Whole Foods Market, Inc. (NASDAQ:WFM) has made three bold moves in 2013: in February, it announced an investment in lower prices to attract consumers from a broader income spectrum. Then in March, it unveiled a company initiative requiring all suppliers to label GMO-containing products by 2018. Finally, on May 7, it announced plans for a 2-for-1 stock split later this month.
The first move indicates Whole Foods Market, Inc. (NASDAQ:WFM)’ ambitions to expand market presence into the profitable grocery mainstream, the second indicates the company’s fashion-forward food stance and belief that consumer sentiment will stay swinging toward organic food, and the third move comes on the heels of Whole Foods’ forecast-shattering 20% second-quarter rise in profits.
Whole Foods Market, Inc. (NASDAQ:WFM)’ three bold moves rely on certain assumptions about stakeholders — and depending on how these assumptions play out, Whole Foods’ actions will either reap rewards or compound risk.
Lower margins: Risking market power?
Despite a long-held reputation as a pricey upscale grocer, Whole Foods Market, Inc. (NASDAQ:WFM) has managed to steadily expand customers, storefronts, and profits. Thus the company’s February decision to lower prices to attract more customers and discourage competitors marked a crossroads in growth strategy.
But was Whole Foods’ move the best way to compete? By focusing on lower prices at the potential loss of better branding, Whole Foods Market, Inc. (NASDAQ:WFM) risks losing market power — a microeconomics term measuring a company’s ability to raise prices without sacrificing customers. The more market power a firm has, the stronger its brand differentiation and the less sensitive its customers are to price fluctuations.
Whole Foods’ success has relied on market power from inception with brand differentiation like higher-quality food, prioritized employee welfare, wellness and cooking classes, plus investment in community and global social enterprises. For Whole Foods to focus on lower prices assumes that customers at Whole Foods are price-sensitive, and forgoes the notion that for certain consumers, buying pricey organic food is as much about displaying social status as it is about the food itself. As big-box retailers like Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST) increase shelf space for organic food, Whole Foods Market, Inc. (NASDAQ:WFM) needs to separate itself from the pack by more than its products and prices.
GMO labels: Precarious game theory?
Whole Foods Market, Inc. (NASDAQ:WFM)’ March announcement that GMO-containing products will be labeled companywide by 2018 exemplifies the forward-thinking character that has differentiated the upscale grocer’s brand. Lauded by stakeholders and the media, Whole Foods’ GMO-labeling payoff depends much on consumers’ preferences, competitors’ countermoves, and politicians’ pandering over the next five years.
The USDA claims that “organic products have shifted from being a lifestyle choice for a small share of consumers to being consumed at least occasionally by a majority of Americans.” Added to the fact that “consumer demand for [organic] goods has shown double-digit growth for well over a decade,” Whole Foods’ GMO-labeling move seems one that will be well-received by customers — including mainstream customers with lower food budgets that Whole Foods Market, Inc. (NASDAQ:WFM) is targeting now.
Eager competitors have caught onto the organic wave too, and will not forgo all the non-GMO profits to Whole Foods. Not only are The Kroger Co. (NYSE:KR), Wal-Mart Stores, Inc. (NYSE:WMT) and Costco Wholesale Corporation (NASDAQ:COST) stocking more organic products (often in greater quantities and at lower prices than Whole Foods), they are also lobbying the government for a proactive GMO-labeling stance. In January, over 20 food companies’ executives, including Wal-Mart Stores, Inc. (NYSE:WMT)’s, convened in D.C. to discuss advocating for a national GMO-labeling framework.