Can Whole Foods survive? I hope so. But, unless they change, I doubt it.

Posted on Posted in How to Guide for Marketers

Whole Foods has lost 14 million customers the past 2 years. The people they irritated the most: their core customers who used to love the brand. Amazon, who recently bought them, sure has their work cut out to fix what has been messed up. Here are the four main reasons why customers have left Whole Foods.

  1. They got rid of freshly prepared market and used pre-prepared foods,that upset their core customers.
  2. They now carry “unhealthy” and non-organics products such as Cliff Bars, that upset their core customers.
  3. They desperately launched discount “365” brand, did nothing for their core customers.
  4. Mainstream retailers offered same organic products at lower prices. Their non-core customers left Whole Foods.

Notice a trend? Whole Foods does not seem to care about their care customers.

Would you invest in Whole Foods right now?

I remember 20 years ago, someone told me that Blockbuster would go bankrupt once on-line movies would take off. My immediate response was “No way!!!” I had just spent 45 minutes lined up at my local Blockbuster to rent “Usual Suspects” for the third time. How could a brand with so much demand completely fall off the face of the earth?

Now I am starting to wonder if Whole Foods will be around in 20 years? Strategic Thinking Whole Foods I sure hope so. I am a big fan of their brand and all the work they have done. Whole Foods has been the dominant player in ‘organic’ grocery stores the past 20-30 years. They have done everything right. They brought a clear brand positioning, a big idea, a fantastic culture that oozes off the walls of their stores and exhibited through every employee you engage with in the stores. They nail branding as well as Apple, Tesla or Nike. They built an army of outspoken brand fans and they are a beloved brand.

Would you invest in Whole Foods right now? Their market capitalization has fallen from $24 Billion to $9 Billion the last 2 years. None of their moves have re-assured investors that their future is bright.

Is Whole Foods a victim of their own success? 

For the past 70 years, the average grocery stores have served the local community within a 10 minutes drive, with 20,000 skus across 10 aisle grocery stores. The business model of traditional stores pumped out ridiculously high volumes at ridiculously low margins. At the retailer’s head office, the buyers had to beat down manufacturers like P&G, J&J, Coke, Kellogg’s and Kraft. They pushed high listing fees and high trade spend to get any displays or flyer ads. Even after all this work, Grocery stores traditionally make only 20-25% gross margins and then make only 2-4% operating profits. Over the last 10 years Kroger has averaged 22% gross margins and 2.7% operating margins. These are very typical numbers for a grocery retailer.

Whole Foods started as a rebellious disruptor to the grocery category.

Strategic Thinking Whole Foods Rebel BrandWhole Foods came along and figured out they could sell organic raspberries at $5.99  instead of $2.99 for normal raspberries and they could sell organic bacon for $9.99 instead of 3.99. They knew that not everyone would pay, but enough would. Instead of high volume, low margin, they went for modest volume with a much higher margin. Whole Foods averages 35% gross margins (+13% higher than Kroger) and 5.3% operating profit (double that of Kroger).

Up until the year 2000, Whole Foods only had 100 locations, capable enough to own a niche position as a rebel brand, yet small enough to fly under the radar of the bigger grocery players. If you notice the Venn diagram to the right, rebel brands own a niche that is far enough away from the mainstream players, to avoid being seen as a direct competitor. For these rebel brands, they believe it is better to be loved by a few than tolerated by many. These brands take all that passion of their consumers and build around it. At this point, Whole Foods owned organic, and the traditional grocery stores were fine to let Whole Foods own the ‘yoga enthusiasts’.

Most brands start as a rebel brands. They win over the trend influencers, satisfying those consumers who do not want what the mainstream brands offer. The rebel brand takes the aggressive stance against the mainstream, finding flaw in the way they do business.  They stand out as a completely different and a better choice to a core group of trend influencers who are frustrated with all the competitors in the marketplace. This consumer group becomes the most motivated consumers to buy into your new idea. Rebel brands must bring these on board and use their influence on others, as the brand begins their journey from rebel brands to island brands to challenger brands and then onto the Power Player brand. Below is a chart that outlines that evolution, and you can see how to use the different consumer types from the trend influencers and early adopters at the beginning and then finding the mass audience as the brand gets bigger and more powerful.

