That’s the slowest growth for Whole Foods since the recession.
There were some factors that could have impacted sales — such as an earlier Easter that helped the previous quarter and an annual discount day that Whole Foods decided not to repeat this year.
Even with these factors accounted for, however, “the adjusted comparable sales number only grew by 2.2% — the worst performance since Q4 of 2009 when Whole Foods, like everyone else in retail, was badly affected by the economic crisis,” Stephen Ward, the commercial director of Columino, wrote in a research note Thursday.
This is a bad sign for Whole Foods, which is facing increased competition in the organic foods market from traditional grocers like Kroger and Sprouts Farmers Market.
“While same-store growth has been waning for some time, this latest deceleration is more severe, especially so as the comparative from last year is not particularly arduous,” Ward wrote. “Of even greater concern are the initial numbers for the fourth quarter which, three weeks in, show comparable sales growth of just 0.6%.”
Whole Foods has been expanding rapidly, which helped its overall sales grow 8 percent in the most recent quarter. But some of its new store growth is cannibalizing sales at its existing stores.
So far this year just 10 percent of new store openings have been in new markets, versus 55 percent last year, according to Ward.
Whole Foods “has focused too much on new stores to the detriment of many existing outlets,” Ward writes. “A number of locations, including key stores in urban markets like New York City, feel shabby, have mediocre customer service, and are in need of reinvigoration. As a high-end operator in the grocery space such underinvestment reflects badly on the Whole Foods brand and inevitably makes customers question why they are paying a premium.”
S&P Capital IQ analyst Joseph Agnese also cited cannibalization as a major factor affecting Whole Foods’ sales.
“Despite benefits from a strong balance sheet and high square footage growth, we see sales growth over next 12-months pressured by competition, cannibalization and recent pricing missteps,” Agnese wrote.
This article was originally published on Business Insider. Copyright 2015.
