Whole Foods’ reputation for high prices relative to other grocers has earned it the nickname “whole paycheck,” and planted the idea in consumers’ heads that it’s only for rich suburban mums or wealthy urbanites.
But as the store grows, that’s increasingly untrue. As Kyle Stock points out in Bloomberg Businessweek, the company is increasingly benefiting from economies of scale.
That means because it buys more of everything, it gets everything cheaper. So it can start to lower prices, offer more sales, and open stores in smaller or less affluent cities, like South Bend, Indiana and Detroit.
That means it’s got its eyes on giants like Safeway and Kroger that have traditionally dominated the supermarket world. Both chains should be scared. Whole Foods gets lots of business and profit from relatively few stores, and has the highest sales per square foot in the industry.
The stock market agrees. Whole Foods shares are priced at $101.49 compared to $34.67 for Kroger, America’s largest grocery chain. It trades at a 38.35 price-to-earnings ratio, compared with Kroger’s 12.51, which means that investors expect quite a lot more growth.
But as the company expands and prices come down, the focus changes to the quality of the product. That’s exactly where Whole Foods wants it. All things being equal, people want what’s perceived as a better quality, safer product.
“If we can be relevant on price, we can get to the quality conversation that we really want to have,” co-CEO Walter Robb told Fortune.
There’s always going to be a place for the inexpensive neighbourhood supermarket. But as Whole Foods starts to compete strongly for the middle of the market, that place could get smaller and smaller.
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