Brand Innovation

After 2000, the move to organic foods hit a tipping point of acceptance within the mainstream audience. Whole Foods took advantage of this shift and invested in rapid expansion across North America. Whole Foods moved to the next stage of what I call the “Island Brand” stage, where you are so different you are on your own. For the health-conscience consumers, Whole Foods success left the traditional grocery stores in a position where they disconnected from what these consumers want. During this time, Whole Foods expanded from 100 to 430 stores, with forecasts of up to 1,200 stores. Whole Foods had gone from a niche player that traditional grocery brands were willing to ignore to a major threat that pushed the traditional brands to make a counter move.

Strategic Thinking Whole FoodsAs organic moved to the mainstream the traditional grocery store responded by bringing in organic foods into their stores. Most traditional grocery chains report that 25-35% of their fresh food has become organic. These grocery stores are charging 15-25% lower prices than Whole Foods, yet still loving the added margins it gives them.

Simply marketing lesson, no one will ever travel farther and pay more, for something they can get close by at a cheaper price.

As a result, Whole Foods has lost customers to the traditional players. According to Barclays analysts, “Whole Foods has lost about 14 million of its customers over the last 18 months. The magnitude of the traffic declines … is staggering. As most retailers know — once traffic has been lost, those patterns rarely reverse”. Did Whole Foods move to the mainstream too quickly, trying to use the groundswell towards organic among mass consumers to move to a challenger position?

Whole Foods next move was a dumb one.

The history of warfare can be characterized by Generals who over-reacted and under-reacted. Both would lose. Whole Foods made the poor decision to launch a lower price, lower service, and lower margin version of itself called “365”.  I always find it frustrating to watch brands who face an attack and then try to act more like the competitor attacking them, rather than backing up a bit and being themselves. When in a competitive battle, especially against those who own the traditional space who you have attacked, never act like your competitor. Instead of staying themselves, the move to “365” acts more like their competitors.

I do not believe these 365 stores can win. They are a hybrid store which is confusing. They will not attract the mainstream consumer who want their organic foods at lower prices, but still wants to buy Diet Coke and Frosted Flakes. They will not win with the core health trend influencer audience who want more, not less.

How will the 365 stores make money?  Low volume and lower margins is a recipe for bankruptcy.

If they can’t win the mass audience, do they still have the health trend influencers? 

We are seeing local healthy grocery stores pop up around North America ready to offer the health trend influencers more. Due to “costs” Whole Foods has made some moves that will irritate this audience.  They got rid of their freshly prepared market and now use pre-prepared foods. There are now swirling questions about whether their food choices are 100% organic. Whole Foods uses their own standards of judging good/bad food options. Whole FoodsAlso, Whole Foods uses national distribution on most items, not through local farmers. On top of that, Whole Foods carries fairly mainstream brand choices such as Cliff Bars with 28% sugar or Kellogg’s Special K. This confuses or frustrates the health trend setter segment who do not want to see those types of brands in their grocery store.

This leaves Whole Foods potentially without a positioning to stand behind and without a core audience to build around. When you try to be everything to anyone, you end up nothing to everyone. Whole Foods have lost who they are. They could take the advice of Oscar Wilde who once said: “Be yourself, everyone else is taken”.

The problem I see for Whole Foods is they have been spiraling downward with losing sales base, yet they seem unable or unwilling to make the right changes. I would not invest, would you?  While brands start as rebel brands, no matter what stage your brand reaches, when the world around you collapses, I recommend the best thing a brand can do is return back to the rebel status and re-start their brand. Instead of going mainstream with lower price/lower service options like the launch of their “365 store”, Whole Foods should go back to their rebellious roots and go even healthier, go even more local, add high end services back. Make it a full experience the health trend influencers want. Instead of trying to drive high volume from their current audience, they should add higher margin services. Be more like who they were 20 years ago.

When you lose your way, return to the rebel position and kick-start your brand again.

 

At Beloved Brands, we run a Brand Leadership Center to train marketers in all aspects of marketing from strategic thinking, analysis, writing brand plans, creative briefs and reports, judging advertising and media. To read more on strategy, here is a workshop on How to create beloved brands, click on the Powerpoint presentation below:

Beloved Brands: Who are we?

At Beloved Brands, we promise that we will make your brand stronger and your brand leaders smarter. We can help you come up with your brand’s Brand Positioning, Big Idea and Brand Concept. We also can help create Brand Plans that everyone in your organization can follow and helps to focus your Marketing Execution. We provide a new way to look at Brand Management, that uses a provocative approach to align your brand to the sound fundamentals of brand management. 

