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Whole Paycheck or the new value paradigm?


Whole foodsAfter months of share price declines and investors calling for Whole Foods Market to slash prices to better compete with natural/organic offerings at conventional supermarkets, Whole Foods has begun to unveil its response to the broader marketplace.

In last night’s World Series launch of its first-ever national ad campaign, Whole Foods took a bold stance in the grocery landscape. The ad is composed entirely of shots of Whole Foods suppliers at work in their fields, on their ranches and at sea. There is a surprisingly all-American feeling to the ad, reminiscent of a Budweiser commercial.

The key theme of the spot, for those who missed it, is the unparalleled sourcing standards of Whole Foods’ fresh perishables. However, the ad presumes a lot about the household reach of concern over how produce, seafood and meat are sourced. We’ll return to this in a bit.

Although some love to critique Whole Foods for not getting into a pitched battle with conventional supermarkets on price for natural/organic foods, this ad campaign definitively ignores the tired Whole Paycheck critique and focuses instead on doing two very clear things from a branding perspective:

  • Associating the Whole Foods brand with the area of the grocery store that has driven its success from the very beginning: fresh perishable cooking ingredients
  • Associating the Whole Foods brand with the highest standards of sourcing and procurement possible: how food is grown (produce), raised (meat) and caught (seafood), although specifics are not abundant

What better way to neutralize the brand’s price stigma than to simply reframe the argument around what constitutes value? For those who define value based primarily on price (most of Wall Street and the food industry), Whole Foods’ campaign responds by torpedoing this premise entirely. Its new motto: “Where value is inseparable from values.” Values around sourcing, that is.

In the new premium food marketplace, we’ve written about how companies today can justify and sustain a price premium only by providing products/services with extremely distinct (preferably difficult-to-match) standards for sourcing or production…or both. Whole Foods has chosen sourcing distinctions for several reasons many may not be considering.

  1. Fresh perishables constitute the area of the grocery environment that has built Whole Foods’ success for over thirty years. And sourcing criteria are the only quality distinctions available to deploy.
  2. Fresh perishables are where Whole Foods makes its money, especially prepared foods. It simply has to build its brand long term around its profit center.
  3. Fresh perishables are where Whole Foods opens up the path of least resistance for shoppers new to the brand, because it is a world where legacy brands are either nonexistent or simply ineffectual. There is no reason not to try Whole Foods’ fresh offerings, because there is no one at home to scream, “but I only eat Chiquita bananas, honey!”
  4. Whole Foods’ long-term strategic advantage as a company lies not in its upscale retail environments (this can be mimicked well enough), but rather in the extremely innovative, farm-to-store, fresh supply chain they have spent decades building to a national scale. Whole Foods even has foragers who scour the rural environment full time for great local and seasonal produce. No large supermarket chain, regardless of its available capital, could possibly duplicate what they have on anything less than a ten-year time frame…if the relevant producers are not already part of Whole Foods supplier ecosystem.

But what about consumer demand for their new positioning? We know that consumers are more concerned about transparency in the food supply than ever before. But does this mean that sourcing criteria are key purchase criteria in produce, seafood and meat? And for whom?

If we look at produce specifically, we see an instructive example. In our most recent research on sustainability purchase drivers in produce, we find that only 14% of American adults are aligned to Whole Foods’ brand positioning, meaning they are consumers who: a) are concerned about sustainability at some level, b) buy produce and c) look frequently for evidence of natural agricultural/farming methods in the produce they buy (either by selecting a retailer who curates their produce accordingly or by looking for at-shelf information).[1] This is a decently sized niche, but certainly not a mass market behavioral orientation yet.

We’ve known for years that fresh perishable ingredients are where concerns over sustainability at the grocery store have the most salience with consumers. Produce, seafood and meat are literally one step away from nature in the consumer’s mind, easily connected to sources on land or in the sea. Thinking about traceability in a box of snack crackers or a frozen entrée is just too complex and bewildering. Sustainability only works as a purchase driver in center store when the category has a singular-ingredient supply chain stigmatized heavily in popular culture (e.g., cacao in the chocolate category).

Sourcing standards are a brilliant brand builder for Whole Foods as they continue to carve share away from traditional grocery stores’ fresh perimeter sales. But what kinds of sourcing standards? Last night’s ad is absent of specifics, perhaps hoping the truly motivated will go to the Values Matter website and find out. When we arrived there, we noticed that the sourcing standards described focus mostly on ethical, environmental and community-building standards.

We see two notable sources of risk in this approach:

  • Anchors the brand in nonsensory symbols of distinction: we believe that, like any symbolic attribute not connected to the sensory experience of eating (tongue and nose), abstract sourcing criteria will ultimately max out their household reach (as drivers of repeat purchase) much sooner when compared to the more hedonic aspects of food culture. What about sourcing for optimal taste/flavor? 
  • Exposes the brand to further skepticism and analysts’ critique: as Whole Foods trumpets the superlative status of its ethical and environmental sourcing criteria, it will invite loud and aggressive critiques. Some of these attacks will be orthogonal (e.g., but your carbon footprint is poor) and some will be direct. This is the downside of success anchored in high moral standards. Someone is always ready to throw stones.

In light of the former risk, especially, we believe Whole Foods should do all it can to ensure that its world-class sourcing actually produces the undeniably best-tasting meat, produce and seafood available in the U.S. Ethically sourced but mediocre-tasting produce will not be in their long-term best interests. It is in the shopper’s mouth and the aromas of the shopper’s home kitchen that Whole Foods’ real equity lies. 

 

[1] Hartman Group Sustainability 2013 report, n= 1355; U.S. Census adult population figures from April 2013; Hartman analysis

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Retail/Shopper Insights Point Of View


FOOD SHOPPING IN AMERICA 2017

As leaders in the study of American food culture, The Hartman Group has been tracking how Americans shop for food since the 1990s. From one-stop shopping to multichannel shopping to online markets and click-and-collect, we continue to track consumers’ evolving perceptions, needs, habits and relationships with food retailers. New to the 2017 report is a special section on the expansion of the discount grocery channel, the emerging fresh-format channel and smaller-footprint retail formats.

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