Whole Foods is hoping to gain efficiencies and added value from its IT systems through a partnership with Infor, under which the companies are working together to create a next-generation retail software suite. As a recent report in the Wall Street Journal notes, however, Whole Foods faces risks as it moves to centralize its operations:
As stiffer competition erodes its profit growth, the natural and organic foods retailer is tweaking its management style by centralizing and streamlining some functions. The changes could be risky for the company as it tries to wring more efficiency from its stores without sacrificing the local flavor and specialty offerings that have been a cornerstone of its success.
The measures are part of a broader push to beat back competition from retailers such as Kroger Co. and Costco Wholesale Corp. that have expanded their range of natural and organic products, and frequently offer them at lower prices. To lure shoppers, Whole Foods also plans to offer more discounts.
The stakes are also high on another front. Transferring more authority to headquarters and automating more tasks risks harming Whole Foods’ customer-friendly reputation and turning off shoppers who place a high value on local products, such as blueberries and hometown pasta sauces, and niche items, said Jim Hertel, senior vice president at retail consulting firm Willard Bishop, a unit of Inmar Inc.
“The battle that always gets waged [at supermarkets] is cost relative to localized consumer preferences,” said Mr. Hertel. The chain must take care not to “damage the reputation for being a top-quality location for regional products.”
Wholesale Changes?
There's no question Whole Foods was in need of a strategic shift. Its shares have fallen roughly 45 percent during the past year, and store sales actually declined 1.8 percent in a recent quarter, as the WSJ report notes.
It also seems inarguable that Whole Foods' IT landscape needs some cleaning up. As part of the Infor project, the grocer will consolidate no less than 12 inventory management system into a single one:
It plans to automate the process of tracking the items on store shelves and submitting restocking orders, as other grocers have. Computers will analyze a store’s data to project demand, re-order products and potentially help Whole Foods better understand which stores would benefit from a greater variety of locally produced goods. The company says the Infor setup also will reduce out-of-stock items and decrease spoilage.
The question is how well Whole Foods will be able to preserve its corporate culture and the advantages it provides once its centralization efforts are complete. Some cracks are apparently already showing, as the WSJ report notes:
Mack Graves, a senior adviser at California-based Panorama Meats, one of Whole Foods’s biggest suppliers of grass-fed, organic beef, has worked with the retailer’s regional divisions for two decades. But more than six months ago, he said, Panorama began dealing with the national office, which largely has taken over meat buying.
It made coordinating national beef promotions easier and may have lowered overall shipping costs for Whole Foods, Mr. Graves said, but now the grocer is slower to react and offer discounts where certain cuts of meat aren’t selling well.
The Bottom Line
If successful, the Infor project will likely show bottom-line benefits to Whole Foods rather quickly. The question then may become how the grocer balances a zest for gaining even more efficiencies through technology with the need to maintain the corporate culture that gave it a competitive edge in the first place.
These are high-stakes days in the grocery business, with Whole Foods facing extreme pressure from the likes of Wegman's as well as lower-end chains who have upped their game, adding more organic products and creating richer in-store experiences for shoppers.
The choice for grocers who want to remain competitive may be "go big or go specialized," says Constellation Research VP and principal analyst Guy-Frederic Courtin. "The question is, which direction do they pitch? Whole Foods is trying to figure it out. The Infor solution should allow them to have more visibility into what direction to go, but they've got to pick one."
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