Can Whole Foods’ business afford higher prices?

Discussion
Photo: RetailWire
Feb 13, 2019
George Anderson

Prices are on the rise at your local grocery store as consumer packaged goods companies pass along increases to retailers, citing higher commodity costs as the primary factors behind their decisions.

A Wall Street Journal article published earlier in the week pointed to plans by national brand manufacturers including Church & Dwight, Colgate-Palmolive, Clorox and Procter & Gamble to put through increases on a wide variety of everyday staples. New price increases come on top of others put through last year.

The inflationary pressures facing major CPG brands also extend to other suppliers, including those filling smaller niches such as organic groceries. Another Journal article, published yesterday, cited internal documents from Whole Foods showing the chain had raised prices to consumers in response to increases put through by suppliers.

While higher prices at the supermarket may or may not get the attention of shoppers, the symbolism of upward changes may mean more for Whole Foods under the ownership of Amazon.com, which has made a show of lowering some prices at the chain since the acquisition in 2017.

Not long after being acquired, John Mackey, co-founder and CEO of Whole Foods, said that Amazon had saved the grocery chain from the “trap” of its “Whole Paycheck” image.

As in the past, the CPG brand price increases force retailers to make some decisions. The first is whether they can accept a higher cost in the first place. Assuming that delisting a particular item is not the answer, grocers are left with either passing the full increase along to their customers and protecting their own profits or doing some “investment spending” — i.e., eating some of the cost in an effort to keep consumer prices down.

According to the Journal, a Whole Foods spokesperson said the chain was passing along some of the increases it has received while absorbing others.

DISCUSSION QUESTIONS: Do you think Whole Foods has more room to raise prices than other grocers or is it limited by its recent promises to lower prices? Are you concerned that higher prices may decrease consumer spending at retail over the next year?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"After making a big to-do on lowering prices, to turn around and increase them will erode customer trust."
"...why aren’t we talking about P&G who raised prices in July, September and has announced with other CPG companies they are raising them again?"
"The aura of saying “I do my shopping at Whole Foods” has diminished. Most of us are more concerned with how our money is spent rather than where."

Join the Discussion!

19 Comments on "Can Whole Foods’ business afford higher prices?"


Sort by:   newest | oldest | most voted
Neil Saunders
BrainTrust

High prices are a big issue for Whole Foods. There are too many comparable items that are priced way above other retailers, including Amazon. There is nothing in the Whole Foods experience to justify such a premium.

The impact is that basket sizes are lower, shopper numbers are reduced, and loyalty is weakened. All things that crimp revenue growth.

That said, Amazon has other ways of boosting volume — via physical and digital expansion. So while pricing is an issue, there is no massive urgency to fix it. At least for now!

Anne Howe
BrainTrust

I believe Whole Foods may keep the shopper for specialty items (like the incredible fresh salmon) but will be at bigger risk to lose the cart full of CPG staples to bigger grocers with more pricing flexibility.

Zel Bianco
BrainTrust

My sense is that Whole Foods will not be able to raise prices any more than it already has and in fact needs to do more to bring prices down. As the journal article stated, they lowered prices on some items and then recently raised them on many others. When you compare Whole Foods pricing to other retailers, at least in the NY Metro area, there is still a significant difference on almost every item in most categories. I certainly realize that most other supermarkets do not carry as many organic items as Whole Foods, but Fairway and some others are getting closer, and the cost savings is often worth the trip.

Richard J. George, Ph.D.
BrainTrust

As noted, Whole Foods, with its acquisition by Amazon, has tended to mitigate its high price image. Given the plans of the noted CPG manufacturers to attempt to raise prices (all prices are on trial), the impact may be more noticeable in other more price driven supermarkets. In addition, the relationship with Amazon, has given Whole Foods an advantage over other retailers still trying to figure out and fund online food shopping.

I don’t perceive that consumer spending on the noted staples will decrease. The biggest potential impact on higher branded CPG pricing is the substitution of private label or store brands for national brands.

