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The Wall Street Journal this morning reports that as Whole Foods moves “into smaller, suburban areas where its new, smaller stores are seeing stronger returns,” it has to “counter its reputation for being expensive” by “offering more price promotions and discounts in all of its stores, and lately it has held many of its grocery prices flat despite its own costs rising. The idea is for customers to feel that while there may be certain product prices that are going up, they are finding plenty of good deals to make up for that, said executives, who call the strategy ‘price perception’.”

The strategy is critical, the story suggests, in part because moving into new markets means facing off against new competitors, which it cannot allow to draw sharp price comparisons against it, though the story also notes that these new competitors often are not as focused on the natural/organic segments.

Co-CEO Walter Robb told analysts recently, "We've done surprisingly well in some of these secondary markets; a lot better than we thought we were going to do. It's a very powerful economic model, so I think we're going to open a lot more of those types of stores."

The Journal writes, “In its recent quarter, Whole Foods opened six stores, focusing on these new markets where its says rent is lower, square footage is smaller and competition for natural, organic food isn't as heated.” And, over the past few months, “Whole Foods signed eight new leases for smaller stores averaging 33,000 square feet, which is about 25% smaller than some of its traditional stores.”
KC's View:
No reason to think that Whole Foods can’t make this work long-term. After all, the company managed to not only survive the recession, which could have devastated it because of its “whole paycheck” image, but come out of it in better shape than ever.