Watching Out For Cannibals

It’s Foodie Friday, and this week our topic is an announcement made by Whole Foods the other day.  If you’ve ever shopped there you know that the “Whole Paycheck” nickname the chain has acquired is accurate.  The products there are generally first-rate and are priced as such.  With the growth of lower cost competitors such as Trader Joe’s that offer an almost equal level of quality at more reasonable prices, Whole Foods decided to fight back:

“Today, we are excited to announce the launch of a new, uniquely-branded store concept unlike anything that currently exists in the marketplace,” said Walter Robb, co-chief executive officer of Whole Foods Market. “Offering our industry leading standards at value prices, this new format will feature a modern, streamlined design, innovative technology and a curated selection. It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high-quality fresh food at great prices.”

I guess he never heard of Trader Joe’s but let’s put that aside.  The store will be called 365 by Whole Foods which is their store-branded line.  This move raises the question (not a food question!) of cannibalization.  You see, according to the folks at Harvard, history shows us that most of these lower-cost brands are created explicitly to win back customers that have switched to a low-price rival. Unfortunately, once deployed, many have an annoying tendency to also acquire customers from a company’s own premium offering. To prevent cannibalization, a company must deliberately lessen the value, appeal, and accessibility of its lower-cost brand to its premium brand’s target segments.  That means you’re knowingly offering an inferior product, and in my mind that always bears the risk of tainting the premium product.

Whole Foods isn’t going to put Trader Joe’s out of business.  I’m willing to bet that they’re going to take some serious losses (new stores aren’t cheap) as they start up and if all customers are doing to going to the new place to buy the same goods they would have bought (along with some of the higher-priced stuff), you’ve reduced margins even if you’ve maintained sales.

I guess the lesson in my mind is one I’ve put out there before.  Be who you are as a brand.  Embrace those who love you and create new fans every day by explaining cost and value aren’t the same and why you’re the best solution to a customer’s problem.  It’s worked for a lot of high-end brands.  Why not Whole Foods?

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