Liz Adamson
BrainTrust

While higher pricing is often a necessary reaction to the increasing cost of goods, in the case of Whole Foods it will have a yo-yo effect on their customers. After making a big to-do on lowering prices, to turn around and increase them will erode customer trust.

Ken Lonyai
BrainTrust
We’re regular Whole Foods shoppers and started shopping our local store the day it opened. We’ve dealt with the slide in the quality of that shopping experience that began about a year after the store opened, doing nothing but accelerating downward under Amazon’s “leadership.” Higher prices are going to tank the brand even more. There’s a huge myth about Amazon lowering prices at Whole Foods that the media sucks up without investigating. Sure, they did lower some prices, but in a token sense only, not in a way that would positively impact many shoppers, if any. Going the opposite way is a failure. Neither the Whole Foods brand nor the association with Amazon is strong enough to attract new customers with prices going up—maybe not even with them holding the line. There are so many issues with their stores now, such as high employee turnover/disgruntlement, empty shelves, seemingly a reduction in organic products(?), poor quality produce, and absolutely higher prices than area competitors on a SKU for SKU basis. So what’s the end game here:… Read more »
John Karolefski
BrainTrust

Obviously, Whole Foods has less room to raise prices than other grocers because of recent promises to lower prices. Shoppers notice and appreciate such promises. Raising prices across the board would diminish the brand and reduce shopper loyalty, so Whole Foods will do so selectively. Money is money, after all.

Brandon Rael
BrainTrust

The post-Amazon Whole Foods acquisition shopping experience has not lived up to its promise of increased savings, Prime benefits, and an improved assortment. Whole Foods already suffers from the “Whole Paycheck” moniker. Even though customers see the Prime savings signs throughout the store, the savings simply are not significant enough and are not living up to the hype.

There are far more competitors already creeping up to Whole Foods organic and holistic living strategies. Everyday grocery staples, produce, meat and seafood are already priced at a premium rate as it stands. If Whole Foods/Amazon have to find ways to increase their prices, there has to be a way for Prime members, who are spending $119 per year, to garner more benefits and savings whole shopping at Whole Foods.

Another way for Amazon and Whole Foods to extend savings to their customers is to increase their penetration of the 365 private label offerings.

Mark Heckman
BrainTrust
Before addressing the immediate question of the impact of raising prices, let it be known that the match between Amazon and Whole Foods was flawed from the very outset. At the time of the acquisition, Whole Foods was struggling with growth and profitability but yet had a very compelling customer proposition for the “foodie” niche. Along with their national footprint which I am sure was a prerequisite for Amazon, the acquisition made sense as some levels. However, the Amazon Prime customer is much more mainstream in their shopping tastes than Whole Foods. This disconnect has always been a limiter in growth development and will continue to thwart synergies between the two, irrespective of pricing policies. As far as raising prices is concerned, it will only exacerbate the gap between Amazon Prime customers and Whole Foods. How could it not? By the way, the retailer always has the option of absorbing price increases from suppliers and maintaining more competitive pricing at the shelf at a lower margin. Blaming price increases on suppliers instead of accepting lower… Read more »
David Naumann
BrainTrust

Whole Foods doesn’t have more room to raise prices than other grocers, as they risk the resurrection of the “Whole Paycheck” reputation. Whole Foods will always be considered a premium grocery store with higher prices and its core consumers accept it as they appreciate the quality of products and the extensive selection of organic foods.

All grocers will need to increase prices to protect their profits and consumers will see higher prices everywhere. The slightly higher prices shouldn’t impact staple grocery items as they are non-discretionary purchases; however, for other non-essential items, some consumers may decide to purchase those items less frequently.

Gene Detroyer
BrainTrust

Whole Foods is headline fodder. If we are talking about raising prices, why aren’t we talking about P&G who raised prices in July, September and has announced with other CPG companies they are raising them again?

Granted, Whole Foods isn’t terribly affected by pricing of the traditional CPG companies, but they are affected by the very same costs that those companies are experiencing.

