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Whole foods business: Fingers crossed

Even though the growing popularity of organic foods may represent a huge opportunity for Whole Foods, its grip on the organic foods market is slipping.
Even though the growing popularity of organic foods may represent a huge opportunity for Whole Foods, its grip on the organic foods market is slipping.
Photo by Spencer Platt/Getty Images

Even though the growing popularity of organic foods may represent a huge opportunity for Whole Foods, its grip on the organic foods market is slipping.

For a long time Whole Foods (the American seller of organic and natural foods) had the field to themselves. Not anymore. The years 2013 to 2014 represent a period when stock markets have been strong. Yet the shares of Whole Foods have fallen more than 40 percent after hitting a peak in October 2013(Morning Star, 2014).

Of course Whole Foods is not in immediate danger: On July 30th, its quarterly reports showed increased sales revenue and profit, even though the size was not that significant. Besides, the demand for foodstuffs produced without chemical fertilizers, pesticides or additives had continued to increase. Many people are even willing to pay more for organic foods. According to the Organic Trade Association (OTA) the sales of organic foods and beverages in the United States have grown from $1 billion in 1990 to $26.9 billion in 2010. This sales value for 2010 also represents 7.7 percent growth over 2009 sales. Other independent studies also estimates that the revenue that accrued to the organic foods industry worldwide in 2012 were a record $63 billion. Given these mouth-watering statistics, the organic foods industry should anticipate annual increases in demand for their products, with another independent research predicting that it would reach 14 percent by 2018 (Organic Trade Association, 2011; The Economist, 2014).

Us versus them

The problem is that Whole Foods, once the north star of the organic food industry, is facing an existential threat: its success in attracting shoppers who are willing to pay way over the cost of regular produce has attracted a lot of competitors, including organic chains and mass market retailers like Sprouts, Trader Joe’s, Wal-Mart, BJ’s and Costco(Orgel, 2014). It is thus not a surprise that the price premium for organic foods is crashing down.

As a first line of defense, Whole Foods has been trimming costs to keep its profits up. However, the slump in its share price is a strong indicator that it is no longer the darling of the investors and that there’s a high possibility that profits will suffer in the long run. Besides, the advent of more competitors also means that Whole Foods’ dominance of the market is coming to an end: the firm has now become one light in a constellation.

The rate of product recalls in the industry is also not making things easy for Whole Foods: the company and other grocers recalled plums and peaches suspected of contamination with Listeria bacteria last July (Wilson, 2014). Added to this is the emergence of a new group of consumers who doubts organic food’s claim to superiority. Numerous publications, including the Annals of Internal Medicines – a peer reviewed journal - finds scant evidence of superior health benefits of organic foods (Brandt, 2012; Economist, 2014). Besides, organics may be bad for the environment anyway, since growing them uses land less efficiently than non-organic foods. All these issues have made it harder for Whole Foods to maintain an air of superiority over its competitors.

I, the supreme?

In any case, there’s yet to be an official definition for “natural” foods. So, in as much as Whole Foods may apply “all natural” label to many of its products, it is difficult to prove what makes them more natural than the non-organics. As a matter of fact, numerous published evidence has proved that the organic food industry thrive on aggressive marketing and public perception: people are drawn to them by their fabricated stories of the good old days when life in general and food in particular was simple and wholesome (Academics Review, 2014; Economist, 2014). The fact that this trick has worked nicely all these years for Whole Foods shows that the industry is doing a good job of promoting their products. Unfortunately for the Whole Foods, its success has attracted many imitators who want a piece of the action, causing it to lose its uniqueness. Even though the firm has recently been making a push into smaller, more sub-urban areas, where there is less competition for high-end grocery stores, it is still facing stiff challenges increasing overall customer traffic growth.

References

Academic Review (2014): Organic Market Report. Retrieved August 26, 2014 from http://academicsreview.org/wp-content/uploads/2014/04/AR_Organic-Marketing-Report_Print.pdf

Brandt M. (2012): Little Evidence of Health Benefits from Organic Foods, Study Finds. Stanford Medicine News Center. Retrieved August 26, 2014 from http://med.stanford.edu/news/all-news/2012/09/little-evidence-of-health-benefits-from-organic-foods-study-finds.html

Economist (2014): Whole Foods Market – Victims of Success. Retrieved August 27, 2014 from http://www.economist.com/news/business/21610289-peddler-pricey-organic-and-natural-foods-finds-it-has-competition-victim-success

Morning Star (2014): Whole Foods Inc. Retrieved August 26, 2014 from http://quote.morningstar.com/stock/chart.aspx?t=WFM&region=usa&culture=en-US

Organic Trade Association (2011): Industry Statistics and Projected Growth. Retrieved August 26, 2014 from http://www.ota.com/organic/mt/business.html

Orgel D. (2014): Whole Foods Goes Radical in Face of Big Challenges. Supermarket News. Retrieved August 26, 2014 from http://supermarketnews.com/blog/whole-foods-goes-radical-face-big-challenges

Wilson J. (2014): More Stores Affected By Listeria Food Recall. CNN Health. Retrieved August 26, 2014 from http://www.cnn.com/2014/07/22/health/costco-fruit-recall/