More than mere supermarkets, Whole Foods and Trader Joe’s are health food meccas

More than mere supermarkets, Whole Foods and Trader Joe’s are health food meccas

Unlike conventional supermarkets, Whole Foods Market and Trader Joe’s are destinations: places consumers seek out and travel to over long distances.  The two chains’ retail strengths echo similar market strategies as they seek to capitalize on growing consumer interest in natural and organic products.  In many ways, they also have very similar-and actually often the same-customers.  Yet, the striking differences between the two chains are what keep the same consumers shopping at both.  At Whole Foods, the focus is premium quality and huge selection.  At Trader Joe’s, the focus is a sharply edited assortment of great products at great prices.

The world’s leading retailer of natural and organic foods with 370 stores and $12.9 billion in 2013 sales, Whole Foods Market has long been way ahead of the general retail curve, recognizing, capturing, and driving trends with a strategy of carrying a broad selection of high quality foods that appeal to both natural/organic food shoppers and gourmets.  A poster child for a “conscious business model” and the nation’s leader in better-for-you products and sustainable living, Whole Foods has engendered stronger loyalty from its customers than almost any grocery retailer in the country because of its high product standards, transparency, and business ethics.

As it expands into secondary markets, Whole Foods believes it can grow its base to 1,200 stores in the United States alone.  At the same time, the chain is expanding its value offerings and improving its price positioning against conventional competitors in an effort to shed its “Whole Paycheck” reputation and attract price-conscious shoppers.

Trader Joe’s Co. is a privately held not-quite-nationwide, chain of small-footprint stores that likewise appeal to both natural food shoppers and gourmets and command intense fandom.  Renowned for its quirky personality and unique products, Trader Joe’s currently has more than 400 stores that produce an estimated $11.3 billion in annual sales.  Trader Joe’s whole premise is built around house brands.  Its stores are small, with most locations measuring between 8,000 and 12,000 square feet, and typically carry fewer than 4,000 items, about 80% of which are private label.  The company’s greatest edge over conventional chains is the fact that consumers cannot get its items anywhere else.  This unique positioning serves as a powerful marketing tool and is effective at insulating the company from competition.

Consumers for both chains tend to have a higher education; are conscious of labels, ingredients, nutrition, and eating healthfully; interested in natural/organic products, gourmet foods, foreign foods, and the way food is presented; and concerned about environmental issues, according to Consumer data from Simmons National Consumer Surveys from Experian Marketing Services.  Yet, the striking differences between the two chains keep the same consumers shopping at both.  At Whole Foods, the focus is premium quality and huge selection.  At Trader Joe’s, the focus is a sharply edited assortment of great products at great prices.  There is also a vast difference in their marketing thrusts.  Whole Foods promotes the concept that by buying products at its stores, consumers are supporting not just organic foods, but a production model that benefits local farmers, people in third-world countries, and the environment.  In contrast, the marketing thrust of Trader Joe’s is that it is here to make shopping fun-and has great products that it searched the world to find just for you, at prices that are a steal. 

Current consumer demand for both Whole Foods and Trader Joe’s is unparalleled, and demand for new Whole Foods and Trader Joe’s locations is strong.  Both chains have sizeable cash reserves with which to open new stores.  In fact, their growth is limited less by the normal constraints of finances, competition, and demographics than by distribution logistics and the challenge of effectively creating strong teams and management for new stores.  For Whole Foods, growth may be more challenging.  To wit:  some experts wonder if the chain’s expansion into secondary markets also might present problems.  Will consumers outside major metropolitan areas be willing to pay a premium price for premium products, and/or can Whole Foods maintain its premium image and notoriously high margins as it downscales its assortment and reduces prices to reach underserved inner-city neighborhoods?

In addition, in the past two years, there has been an upsurge of competition in the natural foods space as several growth-oriented specialty food retailers and natural food chains-including Sprouts Farmers Market, The Fresh Market, Fairway Market, and Natural Grocers by Vitamin Cottage-tapped the stock market with initial public offerings (IPOs).  Natural Markets Food Group, which owns the Mrs. Green’s Natural Market chain, is said to be eyeing an IPO as well.  Then there is startup company Fresh Thyme Farmers Market, backed by Midwest-based supercenter retailer Meijer Co.  It also is strongly rumored that billionaire investor Ron Burkle’s private equity firm Yucaipa Cos. plans to revive the Wild Oats Market name, converting the Fresh & Easy stores it acquired from Tesco Plc in November 2013 into Wild Oats natural foods markets.  No. 1 supermarket operator Kroger Co., which maintains more than 2,400 stores across the country under regional banners including Kroger, Ralph’s, and Fry’s, is also making a play for the natural and organic food space and considers itself the second-largest player in this market after Whole Foods.

You can find more information on Whole Foods Market, Trader Joe’s, and their retail competitors in Packaged Facts’ companion reports: Whole Foods and the Natural Food Channel and Trader Joe’s and the Natural Food Channel.

Add one or both of these reports to your own intelligence library and receive a 5% discount during our promotional period effective through May 1, 2014. Use codePFJoesFood.