Whole Foods experienced a dramatic drop in its share price this week. The shares fell 20% as the company projected slower growth in the future. What's affecting the company's growth rates? Many new rivals have emerged, including conventional grocers who are allocating much more shelf space and attention to the organic food category. Moreover, Whole Foods has tried to emphasize value more so than in the past, so as to compete more effectively with these conventional, lower-priced rivals. The company, after all, does have a reputation as "Whole Paycheck." Whole Foods also has felt pressure to emphasize value as it has moved into new geographic markets within the US where customers are not as affluent. The emphasis on value, i.e. lower prices, naturally has a short term negative impact on sales growth (as each item generates less revenue), though it may help bolster growth in the long run.
What's the danger here for Whole Foods? If they drop prices and emphasize value in a big way, they may take away from their high quality, high service, differentiated positioning. If they don't pay attention to value at all, they may sacrifice growth and lose market share in the organic category. In short, Whole Foods faces a conundrum many differentiated, premium players encounter as they begin to saturate their original niche and as new rivals emerge. Whole Foods would be well-advised to take great care that they don't allow a desire for growth and market share to cause them to dilute a strong brand and to hurt a premium image. Many other premium niche players have made that mistake, and they have learned that it is very hard to recover from such an error.
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