Princeton, NJ—As part of a new strategy to reclaim some market share from competitors, Whole Foods Market is testing out a customer loyalty program in its Princeton, NJ, store. Shoppers can use a mobile-phone application to earn points for discounts and promotions. The test program is slated to last for six to eight months, with plans to expand to Philadelphia if all goes well. The program could roll out nationally in 2015.


In the past, Whole Foods had rejected loyalty programs, but has recently felt increased pressure from competitors like Sprouts Farmers Market, Trader Joe’s, Kroger and even Walmart, all of which sell natural and organic products at lower prices. Whole Foods has posted several consecutive quarters of growth slower than its customary level, and responded in July by slashing prices on produce to boost sales. “If you follow the results quarter to quarter, Sprouts has been turning in low double-digit comparable store sales at 11%, which Whole Foods did for years. Recently, Whole Foods has been doing half that,” notes Jay Jacobowitz, founder and president of Retail Insights and merchandising editor for WholeFoods Magazine. “I believe it’s a combination of the economy and new competition, particularly from Sprouts.”


Historically, Whole Foods Market had been sufficiently different from competitors in terms of product mix and store experience, but other stores are aggressively closing the gap. “When you’re one of one, you don’t need bells and whistles. Whole Foods didn’t need a loyalty program,” says Jacobowitz. He makes the point that Whole Foods originally created the 365 private label brand to compete head to head with Trader Joe’s lower prices, but it may not be enough any more. Competitors' lower pricing, growing supplements sections and adding knowledgeable sales staff comprise a threat to Whole Foods, says Jacobowitz.


Jacobowitz believes that the customer loyalty program combined with other initiatives designed to deal with the competition (like the newly launched Instacart delivery service, a mobile application, an Apple Pay option and a national advertising campaign) will be successful for Whole Foods. “It’s a major inflection point in the history of Whole Foods,” says Jacobowitz. “They are now one of many and have been forced by the competition to adjust their market strategy.”


Published in WholeFoods Magazine, November 2014 (online 9/23/14)