Dive Brief:
- Natural and organic chain Whole Foods announced it is closing three facilities responsible for assembling prepared food for dozens of the company’s stores, according to Supermarket News.
- The move reflects the retailer's march toward increased efficiencies in its stores and across its supply chain. By the end of this year, Whole Foods hopes to reduce annual expenses by $300 million.
- Industry observers say the company will likely outsource operations at the three facilities — the last commissaries operated by Whole Foods — to third-party companies.
Dive Insight:
Whole Foods may have a reputation for being pricey, but since the recession a few years ago, the Austin, TX-based retailer has been laser-focused on efficiency. The company has cut prices, streamlined its operations and put more muscle behind private label brands like 365.
The efforts have struggled to bear fruit for the company, which has faced pressure from traditional grocers like Kroger and Safeway that are stepping up their assortment of natural and organic products.
Prepared foods, which account for 19% of Whole Foods’ business, is a place where the retailer really needs to shine. According to the Food Marketing Institute, prepared food sales increased by more than 10% a year between 2006 and 2014, making it one of the top performing categories in the supermarket. Whole Foods has a strong presence in metropolitan areas, where consumers are increasingly looking for prepared and grab-and-go meals. And its focus on values and quality ingredients means the retailer stands to attract more young shoppers and foodies of all ages.
Efficiency measures like outsourcing food-prep operations can move the dial even further. Third-party foodservice companies have become quite sophisticated and efficient in their own right. They can leverage their buying power to bring prices down, and are tops at execution. They’re also on top of food safety, which is a big deal given how slips, like one that recently occurred at Whole Foods’ Everett, MA facility, can hurt sales.
