With food and other items that are free of pesticides, preservatives, sweeteners, and cruelty, Whole Foods Market knows more about guiltless eating and shopping than most retailers. The world's #1 natural foods chain by far -- now that it has digested its main rival Wild Oats Markets -- the company operates more than 370 stores throughout the US, Canada, and the UK. The stores emphasize perishable and prepared products, which account for about two-thirds of sales. Whole Foods Market offers some 2,400 items in four lines of private-label products (such as the premium Whole Foods line). Founded in Austin, Texas, in 1980, Whole Foods Market pioneered the supermarket concept in natural and organic foods retailing.
With about a dozen stores in Canada and the UK, Whole Foods rings up some 3% of its $11.7 billion in sales outside the US. After announcing plans to open hundreds more stores across Europe, international growth appears to have stalled, at least for now.
Sales and Marketing
Whole Foods spends much less on advertising and marketing than rival supermarket operators. Indeed, in fiscal 2012 (ends September) it spent about $51.3 million (about 0.4% of its total sales) on ads and marketing, up from about $43.2 million the previous year. Instead, the grocery chain relies on word-of-mouth recommendations from its shoppers.
After a rough patch that coincided with the worst recession since the Great Depression -- during which the grocery chain logged five consecutive quarters of same-store sales declines (the first in its history) -- Whole Foods is back on track and picking up steam. Sales increased by more than 15% in fiscal 2012 (ends September) vs. the prior year, driven by an 8.4% increase in same-store sales and the addition of about 25 new stores, including a new store in the UK. Net income jumped 36% over the same period, following a 39% increase in the previous annual comparison.
Whole Foods generated nearly $920 million in cash flow from operations in fiscal 2012 and invested about $456 million in capital expenditures. Of that, about $261.7 million was related to new stores.
Going forward, Whole Foods expects sales growth in the range of 10% to 12% in fiscal 2013 as it continues to add new stores and grow sales at existing locations.
Key elements of the company's growth strategy are the opening of new stores, acquisitions, and increasing same-store sales. In fiscal 2013 (ends September), Whole Foods plans to add up to 34 new stores. Six of those locations are former Johnnie's Foodmaster stores, whose leases Whole Foods acquired in late 2012. The remodeled stores are expected to reopen as Whole Foods Markets before the end of September 2013.
With the incursion of traditional grocery chains (Safeway and Kroger) and retail giant Wal-Mart into the natural and organic food space and fast-growing natural foods chains, such as Sprouts Farmers Market, adding stores, Whole Foods is facing a more mature and crowded retail market going forward. Chastened by the defection of shoppers to lower-priced chains during the financial crisis, Whole Foods is working hard to emphasize its value proposition and shed its pricey image as "Whole Paycheck." To lure shoppers and boost profit margins, Whole Foods has been aggressively expanding its range of private-label items, which includes the 365 Everyday Value and 365 Organic brands. Total private-label sales accounted for about 11% of the company's retail sales in fiscal 2012 and 2011.
Responding to its health-conscious clientele, Whole Foods has pledged that by 2018 all products in its stores in North America must be labeled to indicate if they contain genetically modified organisms.
Mergers and Acquisitions
In 2014 Whole Foods inked a deal to purchase four natural foods stores from New Frontiers in Arizona (in the cities of Flagstaff, Prescott, and Sedona) and San Luis Obispo, California. Averaging some 22,000 sq. ft., the stores will continue to operate under the New Frontiers Natural Marketplace banner. Whole Foods in 2014 also acquired seven leases for stores in the Chicago area from Safeway, which is exiting the market with the closure of its Dominick's chain there. The moves significantly boosts the company's presence in the market. In November 2012 Whole Foods acquired six leases from Johnnie's Foodmaster, a family-owned grocery chain in Chelsea, Massachusetts. The purchase will help Whole Foods expand its presence in the greater Boston area.