17 Aug Is Whole Foods a Victim of Their Own PR Success?
Whole Foods has had the market on trendy, organic, wholesome food items cornered for years. But, recent shares of Whole Foods stock have plunged more than 10 percent after the company continues to miss forecasted sales and profits numbers. What did the high-end natural grocery chain do to get its customers and shareholders up in arms?
Whole Foods put a stake in the ground with their natural, organic products and was able to charge a premium price for their products for years. Over time, that model made them the fodder for jokes, earning them the nickname “whole paycheck.” To counter this bad reputation, Whole Foods began cutting prices, but instead of changing the story for the better, the company has hurt their profit margin.
To make matters worse, the New York City Department of Consumer Affairs found Whole Foods to have mislabeled and over-charged patrons for some weighted, packaged goods. Inspectors investigated various prepackaged products and found that none of them had correct weights and that most violated federal rules for how much a package can deviate from the actual weight.
Right away, Whole Foods top executives owned up to the allegations, posting a video apology to the company’s blog on June 29th. “Straight up, we made some mistakes, we want to own that,” co-CEO Walter Robb said alongside co-CEO John Mackey. The video attributed the weights and measures errors to inadvertent human mistakes. The CEOs claim the company’s hands-on approach allows them to deliver the freshest produce to customers, but also lends itself to unintentional errors.
From a public relations perspective, they responded to the crisis head on and communicated fault. Doing so in a video gave them a bit more credibility than releasing a blanket statement. They owned the mistake and gave an actionable plan of how they would correct the issue. Problem is, the brand was already hurting. As noted by the falling stock price and ‘too expensive’ image, this scandal just added fuel to the fire. And don’t forget the latest asparagus water mistake.
So what’s the company to do with falling stock prices and a damaged brand reputation? Create a spin-off company, of course. The concept, 365 by Whole Foods Market, will be aimed at younger consumers in urban areas. The stores will be smaller and offer cheaper products. Economists say that millennials eat out less often and are poorer due to the Great Recession, which created permanent damage to this generation’s earning capacity.
The model of organic and fresh is no longer niche; it’s mainstream, which is increasing the number of stores that can compete directly with Whole Foods. Almost all major grocery chains, including Costco, Kroger, Publix, Wegmans, and Trader Joe’s recognize the demand and now offer organic foods for cheaper prices. For example, Kroger’s Simple Truth brand netted a reported $1.2 billion in 2014.
In addition to cheaper, more selective products, Whole Foods has promised to use “innovative technology” to create something “unlike anything that currently exists in the marketplace.” With many stores already offering online shopping, digital scanning for more product details, etc. what will Whole Foods offer at these cheaper, more urban stores that isn’t already out there?
Skeptics aren’t so sure this will work for Whole Foods though; after all there is already a Whole Foods store in most of the targeted “urban areas.” Wouldn’t Whole Foods just be undercutting the profits from their main store? It’ll be interesting to see how the company plans to keep prices down and public opinion trending upwards. If it fails, Whole Foods may not survive the public relations backlash.