category management, which is such an integral part of our go-forward merchandising, pricing, marketing, and affinity strategies.”

Fast forward three months and those strategies are now being fast-tracked to create enhanced value creation for shareholders and expanded customer loyalty. A key component for Whole Foods is its affinity program as well. Through its affinity work, Whole Foods knows that its core customers represent its largest customer segment and account for a majority of its sales.

“We are accelerating the rollout of our affinity program to all U.S. stores by the end of this year,” Mackey said. “Through piloting more personalized and relevant communications, our pilot programs have successfully driven increased trips and bigger baskets from participants. We’re very excited about the incremental sales potential from our core customers, adding just one additional item per trip.”

During its recent second-quarter earnings call−which saw total sales increase 1.1 percent, to a record $3.7 billion, and comparable store sales decrease 2.8 percent−Mackey discussed new and accelerated initiatives to increase profitability, improve operational performance, and enhance shareholder value, including 2020 financial targets.

“We are accelerating our path to enhanced value creation to deliver better returns for our shareholders,” Mackey said. “Today’s announcement is a powerful combination of accelerated initiatives and new cost savings with clear timelines to deliver. We are on a path to return to positive comparable store sales and earnings growth next year.”

Whole Foods identified a detailed path to sustained top-line growth, supported by category management and pricing initiatives, enhanced marketing and affinity programs, and disciplined organic growth.

Key components include: Accelerating Affinity rollout to all U.S. stores by CYE 2017. The new program combines the best elements of the company’s My 365 Rewards and pilot programs, which have successfully driven increased trips and bigger baskets from participants by providing more personalized and relevant communications as well as new digital experiences.

Restructuring purchasing program by CYE 2017 and implementing category management across all U.S. stores by FYE 2018. Robust data analytics, state-of-the-art technology, and a unified purchasing structure will provide optimized product assortment and pricing, leading to lower costs, lower prices, and higher sales.
Returning to positive comps and earnings growth by FYE 2018, and providing FY 2020 financial targets based on the execution of new and accelerated initiatives.

For 2020, the company expects to achieve: Total sales of over $18 billion; comparable store sales growth greater than 2.0 percent; SG&A as a percentage of sales of less than 27 percent; EBITDA margin greater than 9.5 percent; and cash flow from operations of more than $1.2 billion, realizing $300 million in additional cost savings by FYE 2020.
Evan Magliocca brand marketing manager for Baesman Insights & Marketing, told Loyalty360 that he believes Whole Foods might be taking on too many strategic tasks.

“Grocery store chains across the country are in a challenging time, much like other brick-and-mortar industries,” Magliocca explained. “Whole Foods has numerous initiatives in the works over the next two years to help set itself apart from other chains, yet those initiatives seem to be all over the map with no consistent strategic vision. In challenging times, there are two schools of thought: Invest and advance or become more efficient. Whole Foods strategy seems to be expanding in both directions.”

What’s more, Whole Foods announced the appointment of five new independent directors and named Gabrielle Sulzberger the new Chair of the Board and Mary Ellen Coe the new Chair of the Nominating & Governance Committee. The company also announced the appointment of Keith Manbeck as its new Chief Financial Officer.

“We understand that we need to do much more and faster,” Mackey added. “Our competitors are not standing still. What sets us apart is our customer-centric approach and relentless commitment to our core values. No other grocery store matches the promise Whole Foods Market stakeholders have come to expect from us, the industry-leading food standards, the differentiated offerings, and the outstanding customer experience.”
Whole Foods’ customer base continues to grow, with 30 million different customers visiting Whole Foods stores last year.

“This is a tough environment for everyone in retail and, particularly challenging, for those in the food industry, but we are the premier brand in the one area seeing growth: Natural and organic foods,” Mackey said. “We delivered the highest sales per gross square foot and the highest EBITDA margins of any public grocer. The value proposition inherent in Whole Foods Market is very powerful.”

Mackey noted some key accomplishments:

Reduced cost
Fully implemented a unified point-of-sale system
Piloted an affinity program
Expanded the always-on marketing and media plan
Accelerated the implementation of category management
Grown its online presence and driven increased digital sales
Launched its innovative value format, 365, to broaden the customer base and prudently rationalized its store base.

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