CEO Revamp Raises Questions About Whole Foods' Strategy

By Annie Gasparro

Whole Foods Market Inc.'s plan to return to one chief from a dual-CEO setup the past six years raises fresh questions about its future strategy to battle a slump in sales.

The struggling grocery chain said late Wednesday that co-founder John Mackey will be the sole chief executive starting in January, as co-CEO Walter Robb steps down to streamline top management.

"When business is going great, there aren't a lot of disagreements, and it can work. But when times get tough, that's when you start to bump heads," said Edward Jones grocery analyst Brian Yarbrough.

Whole Foods declined to make Messrs. Mackey or Robb available for an interview or to elaborate on how the change will affect the company.

Whole Foods has been fighting a losing battle to get more shoppers in its high-end stores in recent years. The company said Wednesday its comparable sales -- a key performance gauge for retailers -- have fallen for the past five quarters and aren't expected to return to growth in the next year.

The natural-foods industry has been under fire from traditional competitors like Kroger Co. and Target Corp. stocking more organic food at lower prices and other factors such as online grocery ordering and tighter pocketbooks among consumers.

Sprouts Farmers Market Inc., which bills itself as a more value-oriented fresh and organic-foods chain, said Thursday its profit took a hit in the latest quarter as it offered more promotions to drum up business. Its shares fell 11.3% Thursday.

Target, too, is still struggling to get its footing in grocery. On Wednesday, it said its grocery chief is leaving the company amid lackluster performance in her division.

At Whole Foods, Mr. Robb has championed a plan of offering more promotions and discounts to attract value-seeking shoppers. It has yet to pay off, and some analysts say it could take much steeper discounts and several years to boost sales.

"Walter has been the day-to-day operations person, and clearly the day-to-day is not going well," said BMO Capital Markets analyst Karen Short, saying the management shake-up could be a first step in addressing broader strategy issues. Whole Foods was one of the few companies with a dual-leadership structure.

Mr. Robb, who will remain on the board of directors and as a senior adviser, said in an interview earlier this year with The Wall Street Journal: "I have the background of being president and chief operating officer. John is really brilliant at thinking 10 years down the road. I've got a lot of passion around the experience for our customers. John's got a lot of passion around healthy eating."

Decisions by Mr. Mackey, a self-proclaimed foodie and environmentalist, will likely be watched closely in coming months. Jim Hertel, a grocery-store consultant at Willard Bishop, said: "Will [Mr. Mackey] just go back to the basics from when Whole Foods was doing well? Because if so, he'd be going back to a time that doesn't exist anymore. The competitive landscape has changed."

Whole Foods initially created the dual-CEO structure in 2010 for Mr. Robb -- a longtime friend of Mr. Mackey and a leader at Whole Foods since 1991. Mr. Mackey didn't want to leave, and Mr. Robb wanted to be a CEO. "We went for a walk and figured it out," Mr. Robb said in the interview earlier this year.

Before Mr. Robb stepped into the co-CEO position, Mr. Mackey faced heat for his political banter and for trash-talking a rival store anonymously on online message boards. He is still known for being somewhat of a wild card, industry observers say.

On Wednesday's call to discuss earnings, Mr. Mackey compared competition in the grocery industry to the Civil War. Ulysses S. Grant, leading the Union Army, was always hearing from his generals about what Robert E. Lee was doing, Mr. Mackey said. "And one day, Grant said, 'You know, I'm sick and tired of hearing what Lee is going to do. Lee needs to worry about what we're going to do.' And that's how I feel about our competitors."

Write to Annie Gasparro at annie.gasparro@wsj.com

(END) Dow Jones Newswires

November 03, 2016 18:49 ET (22:49 GMT)

Whole Foods Market, Inc. (NASDAQ:WFM)
Historical Stock Chart
From Mar 2024 to Apr 2024