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Whole Foods: The canary in the coal mine?

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“Whole paycheck,” somebody once dubbed Whole Foods. I’ve understood why ever since they built a Whole Foods around the corner from where I live.

People are willing to pay a premium for the food they buy there, but those days may be numbered. Yesterday’s Wall Street Journal had two articles, one on the cover of the Marketplace section called Slow to Cut Prices, Whole Foods Is Punished,” while the other, shorter piece was headlined “Biting Into Prices at Whole Foods.”

The upshot: on Wednesday, the 380-store chain’s stock price plummeted, “vaporizing more than $3 billion of the company’s market value” due to flat earnings and “a key measure of sales growth [that] hit its weakest pace since early in the U.S. economic recovery more than four years ago.”

The flat growth apparently is because consumers are wising up to the fact that they’re paying far more for organic kale and fair-trade chocolate than they have to. Other grocers are moving in on Whole Foods’ turf, and “this competition is just getting started,” the WSJ predicted.

The comparison with overpriced wine begs to be made. I bet you that the demographics of the Whole Food shopper and the buyer of premium wine are more or less identical. According to this analysis, Whole Foods customers

  • Gravitate to lifestyle brands
  • Form a loyal customer base
  • Are better educated and wealthier
  • Are willing to pay higher prices for higher quality food in a pleasant shopping environment
  • Are largely Baby Boomers – the largest consumer group in America is getting older and they are seeking healthy, preservative- and pesticide-free foods to ensure a long and healthy life

That sounds a lot like premium wine drinkers, doesn’t it?

Are people getting smarter about what they buy—less willing to pay a premium for something that makes them feel good, but doesn’t actually taste better? If so, it’s undoubtedly an after-effect of the Great Recession, which made more of us more frugal than we were in the high-spending pre-Recession days. My own feeling, living in a Bay Area that’s increasingly young and diversified, is that people are less susceptible to marketing and more sensitive to the actual value of the things they buy, whether it’s groceries, clothing or wine. This could be very good news for value wine brands—not necessarily cheap wines, like Two Buck Chuck, but those wineries that offer the high quality of their competitors, yet at a lower price point. We’re already seeing signs that high-priced wines are having a hard time—witness such deep discounters on the Web as WineAccess.

There’s no evidence that consumers aren’t still swayed by famous name wines and glorious appellations, but there’s plenty of evidence that younger consumers, unlike their parents, aren’t quite so willing to shell out big bucks, if they feel there’s a bargain to be had. And thanks to the vigorous competition we see all around us, especially on the Internet, there are bargains galore to be had.

  1. interesting Steve. When I lived in San Jose I shopped at Whole Foods sometimes…the quality was clearly better than what I could find in the Supermarket. Now that I live in Healdsburg, it’s easy to find good, organic quality food without paying Whole Foods mark up, and I almost never go there (there is a reduction in income from the high flying Silicon Valley days too, but it’s not that.)
    I work at a winery which has really good quality wine (in my opinion) at reasonable (but not cheap) prices and I am continually astonished how much people buy, even young people, and how quickly they join the wine club, so I’m thinking it’s exactly as you said; where there is value people will pay but for just a “name” which maybe doesn’t deliver at the elevated price level’s suggestion, maybe they’ll think twice.

  2. Judi, I think you’ve got it!

  3. I also think it hits at the notion of authenticity. WF’s house brand (365) is literally nothing special. It is a mass sourced (increasingly from China) generic with a highly corporate gloss and accompanying price of pretending to be something special. Their wine departments were long ago taken over by mass market brands, with maybe a few local craft beers and micro-distillery spirits to put a false gloss of “local” and “artisan” on things. The Midwest regional office de-listed scores of small distributors and importers as approved vendors a few years ago, turning over the vast majority of shelf space to the Southerns and Wirtzes of the world.

    That inauthentic hucksterism–the shallow marketing of style over substance–has as much to do with their decline as their pricing. Taking that analogy to wine, it’s the same reason that people who are gladly willing to pay $75/bottle for a single cru Barbaresco from a 100 year old grower are turning away from the latest $75 cab from some cellar rat turning out his first “project.”

  4. Keasling says:

    Picked up a bunch of beets yesterday at the mobile farmer’s market at the park around the corner from my office for $2. On Saturday, that farmer’s market moves to an old mall parking lot. Enough said.

