Whole Foods Market, historically, has not competed on price. That’s been a successful strategy because its educated, affluent shoppers assume that quality must just come at a premium. They’re willing to shell out significantly more for pesticide-free pears and artisanal cheese than they might for groceries at the Safeway down the road.
The price isn’t simply a function of the cost of goods, though. Whole Foods’ profit margins have been significantly fatter than the supermarket industry’s notoriously slim margins for years now, at around 3.8 percent compared to the average of 0.7 percent. Investors have rewarded this: Whole Foods’ stock trades at about twice the price of its rivals’.
Some of that comes from a product mix that skews more toward prepared foods, which command higher prices, but the chain also benefits from a squishy perception cushion that prevents customers from comparison-shopping quite as ruthlessly.
That perception game has stopped working, though. And Whole Foods is trying to figure out if it can adapt.