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Whole Foods rethinks expansion as sales continue to fall

Whole Foods at night

Whole Foods is hitting the brakes on its ambitious expansion plans as sales keep dropping at existing stores.

The grocer reported its sixth straight quarter of falling sales at established locations on Wednesday, as organic and natural products have become more widely available at traditional supermarkets. The company said it no longer sees potential for 1,200 locations, up from the roughly 470 it has in the United States, Canada and the United Kingdom.

It said it would close nine stores in the current quarter, while opening only six new stores, including two relocations. The company noted it had dozens of stores in the pipeline and that it would continue to grow, but it would be more careful about signing new leases.

In January the grocer announced it was scaling back its Canadian expansion, cancelling plans for store openings in Calgary and Edmonton.

As customers migrate to traditional supermarkets — which Whole Foods CEO John Mackey said had become a “good enough alternative” for some — the company said it would focus on its most loyal customers and getting them to spend more.

By convincing those “Whole Foodies” to add just one more item to their shopping baskets, Mackey said the company could significantly boost its sales.

To do that, the company announced a partnership with a data insights company that could help it better manage merchandising and pricing. Though Whole Foods has been trying to shake its “Whole Paycheck” image, Mackey noted it doesn’t want to compete in a “race to the bottom.”

But, Mackey said the company still needed to be careful about charging too much.

“Nobody wants to feel they’re being cheated,” he said. Mackey added that Whole Foods doesn’t have to be the cheapest, but there can’t be “too big of a gap” where people feel the company is taking advantage of them.

In the meantime, Whole Foods has been cutting costs, including by closing its remaining kitchen commissaries where it made prepared foods. Those foods will now be provided by suppliers or made on site. Mackey said he didn’t expect to close too many more stores looking ahead, and believed the company had “cleaned up” its store base for the time being. Late last year, the company also got rid of its co-CEO structure, making Mackey the sole chief executive.

For the three months ended Jan. 15, Whole Foods said sales fell 2.4% at established locations. The company said the figure was also down for the current quarter, and it cut its sales and profit forecast for the year.

It earned $95 million for the period. Total revenue for its first fiscal quarter was $4.92 billion, short of the $4.98 billion expected, according to FactSet.

Whole Foods Market now expects sales at established locations to fall as much as 2.5%. It previously said it expected the figure to be flat to down 2%.

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