  5. “Are people getting smarter about what they buy — less willing to pay a premium for something that makes them feel good, but doesn’t actually taste better?”

    I don’t think that’s the big issue with Whole Foods. As the WSJ said, the problem is that people can get the *exact same products* for less elsewhere. The example of the Humboldt Fog going for 28 bucks at WF while a nearby co-op had it for $15 bucks … that’s the WF problem.

  6. When the Whole Foods went in around the corner from me in Pacific Heights, I thought it would be more convenient than treking down to Real Food on Polk. It is The Food Museum in my house, a place for second grade field trips where you can look but shouldn’t touch. They use the element of food shame to get people to actually pay $16.00 for a kilo of mashers, or in my case $23.00 for a burrito I built. They know people will get to the check out and be too embarrassed to put it back. I shop there for the thai peanut noodles and IPA, that is about all now :(

  7. I had lunch there last week with a friend. He put some stuff from the steam table into a box and it cost him $22! When I remarked on it, he said his last lunch was $30!

  8. Bill Haydon
    It must be rather boring to be you.
    I can’t imagine a life where I see things in a simplistic, “bushian”‘ ” you’re either with us or against us” way. Rounding things to a binary set, just so fucking monotonous.
    Add to that, the chip that seems to have taken up residence on your shoulder… Man it must be exhausting!
    Cheer up, old bean! And try to recognize that the interesting and exciting are rarely black or white

  9. Dear DR; Boo–frickin’–hoo. Somebody said something negative about your precious (in all meanings of the word) valley. Somebody dared to challenge the authenticity of cellar rats churning out Cabernet in some corner of their employer’s cellar and feeling entitled to price it equivalent to estate grown Barbaresco.

    As for being “Bushian,” many times I’ve stated that there are many wineries in California that I respect for having fought the tide of sameness I understand that not all Cali wineries followed the path of hedonistic fruitbombs, but I’m aware enough to know that they were few and far between until just recently and were literally washed away in a sea of sameness. And I’m encouraged by the new wave that really seems to be challenging the “Emperor Has No Clothes” mentality of the California wine industry, particularly the dominant Napatude strain.

    Then again, just look at the amount of dismissive scorn that’s been heaped upon them by their own colleagues in the industry for daring to suggest that Cali might need to change its stripes. For challenging the notion that everything is not as great as it ever was. For challenging the notion that everyone still loves you. For challenging the notion that any problems lie within your stars (and distributors) rather than in yourselves. The reality is that they (and the even more scorned writers like Bonne, Asimov and Feiring) are right, and their critics are wrong. I see it almost every day. I see it when I walk into a big city fine wine merchant and see a quarter of the shelf space devoted to domestics. I see it in the Michelin Starred restaurant that has NO California wine on its list. I see it in the wine bar that has more Greek wines than domestic wines. I see it in the suburban retailer’s annual grand tasting that used to be 75% California now being less than a third. I see it in the boxes of cult “on-premise only” Napa Chardonnay being dumped into a retailer in suburban Cincinnati.

    And how do some in Napa decide to respond to these market conditions? By acting like arrogant grifters and labeling all of their hedonistic fruitbombs at exactly 14.1% alc….as if perception is the only problem….as if we’re all too stupid to see through the con.

    But don’t take my word for it. Here’s Jancis Robinson in a recent FT column on the New California tasting in London. The last sentence of my small quote is the real kicker and speaks directly to the head-in-the-sand Napatude.

    http://www.ft.com/intl/cms/s/2/564a3458-8829-11e3-8afa-00144feab7de.html#axzz31PnkLH5n

    “But as someone who has been closely observing California wines since I was honorary secretary of Britain’s Zinfandel Club in the late 1970s, I am convinced that things did change for the worse in the 1990s when prolonged “hang time” came into vogue. The effects were evident in the massive wave of red wines made from grapes left so long on the vine that they started to shrivel. Acidity and tannins came to be regarded as negative attributes; alcohol and richness were striven for. Yet when researching trends for the recent edition of The World Atlas of Wine, I found every single region, however warm, reported a deliberate move away from this style – with the exception of mainstream California.”

