Private Label Kicks Up Whole Foods' Profit

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August 10, 2010

Upscale grocer Whole Foods rebounded from poor results during the recession by lower prices and expanding its private label offerings, which contributed to an 88 percent rise in third quarter earnings.

The company posted its first same-store sales increase in February in 18 months. Whole Foods’ sales and earnings rebound, on the heels of Starbuck’s performance increases (37 percent rise in earnings last month), is an indication for some analysts that consumers are loosening purse strings and feeling more confident about the future, according to a Wall Street Journal report.

In fact, sales of branded products at Whole Foods have started to outpace private label items, Walter Robb, the company’s co-CEO, told investors.

"We know that the [economy] is improving — it's just improving slowly," Robb told the Wall Street Journal, noting consumers are "incrementally more confident." As an example, he said shoppers are now more willing to buy a $12 bottle of wine over a $10 one previously.

Same-store U.S. sales increased 8.4 percent in the quarter, the third consecutive quarter of gains after more than a year of declines. Whole Foods’ third quarter earnings were $65.7 million, up from $34.9 million in the same year-ago period.

To turn around performance during the recession, Whole Foods renewed its relationship with customers by expanding its 365 line of private-label products, cut prices and distributed Whole Deal bimonthly coupon fliers. The company was cut some jobs and reduced the number of store openings.

"We don't hear 'Whole Paycheck' that much anymore," Robb said, referring to the nickname the company acquired due to its higher prices. "I think we have made a shift in people's perception of where we're at in the market place on pricing."

Through aggressive promotions and communications, the Austin-based operator of 298 stores in the U.S. and Canada has seen some shoppers double their purchases. Those who use Whole Foods’ distributed coupons spend $62 per shopping trip, up from the average purchase of $33, according to the report.

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