Analysts question Whole Foods39 rationale of trimming the labor head count as a means to cut costs

Analysts question Whole Foods' rationale of trimming the labor head count as a means to cut costs.

Whole Foods combines meat, seafood teams in 'lower volume' stores

As part of Whole Foods Market’s target to reduce expenses by $300 million by the end of its 2017 fiscal year, the retailer is making changes to its labor structure, CEO John Mackey told investors in a recent earnings call.

One tactic is to combine store teams, including the meat and seafood teams in “lower volume stores.” Whole Foods has also moved its HR and marketing functions from store level to metropolitan area, as well as cut back on the number of buying positions.

“Many of these efforts allow us to focus our store labor investments where they are most needed, ensuring product availability, maintaining high standards and serving our customers,” said Mackey.

Combining teams results in less labor in stores, according to David Lannon, EVP, operations.

Reducing the number of employees in the store may help cut costs in the short term, but it’s not going to win over any customers, according to analysts who participated in SN’s Financial Analyst Roundtable in September.

“You’ve been cutting people and consolidating jobs and doing all this stuff while people’s friends that don’t work at Whole Foods are probably getting pay raises. We’ve seen the store conditions deteriorate. We’ve seen challenges written up in the Wall Street Journal. I mean they’re just not on a sustainable path,” said Scott Mushkin, managing director, senior retail/staples analyst, Wolfe Research.

The cost cuts related to labor also won’t help Whole Foods in the long-term, said Ajay Jain, a Pivotal Research analyst. He noted that the retailer’s operating expenses typically increase 15%-20% each year, but this year those expenses have been flat.

“I think they’re already running out of steam in terms of how aggressive they can be in terms of store labor costs. They’re already dealing with rising healthcare premiums so I don’t think it’s really realistic to expect that they can have flattish operating expense growth for the foreseeable future,” said Jain.

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