Ed Rosenbaum
BrainTrust

Acceptable, yes. Willingness to spend a lot more money to say they shop at Whole Foods, no. The aura of saying “I do my shopping at Whole Foods” has diminished. Most of us are more concerned with how our money is spent rather than where.

Ryan Mathews
BrainTrust
I have never believed that prices are important, but always believed price impression is mission critical. The Whole Foods customer was prepared for — and perhaps reveled in — the fact that they were often overpaying for food. And yes, Amazon did get lots of ink for “lowering” prices and will, no doubt, get as much or more ink for floating them back up. But pricing was never the issue at Whole Foods. Shoppers went there despite the pricing and they are not likely to defect en masse because of it — assuming the chain doesn’t start a policy of insult pricing. So I think Whole Foods does have the ability to raise prices more easily than a Kroger or Walmart. As to the second part of the question, I think too many retailers may have confused the short term excitement of a hot economy with the long term impact of the forces fueling the fire. Middle class shoppers are starting to realize that their tax refunds may be lower this year and that may,… Read more »
Steve Montgomery
BrainTrust

My expectation is those customers who started shopping at Whole Foods after Amazon lowered prices and touted doing so would see this as a bait and switch. The three steps to acquiring new customers is break their existing shopping habit, create a new one with you and then reinforce it.

Amazon lowering Whole Foods’ prices consisted of taking steps to get new customers and reinforce why existing customers should continue to shop with them. Raising the overall price structure will negate the impact of what they accomplished, and they will revert to being seen as Whole Paycheck again.

Doug Garnett
BrainTrust

Whole Foods has been remarkably price insulated. Yes, they have a reputation for higher prices. But if these prices are across the board, it’s not that they are extracting unusual margins from products. So the inflation situation described above is unlikely to cause a problem for them.

All that said, it reminds me of how much Amazon was able to get the press to buy off on a “lower price” mythology when they purchased Whole Foods. Story after story repeated it – yet the studies of prices showed virtually no change and that was even for Prime customers.

Bob Phibbs
BrainTrust

The value shopper was never the Whole Foods shopper. Of course they have room to raise prices.

Ricardo Belmar
BrainTrust

I don’t believe Whole Foods customers consider them for staple items that these CPG companies will be raising prices on — so they may have more room to absorb price increases than other brands. However, this shouldn’t be used as an excuse for Whole Foods to raise other prices as they cannot afford to return to the “Whole Paycheck” label. The real issue is that these CPG companies continue to raise prices, to begin with — who is talking about the reasons for this?

Craig Sundstrom
Guest

I would amend what George wrote to “ATTEMPTING to pass … the full increase…” After all, it’s ultimately the consumer that decides whether that works or not (indeed I think that’s the focus of this post).

But will WF’s customers allow this or not? Given that their focus was never on price, per se, I think they have some flexibility … particularly on fringe items. No one’s going somewhere else to save 20 cents on toothpaste after they just spent $365.13 on food; but of course there’s a limit: raise everything 20% and you’ll find the aisles of TraderJoe’s, Sprouts, et al just got a little more crowded.

Richard Layman
Guest
3 months 8 days ago

For WF’s core customer, I don’t think price is the issue. I don’t shop there except for specialty items, because I can’t afford it. But I see plenty of people shopping there with full baskets. By building the “membership” base with Amazon Prime and the very good discounts that are specially offered to Prime members, that’s probably enough.

They might not be able to expand beyond the core customer base in a substantive way, but with the Amazon Prime connection, maybe that doesn’t matter.

wpDiscuz
Braintrust
"After making a big to-do on lowering prices, to turn around and increase them will erode customer trust."
"...why aren’t we talking about P&G who raised prices in July, September and has announced with other CPG companies they are raising them again?"
"The aura of saying “I do my shopping at Whole Foods” has diminished. Most of us are more concerned with how our money is spent rather than where."

Take Our Instant Poll

Will customers at Whole Foods be more accepting of price increases than those who shop at other grocery chains or less?

View Results

Loading ... Loading ...