We will make your team of Brand Leaders smarter so they can produce exceptional work that drives stronger brand results. We offer brand training on every subject in marketing, related to strategic thinking, analytics, brand planning, positioning, creative briefs, customer marketing and marketing execution. 

To contact us, email us at graham@beloved-brands.com or call us at 416-885-3911. You can also find us on Twitter @belovedbrands

Beloved Brands Graham Robertson

 

 

 

Should non-political Brands ever get Political during these politically divided times?

Posted on Posted in Beloved Brands Explained

“Republicans Buy Shoes Too”

 Michael Jordan

The last few years, we’ve seen a divide in politics–bigger than we’ve seen in generations. In the US, it would be safe to say the country is equally divided between democrats and republicans, with about 10-20% acting as the swing vote. There are so many issues that divide us–our views on marriage, guns, taxes, education, healthcare, race, immigration, religion, the environment, war and the list is growing. There are red states and blue states. The most loyal of the Democrats and Republicans are each digging in deeper.  Around the world, we are seeing the same divide, variations different issues.  

Now, if your entire brand is about healthcare, I get that you should have a position anything to do with healthcare. If your about an environmental brand, of course you should have a position on global warming, energy efficiency and oil drilling. And if your a bank, being outspoken on debt, tax rates and the interest rate is well within your realm.  

But if you are selling organic groceries, fried chicken, washing machines or laptops, you’d be really stupid as a brand to pick a side and speak out. I love politics, but I love making money even more. If there is a chance you could lose 45% of your audience, or even 10% because you think it’s important for you to share your political conscience, then terrific. Give up the reins of being a Brand Leader, grab a sign and find a spot on the grass.  

  • The comments regarding support of traditional marriage by Chick-Fil-A’s president Dan Cathy caused a political uproar that definitely had an impact on brand perception. Marketingland noted that the positive brand image that Chick-Fil-A once took for granted was dealt an almost fatal blow and the BrandIndex score in the northeast US for Chick-Fil-A fell from a 76 down to a 35. Chick-Fil-A responded to this disaster by backing entirely out of media comments and distancing the company’s position from the personal opinions of Dan Cathy. But the damage to the brand was cemented when Sarah Palin lined up to get her chicken wings.

 

  • John Mackey, the CEO of Whole Foods, is dealing with a huge backlash from customers of the upscale supermarket chain who have been angered by his recent comments likening Obamacare to fascism.  Mackey, who made the comments during an interview promoting a book on capitalism, has since tried to walk back his more inflammatory statements, explaining he was talking about fascism in economic terms, not as a system of repression under the Third Reich.  Obama supporters, many of whom love Whole Foods, turned on the brand with comments on Twitter, Facebook and any blog they could find. I’ve seen John Mackey on CNN trying to retract comments. I’d suggest he get himself a Communications VP and never talk into a microphone again.  
  • Donald Trump has been one of the most outspoken celebrities in the political area, many times embarrassing himself rather than offering the voice of the right. The Apprentice, once a top 10 show finished 113th last year, with ratings falling from 20 Million people down to 4.5 Million.

Not only is it dumb to divide your market in half, it’s also arrogant to think we care about your view.  Just because you are running a successful Brand, doesn’t mean your view matters.  

Maybe we could all learn a lesson from Big Bird. Even as he was brought into the political debate by a slip of the tongue by Mitt Romney, what did Big Bird and the rest of Sesame Street decide to do with their new found attention. They stayed quiet. That was the smartest political move they could make.  After all, republican kids watch Big Bird and Elmo. 

In terms of Politics, Brands would be better off just staying silent.

Here’s a summary on Creating a Beloved Brand

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Beloved Brands: Who are we?

At Beloved Brands, we promise that we will make your brand stronger and your brand leaders smarter. We can help you come up with your brand’s Brand Positioning, Big Idea and Brand Concept. We also can help create Brand Plans that everyone in your organization can follow and helps to focus your Marketing Execution. We provide a new way to look at Brand Management, that uses a provocative approach to align your brand to the sound fundamentals of brand management.

We will make your team of Brand Leaders smarter so they can produce exceptional work that drives stronger brand results. We offer brand training on every subject in marketing, related to strategic thinking, analytics, brand planning, positioning, creative briefs, customer marketing and marketing execution.

To contact us, email us at graham@beloved-brands.com or call us at 416-885-3911. You can also find us on Twitter @belovedbrands.

Positioning 2016.112