Why Some Health-Focused Retailers Are Struggling

By Jeff Weidauer, VP of marketing and strategy, Vestcom International

Healthy is hip. That’s the message coming from most media outlets, as well as consumers in general. Overall interest among Americans in healthful meal options is at an all-time high. Yet, at the same time, some healthy-focused retailers are struggling. Whole Foods Market has seen its growth slowing and has issued lower target guidance to shareholders. Smaller companies like Fresh Market are even resorting to closing stores. What’s going on?

What’s going on is what always happens in a free market when one segment has success — competition. The major food retailers have jumped into the healthy food market and captured significant share. Kroger and Safeway specifically have made significant investments and are grabbing sizable share, currently more than a billion dollars annually and growing. Walmart has even entered the fray with organic products.

While all indicators point to continued strong growth for this segment of the market, it’s clear that anyone looking to be a part of that growth will need to have a solid game plan and a strong value proposition. In addition to the pressure exerted by the industry giants, the opposite end is being served quite well by local farmer’s markets. This is a segment that barely existed 15 years ago, but now most communities have several that span the spectrum from impromptu to immense.

The good news is that price is rarely the driving factor for purchases in this category. This doesn’t mean that price is no object. Whole Foods gained the moniker “Whole Paycheck” by pricing to the upper segment. Increased competition breeds lower pricing, to the point that even Whole Foods has had to adjust. But there is a bottom level to pricing here; quality is a concern for health-focused shoppers, and a too-low price doesn’t carry a quality message.  

A major challenge is that shoppers bring an expectation that anyone connected with the sales of healthier food will be knowledgeable — even passionate — about the products available. For retailers, addressing this expectation with shoppers is an about-face from the standard of hiring the cheapest labor possible. Knowledge and passion don’t come cheap, so the standard labor model no longer applies.

What this boils down to for a typical food retailer is opportunity, but as is always the case, a clear strategy must be defined before making massive changes in direction. Success breeds competition, and competition brings lower prices, but the market for healthy alternatives will continue to grow. The movement is already crossing cultural and economic barriers, slowly to be sure, but there is change and it will only accelerate.

Perhaps the only real surprise in the world of healthy food is that it’s taken this long for competitors to jump in where Whole Foods has been for years. The current growth has been evident for at least the past five years, and while it slowed somewhat during the great recession, it did grow. Today this segment presents a critical, and possibly quite lucrative, opportunity.

Retailers looking to enter the space would do well to move quickly but with clear direction, and be willing to adapt based on results and feedback. The growing interest in healthy alternatives is a sign of changing habits, and there is no better time to offer something new than when consumers are already on the move. And new habits will quickly develop; those without a piece on the game board will be removed from consideration — maybe for good.

Jeff Weidauer is VP of marketing and strategy for Vestcom International Inc., a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at jweidauer@vestcom.com, or visit Vestcom.com.


More Web Exclusives/Guest Commentaries

Login or Register to post a comment.