    I guess she’s just a hater with a “Blairian” view of the Calijuice industry.

  10. Bill Haydon says:

    I’ll add one more thing, DR. You don’t want an honest, nuanced, let the chips fall where they may debate about the current state of Napa Valley wine and its problems, perceptions and possible futures. You want the “Pleasantville” “Emperor Has No Clothes” discussion. The one where no negativity or assumption of problems is dare discussed. The one where everything is wonderful, where sales have never been better and distribution is shrinking only because “I can’t meet DTC demand.” You want the fantasy discussion, and anything that challenges that self-important, narcissistic fantasy world that Napa lives in must be shouted down and dismissed as irrational hatred.

    I could care less about you directing it at my comment section nom de plume (hint: I didn’t graduate from Oxford in 1938, and I’m not the Soviet mole in MI6). The ridiculousness, pretentiousness and ultimately self-defeating and short-sighted narcissism of Napa Valley is when you blindly direct it at the writers who are increasingly taking relevance away from Parker and the WS and even members of your own industry who are attempting to address the difficult questions. That is why Napa is increasingly imploding under the weight of its own bull$#!%.

    It’s also why Napa Valley’s reputation outside of the bubble….aka, out in the real world has increasingly become this:

    http://2.bp.blogspot.com/-94EzTIyCaaE/Uq8mrgEg8II/AAAAAAAACcY/FP2AFlNN7mI/s1600/Smug.gif

  11. My “precious valley”???? I have ZERO financial (or any other) interest in the NV – or any wine grape growing region, full stop.
    Moreover, I’m not disputing your option. I don’t care about your taste. Nor, though I have great respect for her, do I care about Jancis Robinson’s opinion, beyond it’s function as a data point which, may, or may not, inform a drinking or purchasing decision.
    It is your endless, monotonous blathering, in addition to your simpleminded “black or white” framing of an argument which most people, who read this and other wine blogs/publications/etc, have an option (either their own, or sponged from various pundits (be they Parker/Laube or Bonné/Asimov(et al)).
    You keep saying (writing) the same thing OVER and OVER and OVER…; and you’ve offered no interesting insight or perspective, on either “side” of the argument.
    It’s fine that what you write reflects your opinion (one that I’m not entirely disputing; though it is far more nuanced, particularly as concerns your polly anna-ish view of european wines, that you seem capable of articulating.
    The problem is the MONOTONY, REDUNDANCY, and lack of INSIGHT. The latter would be fine, were you not going on and on and on and on and on and on…
    Enjoy the rest of your weekend

  12. Bill Haydon says:

    First of all, my original comment spoke directly of WF’s current problems and how increasing lack of authenticity as evidenced by their 365 line and current wine purchasing policies might be contributing to them. Secondly, I extrapolated that lack of authenticity to a similar example in the high end wine industry. Wasn’t making such links the entire point of Steve’s piece? Since I’m the simplistic thinker with no ability to think with nuance, I’ll let you figure that out for me.

    Secondly, regarding your insults of me. While there is no doubt a dominant theme to my comments, I think I’ve brought plenty of nuance to them. It’s jus that I have been stridently critical of the dominant themes in the Calijuice industry, and you don’t seem capable of looking past that and finding anything. You see criticism of Napa, and you immediately dismiss all within. I’ve spoken repeatedly and approvingly of the changes occurring in the California wine industry along with those brave souls who stayed true to their convictions and swam against the tide of internationalism in the 90s and 00s. As for Europe, I’ve spoken of the almost ruin of a great region (Chianti Classico) in its chase for the international/Parker style as well as the current civil war there between the large and the small and the traditionalists and the modernists. I’ve also spoken disapprovingly of an entire region (Priorat) that fell under the spell of a Parker-influenced hack of an importer. If that’s monotonous or lacks insight, I apologize and let the University of Chicago know that I’ll be returning my degree.

    As for insight, I’ve given witness to what’s happening in some of the largest and most important wine markets (NYC, DC, Boston and Chicago) in the United States along with many of the secondary markets that surround them, in which I’m present on a regular basis. All those examples that I listed above are actual retail and on-premise accounts in Chicago and NYC, and they are not isolated examples but rather exemplify their respective markets.

    It doesn’t sound like you want nuance or insight. You want dime store positivity. You want California Uber Alles!

