Whole Foods Market, Inc. (NASDAQ:WFM) has been promising investors a turnaround for the past year, but with the stock losing nearly 7% over the past six months, it’s looking very unlikely to happen anytime soon.
Investors have been cautious about WFM stock so far this year and rightfully so — the company is struggling to compete in the quickly evolving grocery space. As the industry changes shape and more and more online competitors join the field, Whole Foods stock is looking less and less appealing.
Sure, WFM management claims that a new push toward lower prices, customer loyalty incentives and an improved supply chain will help the company pick up steam, but the specialty grocer will need to do much more in order to remain relevant in the future.
WFM Stock’s Price Problem
The most worrying problem for WFM is the firm’s product pricing. Whole Foods has been criticized for being overpriced and a scandal involving the grocer’s scales has branded it as a money-grabber. This is especially worrying because the firm’s clientele tends to value being socially and environmentally responsible, so dishonesty hits this group hard.
Management has been working to reduce prices through loyalty programs and discount schemes, but this approach has hurt profit margins and added to traders’ doubt about whether or not the firm can compete with rivals like Kroger Co (NYSE:KR) which have been expanding their own selection of healthy, organic foods.
Whole Foods Customers Losing Interest
In its heyday, WFM filled a gap in the market as the demand for healthier, organic foods began to grow. Whole Foods was popular among millennials, who perceived organic, non-gmo foods as being healthier.
However, millennials are also much more cost-conscious than their parents, as most are making less money and prefer to save up for larger purchases. That means that the introduction of lower-cost organic foods at places like Wal-Mart Stores Inc (NYSE:WMT) and KR takes away from WFM’s appeal to the all-important millennial generation.
Not only that, but millennials tend to lean toward companies that are perceived as being honest, as well as socially and environmentally friendly. While WFM does offer many brands that boast this type of image, the company as a whole has failed to differentiate itself from other big-box grocers.
Whole Foods has never really shaken off its reputation for over-charging its customers after the firm’s scales were found to be inaccurate.
Lack of Innovation
Whole Foods’ focus on lowering prices is certainly important, but as food shopping online becomes more and more popular, WFM needs to come up with a digital game plan as well. Food shopping is one of the only aspects of retail that most people still prefer to do in-person, but that doesn’t mean that grocers should sit back and relax. Buying food online and picking it up in person or having it delivered is gaining momentum, and grocers need to consider this trend if they want to ensure their place in the future.
While WFM has been working to redesign stores to smaller, more efficient spaces that will work well in urban areas with its 360 concept, the firm has done very little to move into the digital age.
WFM still doesn’t offer any kind of delivery service or online shopping option, which is shocking considering the way that e-commerce wiped out brick-and-mortar stores without any online presence.
The Bottom Line
At the moment, WFM stock is down but not out. However, management hasn’t put forth any kind of plan to address these three major issues, so the stock is a risky play. The firm looks likely to fall behind its lower-priced peers, as its business model doesn’t play well to the lifestyle of the average millennial. Unless the company makes some serious changes in the coming year, 2017 is unlikely to be a bumper year for WFM.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.
