Segmentation

Whole Foods is a grocery retailer. They operate in a single operating segment according to their Form 10-K, which is “natural and organic food supermarkets.” Within this single business, there are multiple customer segments that Whole Foods seeks to serve. Using different segmentation methods, such as demographic, psychographic, geographic and behavioral, this paper will seek to better understand how Whole Foods is segmenting the grocery market. The company’s positioning can be understood in the context of its mission statement: “…devoted to the promotion of organically grown foods, healthy eating and the sustainability of our entire ecosystem.” There are hints in there about the nature of Whole Foods’ business. Implicit in this is also the reality that natural and organic foods are often more expensive to produce, and as a result cost more at the retail level.

Geographic

Probably the easiest of Whole Foods’ segmentation to tackle is the geographic segmentation. The company operates mainly in the United States, with almost all of its revenues being domestic. International operations are only in three cities — Toronto, Vancouver and London. The company website notes that there is some correlation between the size of a state and the number of stores that it has. California has 69 stores, by far the most, and even with its large population this is a high number of stores. Colorado also has a disproportionate number of stores, as does Massachusetts. The company seems to clearly target specific states, and it will require closer examination to determine why this is.

Looking at specific geographic regions, it is easy to see how Whole Foods engages in geographic segmentation. A quick look at South Florida shows that there are stores in the following locations: Plantation, North Miami, South Beach, Boca Raton, Coral Gables, Pinecrest, Aventura, Fort Lauderdale and Pembroke Pines. I chose this region because it has a high level of income and ethnic disparity — the locations where Whole Foods is located are generally upper middle class areas that skew Caucasian. Large areas population by African-Americans, middle-income Hispanics and other groups do not have a Whole Foods. Whole Foods has nationwide reach, but in terms of geography targets areas that match its demographic and psychographic profile.

Demographics

In general, the Whole Foods consumer fits a certain demographic — Caucasian, middle or high income, college education, lives in an urban or suburban area, and has a reasonable level of disposable income. Females are a large part of the Whole Foods demographic as well, disproportionate. However, the key is that Whole Foods does not actively use demographic segmentation to understand their market. They feel that psychographic and behavioral segmentation is more important. Demographics, for Whole Foods, are more of a proxy for the behavioral and psychographic traits that they target.

Behavioral Segmentation

Whole Foods explains its segmentation process. The company believes that customers form a strong brand relationship with Whole Foods, and that has helped it to maintain its sales even during times of economic hardship (2012 Form 10K). The company’s four segments are conscionables (support environmental initiatives), organic shoppers, foodies, and experientials. The conscionables are understood to be people to prefer to shop at Whole Foods because the chain shares with them common values. This group is believed to be the most loyal of all consumers, spending most of their monthly grocery bill. This customer is likely to be well-educated, and this contributes to a high level of awareness about social issues. The organic shopper is a similar segment — there is some overlap — but the organic shopper will spend at other organic stores, farmer’s markets and that type of thing. They are loyal, but less so. Foodies shop at Whole Foods not for the company’s ethos but for its food selection and convenience. Experientials shop for unique items, so they are the least loyal in terms of percentage spending (Form 10-K).

Psychographics

Whole Foods uses psychographic segmentation as well, particularly in defining the difference between foodies and conscionables in their behavioral segments. They understand that people are driven to Whole Foods for different reasons, and seek to capture a portion of each of these markets. Unstated by the company — it’s not politically correct — there are probably a few people who like to shop at Whole Foods because it is where wealthy people shop. Some Whole Foods shoppers prefer not to shop at cheaper stores because of ego concern. The store probably understands this, but quite reasonably does not want to make snobbery part of their business model.

But this does call into question the perceptions of the company. One study found that Whole Foods customers generally do not think about money — this despite the company having a strong negative reputation for its pricing (Jargon, 2013). More non-shoppers think about price than shoppers — they think about organic, and healthy as the Whole Foods brand attributes. Part of this is that wealthier people are less price sensitive with respect to food, but part of this is that the company’s segments are genuinely concerned about the quality of food they eat — such concerns trump worrying about price (NMI, 2005). Customers are more educated as well — they understand the economics of organic foods (NMI, 2005). In addition, it was found that shoppers expect a different shopping experience at Whole Foods. They expect a premium experience and premium products, and they are generally willing to pay for that.

Conclusions

What all this means is that Whole Foods has found a niche in the grocery business in a growing number of consumers who have different values than most grocery shoppers, who usually value price and selection of basic goods. The company has correctly and successfully identified a selection of the market that has other priorities in grocery shopping, and has taken steps to increase its appeal to this group. By breaking down its customer base into four different behavioral/psychographic segments, Whole Foods is able to tailor its product/service offering to these different groups and build a large business for itself. Adding specialty items to organics has attracted foodies, for example, while experiential visitors and conscionables enjoy the company’s prepared foods. It is evident that the company also understands the geographic and demographic dimensions to their customer base. There is a critical mass of people within these four customer segments in certain areas. The choice of metros that Whole Foods enters, and the location of stores within these metros, directly reflects the ability of the company to use demographics as proxies for members of its four target segments.

References

Jargon, J. (2013). Whole Foods’ battle for the organic shopper. Wall Street Journal. Retrieved May 23, 2014 from http://online.wsj.com/news/articles/SB10001424127887323455104579015162135676136

NMI. (2005). Whole Foods Market Price/Value study. Natural Marketing Institute. Retrieved May 23, 2014 from http://andeeknutson.com/studies/Shoppers%20and%20Products/7_NMIWFMWholePaycheckValuePriceReport_2006.ppt

Whole Foods 10-K. 2012. Retrieved May 23, 2014 from http://www.wholefoodsmarket.com/sites/default/files/media/Global/Company%20Info/PDFs/WFM_2012_10K.pdf

Whole Foods Market. (2014) Website, various pages. Retrieved May 23, 2014 from http://www.wholefoodsmarket.com

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