You may not think of a gigantic warehouse behemoth like Costco as stealthy, but in the organic food market, that’s exactly what it is. The Seattle Times reports that last week, an earnings call from Costco chief financial officer Richard Galanti revealed that Costco’s sales of organic products exceeded $4 billion last year. That’s just a small portion of its overall sales, which are expected to reach $114 billion in 2015.
By contrast, Whole Foods organic sales were only $3.6 billion.
BMO Capital Markets analysts didn’t have to read tea leaves to say that Costco is “possibly now already eclipsing” Whole Foods in overall sales of organics. Galanti, for his part, says that Costco’s organics sales have doubled in just the past couple of years.
Stunningly, that means one out of every ten dollars spent on organic foods is spent at Costco.
All of this evidence that shoppers are willing to put their money in the organics basket is driving suppliers to catch up to demand. The Seattle Times quotes a 2015 University of Wisconsin report that says the number of organic farms in WI alone has grown 77 percent since 2005.
Galanti expects the situation to improve, for both suppliers and consumers.
[pullquote]“[There’s] more organic supply and producers are doing it. And [Costco is] pretty good at getting out there and working with suppliers both here and around the world to commit more to it, whether it’s raising eggs or ground beef processing or produce.”[/pullquote]
What Can Whole Foods Do?
Whole Foods is hoping to leave that “Whole Paycheck” reputation behind by unveiling a new, more affordable sub-chain: 365 by Whole Foods Market. The Austin American-Statesman reports that current Whole Foods U.K. regional president Jeff Turnas will now be president of 365.
Turnas offered this statement at the announcement:
“We are excited to introduce 365 by Whole Foods Market to bring healthy foods to even more communities with a fresh, quality-meets-value shopping experience that’s fun and convenient. A modern, streamlined design with innovative technology and a carefully curated product mix will offer an efficient and rewarding way to grocery shop.
For the past 37 years, we have built our company by leading with high quality standards and continuous innovation. We are excited for the next evolution to extend our offerings to a broader audience in a way that complements our successful Whole Foods Market brand.”
Turnas told the AP that he sees 365 stores as being places people stop for a quick shop on the way home from work, with regular Whole Foods stores being weekend destinations for longer, more involved shopping trips.
There’s no denying that the market segment that Whole Foods helped create is now much bigger than the Austin-based chain. Bloomberg just reported in May that Kroger and Walmart are already feasting on the organics market, too. Trader Joe’s and regional chains like Sprouts just add more places where customers can spend their money on organics at lower prices.
Grocery stores and chains have to be willing to change with what consumers want if they plan to succeed. That’s a lesson established giants like McDonald’s, Subway, and now Whole Foods are learning the hard way.