Whole Foods announced the opening of its first 365 by Whole Foods Market, a smaller store concept than its main outlets, stocking fewer and less expensive items. The store name is based on Whole Foods’ lower-priced private label. The company’s same-store sales, a key metric for retailers, have declined for three consecutive quarters. Whole Foods is under pressure from traditional grocers, such as Kroger, that are selling organic products at lower prices. Overall, sales of organic foods are rising.
Beyond its classification as hub of the “Place” strategy, the Whole Foods retail concept can be considered a “Product” in its own right, a branded offering marketed to targeted consumers. As such, it is subject to analysis through the product life cycle, four sequential stages in a product’s duration:
- Introduction–the launch period when the market is small and costs can be high.
- Growth–the climb of a successful product with improved profit margins stemming from higher revenue and economies of scale.
- Maturity–the plateauing of sales as competition increases and price becomes more critical in the marketing mix.
- Decline–the reduction of demand for the product, typically the result of a saturated market or the emergence of a new product.
Entire industries have a life cycle similar to the one for products. The life cycle for organic foods indicates the growth stage with sales increasing and more competitors joining the market. The life cycle for Whole Foods indicates maturity with the flattening of sales. Less than a year of same-store drops may not be enough to declare the decline stage.
The Wheel of Retailing is another concept to track marketing lifespan, applied to retailers as they become more complex–and less agile–with success, inviting streamlined startups to take the place they occupied in early stages of the wheel. The downturn at Whole Foods does not align completely with the wheel since the store is losing share to even more complex competitors–major grocers selling their own organic lines. However, this consequence is in keeping with the product life cycle as competitors will attack the leader with lower prices. Whole Foods’ derisive nickname of “Whole Paycheck” depicts the company’s reputation for high prices.
When facing product maturity, companies must change the product, target a new market, and/or lower costs to avoid decline. To develop and select such strategic alternatives, companies will use Ansoff’s Matrix as a decision-making tool.
The matrix allows companies to contemplate combinations of new and existing products and markets. As the grid shows, risk increases as the company adds more new elements. “Diversification” becomes the riskiest strategy with Unrelated Diversification–a product new to the company being marketed to an unfamiliar market–being the point of greatest risk.
Whole Food’s 365 store concept can be considered Related Diversification led by a different but well-understood offering: a smaller store with lower-priced items. The different market comprises the ever-elusive millennial, per media accounts. As it places its chips in the far quadrant of Ansoff’s Matrix, Whole Foods is also seizing the Wheel of Retailing by creating its own nimbler startup. In turn, 365’s simpler product array and shrunken footprint fulfill the cost reductions dictated in the mature stage of the life cycle.