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No, Whole Foods Doesn't Simply Cater to Rich People

By Isaac Pino, CPA - Feb 28, 2014 at 2:22PM

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Specialty grocer Whole Foods is on a mission to better educate the world about food.

No matter how hard it tries, natural foods grocer Whole Foods Market (WFM) cannot seem to shake its well-known nickname, "Whole Paycheck." Considering that some stores offer a blue cheese that fetches $34.99 per pound, that might come as no surprise.

But does the specialty grocer really only cater to society's upper crust? Not quite. In fact, the more you dig into the Whole Foods business, the more you realize this company is completely focused on satisfying the taste buds of people who appreciate good, natural food. At the same time, it's busy growing that audience well beyond the affluent elite.

Whole Foods store in Plymouth Meeting, Pa. Source: Whole Foods Market.

The price perception problem
For Whole Foods, the first step toward shedding its "Whole Paycheck" moniker came in 2012. The company embarked on a "price perception" campaign when management recognized the need to appeal to customers on a budget, not just well-heeled shoppers.

In an attempt to show customers that bargain deals could be found, the company initiated offerings such as "value tours" at its locations. A value tour gives customers an insider's view as an employee takes them around the store and points out all of Whole Foods' best deals.

Meanwhile, Whole Foods changed up its inventory selection in some categories. The company has placed a greater focus on high-quality, conventionally grown produce instead of just pricey organics. Co-CEO Walter Robb believes this is "allowing customers a broader range of choices." 

365 brand maple syrup. Source: Whole Foods.

Furthermore, the company's most price-competitive products are in its Whole Foods' 365 private-label brand, as management recognized an opportunity to expand private-label sales. Whole Foods 365, interestingly, accounts for eight of the top 10 best-selling items at the company's stores. However, according to Morningstar research, it made up only 12% of Whole Foods' sales in 2012, so the growth opportunity is impressive. The research firm Nielsen found that sales of store brands across all grocers grew 18.2% over the last three years, twice the 7.9% rate of growth for national brands.

Over time, Whole Foods has slashed prices to compete in the cutthroat grocery industry, and some price-comparison surveys have shown that it's in the same ballpark as businesses such as Safeway or Kroger. There's still work to be done, but this effort is only one element of Whole Foods' game plan. Along the way, the Austin, Texas-based grocer is doubling down in another arena: food education.

Teaching the world to... eat?
According to co-founder John Mackey, Whole Foods' mission extends beyond being just a food provider. As he stated in the book Conscious Capitalism: Liberating the Heroic Spirit of Business, co-written with Raj Sisodia, "[A]t Whole Foods Market ... we believe we have responsibilities to our customers regarding healthy eating and wellness. We have recently launched a Wellness Club program in some stores to help educate our customers about dietary patterns and choices that lead to optimal health and well-being."

Whole Foods, in other words, wants to teach -- but not lecture -- on the merits of eating high-quality foods. This mission is even described as one of the company's core values on its website: "We Promote the Health of Our Stakeholders Through Healthy Eating Education." The company goes on to lay out the four pillars of this core value, which encourage people to consume plant-centric diets full of unprocessed, nutrient-dense foods that contain healthy fats.

For Whole Foods, these education efforts could lead to greater numbers of customers from all walks of life. In fact, many of the company's programs are not specifically targeted at well-off consumers. Among the programs are free cooking demonstrations and alliances with local nonprofits.

As part of the "5 percent days" in which Whole Foods donates a portion of sales to a local charity, managers invite representatives of the nonprofits to stores. In Conscious Capitalism, Mackey pointed out, "[T]hey may come in and shop our store for the first time, decide they like it, and begin shopping with us regularly in the future."

Whole Foods, in other words, sees nonprofit workers as a target market. These folks are unlikely to be raking in six-figure salaries, but that's beside the point. They're interested in learning more about the food they eat.

Defining a more diverse customer
Perhaps the best illustration of how Whole Foods places an emphasis on education over income is seen through its store locations. While you might assume Whole Foods just finds the toniest suburban enclave in which to erect a new grocery store, that's not evident through its store screening process.

The real estate development company Fundrise described Whole Foods' expansion strategy in an interesting blog post titled, "The Whole Foods Effect." The company's experiences in working with Whole Foods' real estate team show that household income does not play the most prominent role in location decisions, according to the writer:

I can tell you first hand that they take an unusual approach when evaluating a market. Unlike the typical retailer, and contrary to what you might expect, Whole Foods does not focus on household income but rather on education levels in a potential trade area. They usually require a minimum population of 200,000 with college educations. One of their brokers once told me, "Look, I don't care what the incomes are; show me there are enough people there with degrees." If you work at a nonprofit, a yoga studio, or in government, but still shop at Whole Foods, then you know that the Whole Foods customer is not defined by his or her salary.

Foolish takeaway
Despite its perception as a haven for wealthy food snobs, Whole Foods is pursuing a much wider demographic. Overall, the natural foods grocer seems bent on offering a one-stop shop for high-quality fare, and a variety of customers are willing to pay for that convenience. The result is a shopper who could be anyone from a vegan firefighter to a mom with a food blog to a health-conscious baby boomer. It's less about the tax bracket and more about the experience and assurance of quality. That's where Whole Foods believes it can offer something slightly different than the rest of the industry.

A "Health Starts Here" display. Source: Whole Foods.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Isaac Pino, CPA, owns shares of Whole Foods Market. The Motley Fool recommends and owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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