For years, Whole Foods has thrived by selling pricey food with a promise that it is better for you, better for the planet, and better overall. The mantra has proved so successful that it has helped the high-end supermarket chain to expand from its flagship store in Austin, Tex., to more than 400 locations.
But lately, Whole Foods' model hasn't looked quite as appetizing as it once did. Just ask Whole Foods, which is now working to adjust its strategy by launching a new line of stores with lower prices.
In a conference call, Whole Foods chief executive John Mackey was fairly coy about what would be in the new store, saying the company would reveal details about a 2016 concept launch in the fall. "It will offer a convenient, transparent, and values-oriented experience geared towards millennial shoppers," he said in a statement.
Most of those corporate buzzwords can be ignored, but the key phrase there was "millennial shoppers." It turns out that millennials, who have become the largest living generation in America, aren't exactly who many of us — or even Whole Foods — thought they were.
"When you looked at millennials' consumption patterns a few years ago, what you would expect is for them to be dining out more than anyone else, and just spending more money on food," said Darren Seifer, food and beverage analyst at market research firm NPD group. "But the recession changed that."
What we've seen from twenty-somethings in wake of the financial crisis is that they are actually more price conscious than anyone had anticipated.
"They were the generation that was hit the hardest by this recession in terms of layoffs and difficulty finding jobs, and it really shows in their food purchasing habits," Seifer said .
Millennials want fresh food, sure. Organic food, too. But the truth is that they aren't as uppity about it as their parents might have been.
Part of that is driven by the fact that they don't have as much money. But it's also because they have more options today, many of which aren't as expensive. As Whole Foods' competition for the organic market has grown to include the likes of Wal-Mart, local bodegas and delis, and even pharmacies, such as Rite Aid, young people have reconciled their simultaneous desire for fresh food and lack of disposable income by shunning pricier options in favor of cheaper ones.
Millennials are also getting married later than their parents did, and having children later than their parents did, which is to say that they aren't merely buying groceries on modest budgets but doing it, largely, for households of one.
It's possible that a good part of Whole Foods' new strategy might have to do with catering to people who are single — people who want to buy their groceries at Whole Foods, but in smaller and therefore less expensive packages.
"My guess is that they're trying to get them now, when they are single and don't have a family, and then graduate them into mainstream Whole Foods stores later," Seifer said. "Which will be interesting, because we haven't really seen it in the food and beverage retail industry."
It's unclear how Whole Foods' new stores will mesh with the greater grocery market and their own existing stores. There is the potential that a new chain of cheaper Whole Foods supermarkets will cannibalize sales at the original stores. There is also the possibility that the current crossroads is less of a crossroads than it is a window into the future, where growth is simply harder to come by for the company.
Then again, it might be foolish to bet against the brand that helped popularize organic food in the United States, whose sales topped $3.65 billion for the past three months and are still growing at a healthy clip of more than 3 percent per quarter.
"Any good business changes to address the current landscape," Seifer said. "Whole Foods sees what millennials actually want, and it's working to adjust."
