Expand or die is a business school staple. The idea being that you use profitable stores to buy market share and carry less profitable stores that will eventually become profitable due to the increased popularity of the brand due to greater presence. Otherwise, your revenue starts to decline.
McDonald’s was always no small part a real estate venture as much as a hamburger one. And it worked.
Whole Foods is using the willingness of organic food shoppers to overpay to expand into a whole new line – its own private label foods in stores that cater to people who are not part of their traditional rich, liberal (and, alarmingly, anti-energy, anti-vaccine and and anti-biology) demographic core. They can even grow it on the roof of their stores.
I won’t argue with Whole Foods co-CEO John Mackey. He is somewhere to the right of Ayn Rand but has convinced a lot of people on the left that shopping at his store not only makes them healthier, but better people as well. And the new effort shows his deft balancing of doing good and making money. “For every penny we cut off the price, we reach more people who can afford to shop with us,” he told Joan Voight of AdWeek.
Can he do it? Why not? Even a smartly-run company like Wal-Mart, which can squeeze manufacturers as needed to get the best deal for customers, has profit margins of only 24% while Whole Foods has a miraculous 36% – in food, where margins are historically thin. If he can get poor people in Detroit and the other test markets buying his healthy food vision too, the government is an unlimited cash cow. And then margins are unimportant.