Who Will Win The Battle of the Organics?
I am frequent shopper of the leading US organic grocer, Whole Foods Markets. I buy fresh and organically grown perishables from tomatoes to fish almost daily. I pay exorbitantly (that's why some people call the retailer "Whole Paycheck") for my habit but feel good about the experience because I believe that my family will live a healthier life. I also like the staff at Whole Food Markets who are knowledgeable and pleasant.
But I have a feeling that Whole Foods success could start unraveling very soon with the announcement that Wal-Mart has plans to enter the estimated $14 billion organics market. It is part of Wal-Mart’s new growth strategy to bring more middle- and upper-income customers into its stores.
With its international logistics systems and sway over producers of all sizes, Wal-Mart is investigating how it might grab business away from high-end businesses such as Whole Foods. Like every venture Wal-Mart launches, if it succeeds, it will do so at the expense of incumbents.
To its credit, Whole Foods is already examining various strategies to change customer perceptions and demonstrate something like a "price-value proposition." For example, in New York, it has a campaign afoot to demonstrate that its prices are lower than other high-end supermarkets. I see this as a smoke-screen masking a campaign to see if its stores can survive with high volume and lower prices.
I asked one of the smartest logistics consultants in America, Ram Viswanathan of Nathan Research what advice he might offer Whole Foods management in their inevitable struggle against Wal-Mart. Ram, a former CPG executive, did some logistics work for HEB Grocery recently, and is well aware of the new supply chain issues facing most grocers.
"Every successful niche player while enjoying the success, needs to be worried about the bigger player (especially if that player is ultra-efficient and a history of masterful execution) that might eventually encroach their space," Ram said.
"Wal-Mart's seriousness is evident by the opening in Plano of a store that is as far away from what one would associate the world's largest retailer with - brand name clothing, doublewide aisles, ambient lighting, hip coffee shop with free wi-fi, sushi-bar, and an entire section devoted to organics. You can bet that they are buying and moving those organics to the store for a lot less than Whole foods and therefore able to offer it at lower prices.
What does Whole Foods do now?
(a) Truly understand their supply chain and distribution costs
(b) Make radical changes NOW to their supply chain operations - re-evaluate
sources, distribution points, store deliveries, store operations
(c) Invest in technologies necessary to achieve these efficiencies
(d) Minutely study price points, shifting consumer preferences and be ready
to adjust pricing on products that have got 'Wal-Martized', while preserving
the prices on items that are, for now at least 'safe'
(e) Go find the next organic tomato
In the end, Ram said, "Whole Foods needs to get ready for scientific
retailing, if it has not
In other words, Whole Foods' current key to success, which Wal-Mart has studied to death, are no longer adequate to remain competitive. It can no longer depend on living under Wal-Mart’s radar, building up loyalty from wealthier customers, finding and developing specialty merchandise and living off the benefits of a friendly store experience. Whole Foods must move at warp speeds to become a highly efficient retail and distribution organization that can compete on the basis such as net-landed cost, product forecasting and other keys to Wal-Mart's successs. If not, I may have no choice but to shop at the organics department at my local Wal-Mart.