I'm a big fan of Whole Foods, both as a customer (when I'm in the US) and as an investor (though my investment in the stock, which dates back to last summer, hasn't ben particularily fruitful so far, but investing is over the long run).
I've posted many times on the company, you may find all posts on Whole Foods here and last august I thoroughly explained why I was a strong believer in WFMI, investment-wise I mean.
1 or 2 weeks ago, we learned that Walmart was scaling back its ambitions in organic food. Though I was rather happy to hear the news, it wasn't a big surprise as it was pefectly in line with my august post. Whole Foods does have a very strong competitive advantage and even Walmart, world's largest retailer, has difficulty in competing with this category specialist.
Merchandising is the art to have the right product in the right place, at the right time, at the right price and with the right atmosphere and display. Obviously, this depends on your customer basis. What works for retailer A doesn't automatically work for retailer B as the latter may lure a different customer profile.
Walmart learned it the hard way with fashion, more upmarket clothes : it simply didn't work.
And it's now the same story again with organic food. One year ago, they launched an agressive organic offensive, announcing with much fanfare they would double the number of items in stores (to about 400) and offering them at Walmart prices. Today, the strategy hasn't really paid off, along in fact with other high-end initiatives Walmart launched.
My take is the following, there's a triple issue here : its an image, a customer profile and an atmosphere mismatch.
- Walmart means "everyday low prices" before all, it doesn't stand for quality stuff at a premium.
- Its customers are very price conscious and price-sensitive, not exactly the same ones that have a propension to pay a premium for quality stuff. Sure Walmart has many higher-income customers, but price-sensitive ones !
- You don't easily sell premium stuff in a "cheap" environment.
Obviously, Walmart has lost its sense of "merchandising" with its recent high-end initiatives. I don't say that they will never succeed in the category, but you don't turn out to be a premium stuff seller overnight !
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Posted by: Michael Malega | May 07, 2007 at 01:09 PM