The man who sold his supermarket to Whole Foods talks about the future of grocery stores – Washington Post
Every Sunday morning, I head to my nearby Whole Foods and beat its 8 a.m. opening by several minutes. They let me in anyway.
I guide my cart to the produce section, filling it with a host of berries (straw-, blue-, rasp- and black-), peaches, bananas, broccoli, carrots, cauliflower — all of which outfit my breakfast and lunch each day for the week. Those berries are expensive, but the cost average of about $5 for each breakfast and lunch is still less expensive than a trip to McDonald’s or Starbucks.
The thing about Whole Foods is that as I can’t quite reconcile the store’s popularity (the ones I frequent are always crowded, less so at dawn on Sunday) and its high prices with the unpredictable stock price. My instinct tells me that something so popular, fun and universal (groceries!) must be profitable and, therefore, a good stock to own.
It’s more complicated than that. Whole Foods stock bottomed below $5 a share during the Great Recession, zoomed toward $65 in 2013, splitting on the way. Since then, it has bounced on its way down toward $33 in mid-June, which is where it was resting when Amazon.com said it would buy it at $42 a share.
Today, Amazon.com (whose founder and chairman, Jeffrey P. Bezos, owns The Washington Post) closed its $13.7 billion acquisition of my heaven-sent grocer.
I asked Mark Ordan, a turnaround specialist and an expert in food retail, to demystify the Whole Foods saga. Ordan, 58, was founder and chairman of Fresh Fields Markets, a Maryland-based natural foods grocer that merged with Whole Foods in 1996. At the time of the merger, Fresh Fields had 22 stores and more than $200 million in sales in four markets: Washington/Baltimore, Philadelphia, New York/New Jersey/Connecticut and Chicago.
Ordan has also served as chief executive of Balducci’s, a gourmet food store chainlet with six locations in Maryland, Virginia, New York and Connecticut.
How is Whole Foods different today than when you guys merged?
It’s a vastly bigger company with much larger stores and much more inventory in each store. It has higher prices than when I was at Fresh Fields. Back then, we tried to keep major items at prices that were in line with conventional supermarkets. Whole Foods doesn’t do that. You can take a like-item at Whole Foods and pay much more than you would at Giant or Safeway.
Can Whole Foods afford to see its profit margins diminish?
They will more than make up for it in efficiencies. Whole Foods is too expensive. They should lower those prices. Retailers can’t sustain high prices versus the competition. That is a big reason why their competitive store growth has gone down. I would say volume will pick up.
What was broken at Whole Foods that they were bought by Amazon.com?
Two things. It was hard for them to continue their long-time, same-store growth rate. [That is a common industry metric that measures sales at a specific store this year against the same store sales as last year, and the year before, and the year before that.]
Whole Foods continues to be unique. It’s the only place where you can get a truly great assortment of really fresh, natural food. But competitors were nibbling away at that sales growth. Harris Teeter, Giant, Safeway were all getting better at perishable foods. Trader Joe’s was expanding with a roster of clever items.