Why Whole Foods' changes could mean profit for national brands

The grocery retailer's efforts to fix the "Whole Paycheck" problem means big brands can help fill a void with their own offerings.

With the news that Whole Foods will change the way they buy and merchandise local brands, an opportunity has emerged for bigger national brands already on store shelves. Namely, they should begin increasing their attention to Whole Foods, to help fill the void with their own nationally branded natural and organic offerings. 

As the Wall Street Journal reported, Whole Foods locations will soon stop allowing brand representatives to promote products or check on stock and displays. Ouch. This essentially means that paid brand advocates brought in to promote local products (a well-known mainstay at Whole Foods’ 470 stores across the U.S.) will no longer have direct access to individual stores.

In their place, Whole Foods is reorganizing with multiple centralized capabilities from merchandising, category management, measurement and marketing, much like leading mainstream grocers like Kroger. This will have the benefit of a more streamlined logistics and buying process, and should result in generally lower prices for shoppers—a key brand problem disdainfully referred to as "Whole Paycheck." The company knows it has to address this challenge to succeed, and believes this move will chip away at the problem.

Now, deemphasizing locally-sourced products will come with a cost to the Whole Foods brand. Long considered a shining beacon of commerce for local, organic food suppliers, the company will lose some of its farmers’ market cache. That said, it’s likely that with a more centralized buying structure, Whole Foods will still allow regional store groups to exercise some leash to buy locally.

How will they deal with the loss of brand cachet? Experience—from click-and-collect to ordering through Alexa and Amazon Pantry, and more importantly making Whole Foods more accessible to the core shopper. There’s much to be gained from a long-game approach where the short-term economics don’t make stockholders happy, but get customers back in-store because the price is (more) right, and the shopping experience is second to none.

Whole Foods will continue to push loss-leaders like salmon, selling it and other staples at a loss, and in doing so not only regaining their core, but attracting a more mainstream shopper, whose visits to Whole Foods are more frequent. This action will position them more directly with Kroger, Publix, HEB and Trader Joe’s—and anyone else who wants to play the organics/one-stop shopping game. 

And they have to. For the last 10 years, leading mainstream retailers like Kroger, Stop & Shop (Ahold), Publix, HEB, Safeway, and more have implemented substantial improvements to their natural and organics offerings, more than enough for Whole Foods shoppers who don’t want to sacrifice entire paychecks to an all-organic diet. The overall experience in these retailers has improved greatly, too. 

If Whole Foods can successfully bring shoppers back with lower prices and augment sales through click-and-collect or even home delivery, product selection will (nearly) equalize between it and the other big grocers. You’ll absolutely see a greater representation of national, familiar brands at Whole Foods and an increasing number of national organics brands (think Cascadian Farms, owned by General Mills, or Kashi, owned by Kellogg). So shoppers will increasingly feel they can get everything they need at Whole Foods, a hugely important step forward for the retailer.

After all, many shoppers felt a trip to Whole Foods needed to be supplemented by another trip to another store to get staple items like laundry detergent, paper goods, and more mainstream food brands. When this shift happens, and Whole Foods becomes a one-stop shop, the key differentiator will be all about shopper experience. 

Will shoppers prefer Whole Foods’ unique footprint, a strategy where each store has a different layout? Or will they want a more practical footprint replicated from store to store like with Kroger? Don’t let the "sea of sameness" fool you, the brand’s acquisition—and brand adoption—of Murray’s Cheese, along with a big increase in local goods like beer and wine, have improved the experience greatly. It’s far too soon to say who will come out on top, but Kroger and Whole Foods are on the warpath.

The good news for bigger, national brands? They now have the opportunity to grow distribution and share at Whole Foods. It will push everyone to continue developing products bearing non-GMO, natural, free range and other green labels suitable for organic shopper tastes. And with those advancements, there will be another big winner: shoppers themselves.

Peter Cloutier is CMO at Catapult Marketing.

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