Michaelís Monday Consumer Column


Spanning the Poles

In Treasure Hunt, we talk extensively about companies that really understand the trading-up and trading-down habits of consumers and respond to their customers by "spanning the poles"—offering goods at multiple price points, from the low end to the high end.

Whole Foods, which has long been known as a company that specializes in premium groceries, is now experimenting with price—both as a way to better serve its customers and as a competitive weapon.

Whole Foods knows that its customers spend only a fraction of their total food and supermarket budget at Whole Foods stores. In fact, Whole Foods fans shop for most of their basics and commodities elsewhere, spending only about 15 to 20 percent of their budget at Whole Foods. Even the biggest enthusiasts—the zealots—rarely devote more than 60 percent of their grocery expenditure to Whole Foods.

According to our research, there are about 200 grocery and food-related items that have high "price visibility." Consumers know very well the price range for these items, supplier by supplier and store by store. This price knowledge is an important part of the cunning-consumer strategy.

At Whole Foods, the plan is to start selling these high-visibility items at market-leading prices, on the theory that the stores can capture a greater percentage of their customers' spending. And, once customers are in the stores on a more regular basis, they will also buy more premium goods.

Of course, serving customers is only part of the goal of the spanning-the-poles strategy Whole Foods is adopting. It is also seeking to keep customers from shifting their shopping to any of the new players in the organic and whole-foods business, including the mass-merchant suppliers.

Will the strategy work? Will it bring Whole Foods an increased share of the grocery market? Will it convert the occasional shoppers to zealots? We'll know in the next few months.

The Treasure Hunt phenomenon continues.