In its time of struggle, Whole Foods Market (NASDAQ:WFM) has turned to something that it so long loathed. The Fortune 500 company was the only consumer goods firm in the lot to not run national level advertisements. But now in the face of declining growth figures -- comparable store sales have taken a downhill ride in the fiscal year 2014, ending at 4.3% growth against the 6.9% in fiscal year 2013 -- the company has launched a national ad campaign and could spend up to $20 million in a bid to boost sales. The move has already gathered its share of skeptics and endorsers. So, what to make of it? Will it help the company achieve its goals?
Change in stand for a reason
For long, Whole Foods has taken pride in telling investors that the company's spending on advertisement and marketing is much lower than other retailers as it "relies heavily on word-of-mouth advocacy" by its customers, which is "more valuable than traditional advertising."
According to ex-Whole Foods national head of marketing Joe Dobrow, in a 1999-strategic plan, co-founder and then sole CEO John Mackay spoke extensively against such initiatives -- "Ongoing media advertising doesn't work and is a waste of money ... Look at our industry. The companies that spent a lot of money on media advertising all ran into huge G&A problems; the only survivors have been those who have relied on the 'radical' idea of community-based marketing."
But things now are a lot different from 1999. Back then Whole Foods was moving like a juggernaut, acquiring one company after another and shaping the organic retail industry. But now, competition is staring the company in the face, and Mackey has been candid enough to say, "For a long time Whole Foods had the field to ourselves, pretty much. That was nice, but we don't any longer ... So we're adapting to the reality of the marketplace." Thus, the campaign.
Whole Foods' national branding initiative is called 'Values Matter,' wherein values refer to two things -- the value in dollar/price terms and the values in terms of ethics. Beginning from the fall of 2014, the campaign will run through 2015 winter, showcasing a string of 22 advertisements to be run mostly on the Internet through YouTube. Two of the ads will play on the television. Ads will also feature in the print media such as Rolling Stone, Times, and Bloomberg Businessweek.
Whole Foods is targeting the 25-49 age group, and is said to have earmarked close to $20 million for the initiative. Considering the company has spent $4 million-$8.4 million yearly on ads from 2008, the budget for the campaign is definitely a big leap.
During the campaign period, Whole Foods targets to "deliver nearly 350 million impressions and reach close to 70 percent of our target audience an average of six times," Mackey said last week at the fourth quarter conference call.
Does the campaign have what it takes?
Is advertising a panacea to all woes? Maybe not. If done the wrong way, it can even hurt sales. But if done the right way, there is no dearth of examples where an ad initiative has pulled a company out of doldrums. Just to share one recent case: Coca Cola's (NYSE: KO) 11-year-long U.S. sales leak was sealed by the 'Share A Coke' ad campaign in the August quarter. The campaign, launched in June, made even the aerated-drink-abstainers grab a coke. The reason? -- personalization. Coca Cola put people's names, and terms like 'Bestie' on its bottles.
In turn Whole Foods' put broadly spread (full page) pictures of people -- a mother with her son on the shoulder, a child standing with her arms stretched out, a pregnant lady with her toddler daughter -- with messages like "Grow up strong and harmless," "Eat like an idealist," and "Treat your body like it belongs to someone you love" to get closer to its customers.
The videos are more in line with awareness through entertainment that companies like Chipotle Mexican Grill follow in their 'socially responsible' ad campaigns. Whole Foods' Internet and TV ads showcase the ethics followed by the company. The videos convey the message that Whole Foods products are expensive for a reason and customers get their money's worth. "Not everyone knows what makes Whole Foods different from other grocers. This campaign will distinguish what makes our brand special, our food different, and our quality superior," global vice president of communications Jeannine D'Addario said.
However, there could be some merit in Joe Dobrow's inference that the campaign should have focused more on things that Whole Foods does better than anyone else – "... no one sources or handles produce better than Whole Foods. No other supermarket chain has a system decentralized and flexible enough to enable different regions — even different stores — to buy small lots of locally produced food. The company ... has single-handedly reinvented the notion of prepared foods, to the extent that many Whole Foods stores have become destinations for lunch and dinner," he says.
It's too early to judge the campaign. It looks mostly on the right track -- it's not alienating the existing customer base in trying to attract others to the fold.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Coca-Cola, and Whole Foods Market. The Motley Fool owns shares of Chipotle Mexican Grill and Whole Foods Market and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. 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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