Whole Foods Tests Discount Card as Sales Gains Slow

Whole Foods Market Inc., facing intensifying competition from organic and natural-food chains, is testing a loyalty program that gives customers a 10 percent discount on its “365” private-label line of groceries.

America’s largest purveyor of natural foods is testing the the Hello 365 loyalty program in eight stores in Illinois, Indiana and Florida, Liz Burkhart, a spokeswoman for the Austin, Texas-based company, said in an interview. She said the program will encourage shoppers to try more 365 Everyday Value items, which include cereal, vitamins, milk and frozen pizza.

“If it’s successful, we’ll look at rolling it out into some other markets,” Burkhart said. She later said there are no current plans to take the program beyond the test markets.

Whole Foods, which has about 360 stores, is grappling with rising competition from such specialty grocers as Sprouts Farmers Market Inc. as well as mainstream chains such as Kroger Co. that have added upscale provisions to their shelves. Meanwhile, the chain’s “Whole Paycheck” reputation may be a turnoff at a time when many households are budgeting.

The company earlier this month cut its fiscal 2014 profit and revenue forecasts amid slowing sales growth. Sales at stores open at least a year rose 5.9 in the company’s fourth quarter, which ended Sept. 29, the slowest pace in 15 quarters.

“We are not immune to the larger macro environment,” Co-Chief Executive Officer John Mackey said during a conference call on Nov. 6. “Discretionary spending has been impacted as consumer confidence has dropped to a six-month low.”

Value-Conscious Shoppers

The shares rose 0.2 percent to $55.84 at the close in New York and have advanced 23 percent this year, compared with a 25 percent gain for the Standard & Poor’s 500 Index.

Whole Foods introduced the 365 private-label line in 1997 to lure value-conscious shoppers and added 365 organic products in 2001. The chain offers a magazine, the Whole Deal, which includes coupons and recipes.

House brands generated about 11 percent of retail sales in the year that ended September 2012. Private-label merchandise typically generates fatter margins than branded goods.

Grocers such as Kroger and Safeway Inc. have offered loyalty cards for years, allowing them to mine a rich vein of customer data and target discounts to specific shoppers.

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