Business
1:57 pm
Thu July 28, 2011

How Did Whole Foods Increase Profit 35 Percent?

Austin-based Whole Foods Market blew away analyst expectations yesterday with a 35 percent increase in third quarter profit. After the news broke, investors grabbed up Whole Foods stock. That sent shares in the company surging to their highest level since 2006.

But it was only two years ago, in the middle of the recession, that people were asking if Whole Foods could survive. Sales for its expensive, gourmet foods were plummeting and the stock dropped 75 percent in year.

So what happened between now and then, besides the country’s slow economic recovery? Two things, according to equities researcher Karen Short with BMO Capital Markets: value and organic health food.

“They managed to chip away at that ‘Whole Paycheck’ reputation, but they also made changes to their store to move away from the gourmet to move into the natural, organic, health component of their story,” Short told KUT News during a phone interview from New York City.

“As a result of the better pricing and the better positioning, they drew back the customer that they lost, but they also got significant market share gains from fresh eyes and new customers,” she said. “That customer is much more committed to the lifestyle, and that customer is much more resilient in today’s world.”

During the recession, Whole Foods began offering “value tours” of its stores to highlight its 365 Everyday Value store brand products. It also raised the bar on some organic labeling standards.

“We worked very hard over the last couple of years to successfully improve our price image, particularly in perishables,” Whole Foods co-CEO Walter Robb said during yesterday’s conference call on earnings. “We remain focused on maintaining our relative price positioning in the marketplace.”

Robb also talked about Whole Foods’ expansion plans during the call. He said they signed 31 new leases over the past year.  In the past three months alone, Whole Foods signed leases to open new stores in Tucson, Arizona; Fremont, California; Newport Beach, California ; Basalt, Colorado; Detroit, Michigan; Columbia, South Carolina; Virginia Beach, Virginia and Cheltenham, United Kingdom.

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