Hard Times Ahead for Whole Foods?

Seventy-four percent of US consumers say they purchase organic foods, but 79 percent say they've had to alter their buying habits because of inflation. What does that mean for organic retailers?

Whole Foods has been taking it hard lately. Between its recent recall of beef for e.coli contamination and the impact of inflation and rising fuel prices on just about everybody, the national natural and organic foods marketer is not only suffering hits to its bottom line, but has come under increased media scrutiny. Many are questioning whether the demand for organic goods can survive as if Whole Foods were the bellwether of the entire movement.

Earlier this month, Treehugger reported on the failure of the United States’ largest natural foods market to make much of a positive impression on Londoners with its highly touted entry into the British market. After a loss of more than $18 million in its first year, its ambitious plan to expand to 40 stores throughout the UK seems rather unlikely for the time being. AlterNet reported this week that middle class consumers in the United States are cutting back substantially on their purchases of organic and natural foods.

"Slowed growth in organics reflects not only cuts in spending by current organic consumers but also a slower rate of adoption by new organic consumers," AlterNet reported. "However, a May survey of 1,000 people by Information Resources found that 52 percent were buying fewer organics because of cost."

Profits at Whole Foods are down 13 percent, and the store is struggling to combat its image as a high-priced retailer geared toward high-end consumers. Whole Foods higher-ups, however, insist their market base is strong as consumer demand for natural and organic foods is still high. Earlier this month, the chain conducted a poll through Harris Interactive to gauge consumer interest in organic foods. They released their findings earlier this week, touting the results as good news for their market share.

“It is reassuring to see these results as they confirm we’re on the right track in highlighting our value offerings for our customers,” said A.C. Gallo, co-president and chief operating officer for Whole Foods Market, in a press release. “At Whole Foods Market, we’re reminding shoppers that they don’t have to trade down on quality to save money – they can continue to choose high-quality foods and stay within their grocery budgets.”

Among their findings*:

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• 74 percent of adults buy natural and/or organic foods.
• 20 percent of those polled said more than 25 percent of their grocery purchases are natural and/or organic.
• 70 percent of adults said they continue to purchase the same amount of natural/organic foods as they always have.
• 67 percent prefer to buy natural/organic foods over conventional foods if prices are comparable.
• 66 percent of adults said they want to find ways to fit natural/organic foods into their grocery budgets.
• 79 percent of those polled said they have had to alter their spending habits because of rising prices.
• 43 percent of adults said they now cook more meals at home and 40 percent are using more coupons.
• 37 percent said they are going out of their way to find less expensive grocery items.
  

Le Less encouraging is that the numbers indicate more about what consumers would like to do than what they are actually doing. If only 20 percent of consumers say 25 percent of their total grocery purchases are organic, and 70 percent of consumers are not going to change their organic/natural food purchasing habits, it’s still a low number.

If 79 percent of those polled said they have had to alter their spending habits because of rising prices, that would seem to entrench an already small market share even further. That 66 percent of consumers would like to fit organic/natural foods into their budgets isn’t the same thing as saying 66 percent of consumers are indeed buying organic/natural foods.

More encouraging, perhaps, is the figure that says more people are cooking at home, more often.

* The Food and the Economy survey was conducted online by Harris Interactive on behalf of Whole Foods Market, Inc. between Aug. 6 and Aug. 8, 2008 among 2,209 adults ages 18 or older. Data were weighted to be representative of the U.S. adult population.