  13. Do you have trouble reading, Bill Haydon? How you extracted a desire for “dime store positivity” or “California Uber (sic) Alles!”, from what I wrote is rather perplexing.
    What I’d like to see, is either
    1) Something interesting or insightful in your repeated voiced observations. It’s annoying when I read a missive and come away have neither learned anything nor been challenged intellectually. Though, in fairness, it is my choice to read or not
    or
    2) Write about something else
    3) Argue with me on what I write, not what you think you want me to be writing

    Enjoy your day, cranky!

  14. What started out as an interesting discussion has devolved to a cat fight about the Napa Valley and what it has become. Please let me make two points. 1. A number of years ago, Joe Colombe, founder of Trader Joe’s, spoke at our conference. To this day, I remember his target market profile. In his words, “his ideal customer was one who is over-educated and underpaid”. Given the increasing disparity of wealth (Thomas Piketty’s Capital just arrived today),Trader Joe’s market strategy seems well positioned. Taking that definition to the Whole Foods model, it seems their marketing strategy is unsustainable. Perhaps in the next few years, assuming their stock performance is anemic, they will re-invent themselves, returning to quality items that are not mass marketed, and genuine in their representation. It is simply quality and value. That is what is attracting today’s shopper, regardless of age.

    I have been in the wine business for more than forty years. I was a winemaker in the Napa Valley in the seventies and eighties. I then migrated to other regions because of what the Valley had become. In those days, most high alcohol wines were Zinfandel coming from the foothills. Exceeding 14% for our Cab was unheard of. Regardless of what you think about Parker, when your name becomes a verb there is substantial reason for it. High scores sell wines. In the early days of his newsletter, he did most of the tasting. His business grew and he had to hire assistants, leaving him to go and taste his favorite regions. He would come to the winery and barrel taste, and base his scores on that. Hardly a blind tasting.

    While it is a dreadfully overused term, Napa has become a victim of its own success. I think Robert Mondavi was correct in going after France to show the world that Napa could rival Bordeaux as producing great wines. Unfortunately his vision was overtaken by people who wanted to create a lifestyle, rather than just create great wine. With the sudden flow of excess cash in the eighties and nineties,certain people were using their wealth to show off and one-up their friends. This led to a vicious cycle of building even more pleasure palaces and higher prices, as if a $250 bottle of wine somehow equated with being a second growth or (gulp) even a first growth. This in turn led to new wealth coming in and bidding up the price of land, causing even higher grape prices and bottle costs. Increasingly, the access to Napa Valley wines became more restricted to those with higher disposable incomes, just as in the case of Whole Foods.

    The Napa Valley in the 1970′s has approximately 19,000 acres of plantable land. That has been extended, but still a constraint. I applaud the move to throttle the wines back. I was never a fan of the fruit-bombs, as I felt they were too one dimensional and boring. As a winemaker, I always preferred the beginning of the ripening window, looking more to pH than Brix. Yes, I was challenging myself, but I felt I was making more complex, interesting and long-lived wines. The challenge will be for Napa if the wineries and growers can re-direct themselves to a more inclusive model, creating wines that will appeal to a broader audience, providing quality and value. Those that paid too much for their land and charge too much for their grapes should honestly ask themselves “why?”. Is it because they have the dirt in their souls, or simply want to impress for the sake of impression. Their fate is in their hands.

  15. Bill Haydon says:

    Why do you hate Napa Valley, Jeff?

  16. John Hilliard says:

    Steve, Whole Foods also has a business model based on fear, and I wonder when that will come back to bite them. Fear of pesticides. People are realizing WF has been creating a pesticide scare contrary to the evidence coming out of our land grant universities, the EPA and USDA itself. The fact is eating organic food is not safer, nor is it better for the environment, and taste is about ripeness and variety. The basic argument is fallacious if you assume natural is safer than synthetic. And many of the natural products seem very synthetic and manipulated. As a vineyard owner, I see organic farmers use more pesticides than conventional farmers, I know those organic pesticides are “chemicals”, I see them applied more often, and I know organic pesticides often have higher Environmental Impact Quotients as determined by Cornell. Once consumers become aware of the manipulation used by WF to justify the higher prices, I suspect there will be further fallout.

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