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Organic food giant sees £10m loss in its first year
Jonathan Prynn, Consumer Affairs Editor05.08.08
The company behind London's largest organic supermarket has suffered a £10 million loss in the store's first year, as cash-strapped shoppers start to turn away from expensive food.
The deficit incurred by the owner of Kensington-based Whole Foods Market has raised questions about whether it can withstand the impact of the credit crunch.
Analysts say it has been caught by a combination of a slowdown in the organic food boom and a trend towards discount shopping.
The three-storey American-owned outlet, covering 80,000 sq ft of the former Barkers department store, is the first British branch of Whole Foods. It opened in a blaze of publicity on 6 June last year.
But the first set of financial results from its parent company in Britain, Fresh & Wild, since the launch reveal the shop has struggled to pay its way. In the year to end of last September, which includes the first four months after the opening, the company made a pre- tax loss of £9.94 million.
Analysts described the figures as "disappointing" and "worrying" and warned shoppers were trading down to cheaper alternatives such as nearby branches of Tesco, Marks & Spencer and Waitrose.
Neil Saunders, consulting director at retail analysts Verdict, said: "The outlook for Whole Foods is quite negative.
"It is a fantastic concept but the economics of that store in Kensington just don't stack up. They probably didn't in the good times and they can't possibly in the bad times."
He added: "To make a profit from a space like that they have to trade in huge volumes. It's just not economically viable."
Natalie Berg, grocery research manager at consultancy Planet Retail, said: "It is an expensive store in an expensive part of town.
"It is more of a destination store, with huge footfall at weekends, but in terms of everyday shopping there is too much competition.
"Rising food prices don't help. [Whole Foods] have a bad image for being really expensive... and they are really expensive." About 500 people, including 55 trained chefs, work at the store, which is in one of the most costly locations in London. It is said to have cost three times as much as a typical US branch to set up.
Leaders of the organic food movement have warned that the explosive growth of recent years - sales have soared 70 per cent to £1.7billion since 2002 - is set to come to a halt.
Estimates of growth are in low single digits compared with 20 to 30 per cent in previous years. Patrick Holden, director of the Soil Association, said: "Perhaps it is inevitable that we might see some decline in demand among less deeply committed organic consumers."
Whole Foods has been dubbed Whole Pay Check in the US because of its high prices.
It first got into the British market by buying the Fresh & Wild chain of smaller stores for £38 million in 2004. Since then it has accumulated losses of almost £20 million.
The accounts reveal the company spent £2.85 million preparing the Kensington store to do business, and it made an operating loss of £2.41 million after it opened.
Sales for the five Fresh & Wild outlets and Whole Foods - all of which are in London - totalled £35.9 million.
No one at Whole Foods was available for comment.
Reader views (12)
If more people would buy them they would be cheaper. It works both ways. I don't buy everything organic, for example,I don't buy processed organic food cause is way to expensive, but the fresh stuff is worth the extra money. Is a bit more expensive but I know this products cost more to produce being because of bigger losses or cause more labour is needed. in other hand in conventional farming your not paying the real price of the produces as health and environmental costs aren't considered on their prizes. If we had to pay its real value they would cost much more then the organic alternative.
- Fran, Lisboa, Portugal
The only time this shop is busy(window shoppers and tourists) is at weekends. Check how all the trolleys have disappeared and baskets are in place. Small carrier bags at checkout are a sure sign that it is not working.
That being the case the out of date products are increasing and are not replaced. The meat is going black so that is one good thing as it is maturing for months not weeks. The same is true for the fish which is multi hued and slimy,a sure sign of over exposure. It will lose more than £10MM next year for sure,that is if it is still there !! Guess it would be too much of a Public relations disaster if it failed so it will be propped up by its Parent company in the US
- Doug, london
I think the store is amazing. Sure, it is more expensive to buy certain products, but the quality is there, the presentation is there and it's made in-store fresh every day. I've always found the staff knowledgeable and friendly as well. Stop knocking this breath of fresh air to the UK market.
- Spencer James, London, UK
As someone who is finding it increasingly expensive to buy non organic food I'm surprised that anyone on a regular wage can afford to buy organic products. If they were cheaper then more people would buy them.
- Lisa, London
I love Whole Foods but it is expensive, more so than here in California. The champagne bar is a nice respite from a long day of shopping or walking the streets of London, we don't have any layout in our Whole Foods here like in the Kensington store. I really hope it doesn't go away as I always look forward to going there and I hope that they find more ways to offer local British farmers' fresh fruits and vegs, farm eggs, etc., etc., at a more affordable rate, but perhaps the costs are driven up by other factors, petrol prices, etc. If they have to go then perhaps Waitrose, M&S, or some other local franchise can go in with a similar concept. M&S has a decent wine bar, good selection of prepared foods and wines, etc., and I love M&S sandwiches, they are the best! PS The Whole Foods London burlap bags are really great too! Bottom line, I hope they bounce back! I wish we could have an M&S here in the Bay Area- I think it would do so very well and I would shop there all the time if it stays true to its name.
- Saleha, northern california, usa
If the public are not buying food there during the day perhaps they should sell it to them at night and open a restaurant in there.
- Mr S.Port, London
About 30 odd years ago there was a retail clothes store called Biba who made a similar mistake of going "big" by moving to where Gap and Marks and Spencer are in Kensington High Street. Vast premises, beautiful displays but at the end of the day too big and expensive to run. They went broke within a few months and closed within a year.
I actually find the store too American, the salads they prepare are over chunky. The olives are big and so on - in short rather vulgar.
However what I do like is the number of tastings they have of wine, cheeses, salami! That's what I will miss most. I only occasionally buy the odd jar of organic peanut butter or organic spaghetti. I bought four huge flat peaches the other day for 49 pence each. Went back to following day for some more and they had jumped up by 20p each.
- Slly, London
A great pity, yes this store is expensive but it offers a range of gourmet food you just can't get elsewhere. It's a fine addition to the Ken High Street.
- Nick, London
I suggest they give up before they lose any more money. An expensive specialist store sounded like a good idea when the organic hype was fresh, but they don't have anything that the major chains can't copy, and the number of people willing to do all their shopping in such a place is always going to be tiny. They will never create a UK wide chain. Perhaps it's viable to create a national chain in the U.S., where rents are dirt cheap and neighbourhoods are totally segregated on income lines - though their U.S. share price has fallen 70% according to the New York Times - but not in the UK, where income groups are more intermingled. For a British shopper it's better to go to one of the majors, where one can offset the cost of some premium items with some bargains.
- Oliver Chettle, Bedford
The food is pretty terrible from there. Hardly any of the fruit and veg is organic and most of it goes off as soon as you get it home. Probably been subjected to logistical cold storage.
The staff they employed were like McDonalds staff but a whole lot worse. It might have improved now but at the beginning most of them didn't know which fruits were which or which vegetables were which.
I am happy it's failing, I would like to see an end to the US chains in the UK. It's getting boring and they don't seem to understand countries outside of the USA. It's also encouraging to see Starbucks, Blockbuster and Burger King failing.
On the positive side, it is a good place to get everything in one go for a particular recipe and offers much more choice than M & S and Tesco put together. Using the organic
- Newscorp, London UK
I'm surprised it's only 10 million. Bet it won't be there this time next year...
- Michael Spencer, Toronto, Canada
Great shop but can barely afford to buy the fruit!
- Charlie, London
