- February 23rd, 2015
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From Options to Oranges: Whole Food’s Rewards a Natural for Growth
Whole Foods is enjoying the fruits of its marketing labor these days, but its long-term success may rely more on its affinity for workers than affinity with shoppers.
Until 2014, Whole Foods had not so much as tested a customer-rewards program because it likely didn’t see the need to. Its shoppers sought out its stores for the quality of its natural products as well as for the amiable, knowledgeable staff – not for discounts.
But with the September launch of a pilot affinity (loyalty) program, called Whole Foods Market Rewards, as well as efforts to stock the shelves with more inexpensive items, Whole Foods appears to have recognized that price is becoming more of a competitive issue, regardless of its helpful employees and service.
Early indications are that Market Rewards is resonating with shoppers. Activation rates are high and member basket sizes are above the average, co-CEO Walter Robb told analysts during a first-quarter conference call Feb. 11. The program, launched in New Jersey in September, is now scheduled to expand into Washington, D.C., in the spring, “with hopes of having it live in a majority of stores for the 2015 holiday season,” Robb said, according to Supermarket News.
Whole Foods credits the program, along with its first national marketing campaign, for contributing to record first-quarter sales, up a better-than-expected 10.2 percent to $4.7 billion. But none of these efforts would be worth the increasing number of 365 private label products on Whole Foods’ shelves without the encouraged participation of its workers. The chain’s executives appear to know this too, in spades.
Gaining through employee rewards
Whole Foods’ compensation program is designed to reward all team members for positive stock performances. The rewards come in the form of stock options through annual grants for workers who achieve 6,000 hours (about three years full-time work). More than 58,000 of Whole Foods’ 87,200 workers are full-time. Roughly 94 percent of equity awards under the stock plan have been granted to non-executive team members.
In addition, Whole Foods offers an annual gain-sharing program which challenges each store’s roughly 10 teams of employees to outperform a labor budget. If the team comes in under budget, a portion of the excess is divided among the team members and the balance is deposited into a savings pool. If a team comes in over budget, the difference is taken out of the team’s savings pool or paid back through future surpluses. Those savings pools that end the year flush are paid out to their teams.
“Team members are involved at all levels of our business,” the company stated in its annual report. “We strive to create a company-wide consciousness of ‘shared fate’ by uniting the interests of team members as closely as possible with those of our shareholders.”
And the interest of Whole Foods’ shareholders has been well served recently. The company’s stock advanced by more than $3 a share on the day it posted first-quarter earnings, and reached a near all-time high of $57 a week later. However, Wall Street is a what-have-you-done-for-me-lately animal, and as competition becomes more of an issue, Whole Foods will likely need its employees to further distinguish the brand experience. Its Market Rewards program may be the necessary tool to do that.
Engaging through affinity
Let’s not forget it was not too long ago – May 2014 – when Whole Foods revised its earnings outlook for the third time in six months due largely to competition. The company responded by cutting prices in some areas, but this surgical tactic did not address the bigger issue of perception: A lot of shoppers avoid Whole Foods based on a belief – not experience – that it is too expensive. As a result, they miss out on the entire experience, which includes employee engagement.
With a loyalty program expanding, Whole Foods will gain the ability to understand the underlying dynamics of shopper behavior. These activities can illuminate how pricing may affect not only the sales performance of an individual product but also of adjacent products that are harder to detect in the traditional, basket-level analyses. For example, a higher price on natural yoghurt may prevent the customer from buying a couple pints of strawberries, effectively eliminating two (or three) purchases.
Not that Whole Foods should try to go mano a mayo with Kroger or other price-competitive chains, and it likely won’t – co-CEO John Mackey has pledged so much. Rather, it should use Market Rewards to craft strategic, experience-based promotions that are true to the brand and its value. Instead of discounts, its rewards can evolve to arrive in the forms of VIP cooking classes, recipes that involve products a customer often buys and personalized thank-you emails from employees of the week.
People shop Whole Foods because it stands for more than food, so it should consider the Market Rewards test as an opportunity to shape the full customer experience – price, advice, product preparation and product assortment. In other words, give shoppers a reason to want to pay more, through an exclusive experience, and deliver value where it needs to be evident.
As Mackey told analysts: “Whole Foods is about quality. It’s about service. It’s about selection. It’s about ambiance. We’ve never been and we never will be trying to be the lowest-priced supermarket.”
Combine its affinity pilot program with affinity for workers, and Whole Foods can be about the options it offers everyone.
This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.