With Sales Falling, Whole Foods Faces A Tough Road

Justin Sullivan / Getty Images

Whole Foods Market trades under the ticker WFM, but after a bad year, investors might be asking WTF.

After recently eliminating more than 2,000 jobs to cut costs, the chain of high-end, higher-priced grocery stores announced its first quarter of declining sales since 2009. In the most recent quarter, sales at stores open more than a year dropped by 0.2%. They've only gotten worse since then too, falling by 2.1% year-on-year in October.

Whole Foods doesn't expect things to improve until late 2016, and in that time mainstream grocery stores and hypermarkets like Walmart will likely further bolster their selection of natural, organic, and other health-minded foods. While Whole Foods, founded 35 years ago, has thrived on selling unique brands and sustainably produced food, the competition is catching up. The specialty store is looking less special, and affordable supermarkets are getting fancy faster than Whole Foods is getting affordable.

Co-CEO John Mackey suggested to investors today that such competitors won't be going away either. "There will be more than one winner. It is not a zero-sum game," he said.

Despite giving some consumers sticker shock, Whole Foods does not intend to be a low-cost grocer.

Whole Foods may have pulled $6 asparagus water from its shelves this summer (the product was a mistake, and should have been "water with the essence of vegetables and/or mushrooms," a spokesperson told USA Today). But "we are not participating in a race to the bottom," Mackey said. The chain's strengths include a larger selection of natural and organic products, and a a better offering of prepared foods than other retailers.

Of course, the company cannot ignore that fact that Whole Foods simply does not compete price-wise with other grocery stores, which are trying to expand their offerings in this once-niche market. So it plans to run more promotions on items —which it says is more effective than reducing everyday prices — and increase marketing efforts. Reductions in labor costs, such as the recent layoffs, will also help the company manage costs.

To attract more price-sensitive customers, the company is opening a new brand of stores with lower-priced products called 365 by Whole Foods Market. It will open three stores in fiscal year 2016 and up to 10 stores in fiscal year 2017.

via IFTTT