PHILADELPHIA — Shawn Hebb may have one of America’s toughest jobs: convincing people that Whole Foods Market can be an economical place to shop.
This week, leading five customers through a store here, he breezed past the triple cream goat cheese, $39.99 a pound, and the fresh tuna, $19.99 a pound, to focus on the merits of beans, chicken thighs and frozen fish.
Then he held up a $1.50 package of tofu. “It looks gross but it’s delicious,” he said.
Whole Foods Market is on a mission to revise its gold-plated image as consumers pull back on discretionary spending in a troubled economy. The company was once a Wall Street darling, but its sales growth was cooling even before the economy turned. Since peaking at the beginning of 2006, its stock has dropped more than 70 percent.
Now, in a sign of the times, the company is offering deeper discounts, adding lower-priced store brands and emphasizing value in its advertising. It is even inviting customers to show up for budget-focused store tours like those led by Mr. Hebb, a Whole Foods employee.
But the budget claims are no easy sell at a store that long ago earned the nickname Whole Paycheck. Told of the company’s budget pitch by a reporter, some Whole Foods customers said they had not noticed cheaper prices; a few laughed.
Walter Robb, the company’s co-president, acknowledged that Whole Foods was fighting strong consumer perceptions about the chain’s prices, and he added that some of that was deserved. But he said the company had made a strong effort to challenge its competitors on price.
“I’m getting a little tired of that tag around our neck,” he said, referring to the nickname. “We are a lot more competitive than people give us credit for. We challenge anyone on like items.”
Whole Foods’ makeover comes amid a tumultuous time in the grocery industry, as customers struggling to pay for higher-priced fuel and food are trading down to lesser products and discount-oriented stores.
A July survey by TNS Retail Forward, of Columbus, Ohio, found that 20 percent of shoppers have changed where they buy groceries and household essentials because of the economy. The biggest beneficiaries have been dollar stores and discount grocers like Aldi and Save-a-Lot, which offer a limited selection at extreme discounts.
The losers have been convenience stores, drug stores, health and natural food stores, and conventional supermarkets.
In the last month alone, grocery chains like Safeway, Supervalu and Delhaize Group, whose stores include Hannaford Brothers and Food Lion, have lowered their earnings outlooks because of higher energy costs and consumer penny-pinching. On Thursday, Winn-Dixie executives said increased budget offerings in the most recent quarter had bolstered sales but hurt the company’s earnings.
“The economy caught a lot of them off guard,” said David Orgel, the editor in chief of Supermarket News, a trade publication. He said that many grocers, aiming to compete with the likes of Whole Foods, have spent the last few years positioning their stores for a “more upscale experience.” They are suddenly scrambling to give consumers the budget items that they are demanding.
Making matters worse for Whole Foods, consumer interest in organic food appears to be leveling off after several years of double-digit growth, according to the Hartman Group, a market research firm specializing in health and wellness.
Laurie Demeritt, president of the Hartman Group, said core consumers for organic goods, about 15 percent of the population, are becoming even more committed. But people less attached to such items are continuing to buy organic dairy products, produce and meat, and are buying fewer organic goods among packaged items, like cereal and crackers, she said.
“They don’t see those center-store categories as being so important,” she said. “The economy has only exacerbated that situation.”
The downturn in the economy comes during an inglorious stretch in Whole Foods’ otherwise remarkable 28-year history. It was not long ago that Whole Foods was the toast of Wall Street and the envy of its competitors, with its gleaming stores stocked with organic produce, hormone-free meats and premium cheeses.
But Whole Foods’ stock has been sliding for two and a half years, in part because it was not able to maintain the double-digit same-store sales growth that was once routine and because its margins have been hurt by an aggressive strategy for adding new and bigger stores.
(The chain’s same-store sales increase, 6.7 percent in the second quarter, and its gross profit margin, 35 percent, remain among the best in the industry.)
In the last earnings report, in May, Whole Foods executives said it was not clear how the weak economy was affecting sales. On Tuesday, the company will report earnings for the most recent quarter, one in which many other grocers struggled.
“It’s becoming clear that this worsening economic environment is having an impact on consumers at all economic levels,” said Mitchell P. Corwin, an analyst at Morningstar. “The Whole Paycheck image can really hurt you.”
Mr. Corwin said it would take time for Whole Foods to change that image. “When you walk into these big beautiful stores, it’s hard for a consumer to think that it is a value-oriented type of retailer,” he said.
Andrew Wolf, an analyst for BB&T Capital Markets, said Whole Foods was “a tale of two stores.” He said the grocery items in the middle of the store are competitive if not cheaper than those at other stores offering the same products, mentioning items like Kashi cereal.
But he said that Whole Foods was more expensive on the perimeter of the store, where it sells produce, meat, seafood and prepared foods, items that account for the majority of sales.
“They’ll say the price is higher, but the quality is higher,” he said. “It’s kind of, ‘You get what you pay for.’ ”
With the economy still deteriorating, a big question for Whole Foods is whether even its core customers will continue to pay prices like $6.99 a pound for all-natural, air-chilled chicken breast or $12 for a bag of cherries.
“We’ve seen evidence of people being more careful with their choices,” said Mr. Robb, the co-president, who said that consumers were still buying items like wine and cheese, but perhaps buying cheaper varieties.
Despite the economic turmoil, he said consumers remained intensely interested in health and the quality of their food, where he believes Whole Foods has an edge.
The company’s budget strategy is on prominent display at its expansive store in Edgewater, N.J., which competes with a Trader Joe’s down the street. A tomato-colored “Weekly Buys” flier is clearly visible by the front door, and sale signs are sprinkled throughout the aisles.
Burger patties were on sale recently for a dollar each, while value packages of fresh cod and salmon were a dollar a pound less than smaller amounts purchased at the fish counter.
Still, it was hard to find a shopper who considered Whole Foods a bargain, though many raved about the store’s organic goods, produce, meat and fish.
“It’s a great store, but I don’t see it as a value,” said Linda Martino, 41.
But Susan Davis, 56, said she had noticed more sale signs. “I came for something else one day and was shocked to find the meat on sale, so I bought it and put it in the freezer,” she said.
At the conclusion of the “Value Tour” in Philadelphia one recent evening, one participant, Katera Moore, said she thought it had been worthwhile because she had learned about a few bargains, like frozen fish fillets and domestically produced cheese.
Even so, she said she considered Whole Foods expensive for average people. Ms. Moore, 34, said, “It was only cheap if you were a vegetarian willing to eat beans and tofu.”
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NY TimesLabels: Whole Foods
