Skip to main content

Coffee is the Sad Face of Whole Foods’ New Loss Leader Strategy

whole foods allegro coffee

Image by Whole Foods Market promoting the Allegro Coffee brand. Not associated with the “Love Fest” marketing campaign.

Last week, the publicly traded Whole Foods Market announced that as part of its new “Love Fest” customer appreciation campaign, all locations will be giving away unlimited 25-cent cups of coffee through Sept. 30.

As with any corporate customer appreciation campaign, Whole Foods’ plan is naturally to boost total sales and increase profits, and coffee in this case is part of a “loss leader” strategy — plainly defined as the selling of one product below market cost in order to lure customers in for increased sales of other items.

With its relatively low market cost, coffee is often the sad face of loss leader campaigns, from fast food restaurants to gas stations and even to coffee chains themselves — anywhere money can be made through purchases of other items at full market cost. Companies can afford to sell coffee at or below their own production cost when they’re also selling high volumes of gasoline, beef jerkey, packs of smokes or pre-made breakfast sandwiches.

Coffee-as-loss-leader campaigns have been proven winners for companies like McDonalds, Dunkin’ or 7-Eleven for decades, to the point that we don’t bat an eye at them. But with Whole Foods — a company that has built a grocery empire convincing customers to pay premiums for virtually all its inventory based on concepts such as quality differentiation, ethical sourcing, locality, and social and environmental sustainability — it’s hard not to feel like coffee is being thrown under the bus here.

Say what you will about Whole Foods being a publicly-traded, bottom-line-focused corporate behemoth, the company has also managed to evolve into one of the specialty coffee segment’s great champions through its coffee buying efforts. To be clear, we’re not talking about the green coffee sourcing efforts of Whole Foods’ house brand, Allegro Coffee; we’re talking about its wholesale buying of packaged, roasted coffee.

For many micro roasteries, especially those that are relatively new to what might be considered emerging specialty coffee markets, a place on the shelves of Whole Foods is a really big deal in terms of brand exposure to a giant new pool of buyers interested in the specialty food segment at large. Not only that, for many smaller roasters, a Whole Foods deal can inspire the feeling that a business is “making it,” even though margins from grocery sales may not exactly stuff the coffers.

Whole Foods has also been pushing its own in-store coffee program through the recent collaboration with Allegro Coffee Roasters, a separate entity from Whole Foods’ Allegro Coffee, that boasts more quality-focused sourcing efforts for in-house roasteries and upscale cafes in Berkeley, Calif., and Brooklyn, N.Y. Allegro Coffee is soon to open a standalone location in Denver.

In short, Whole Foods has been an influential ambassador of specialty coffee — and, importantly, to the concept that the most conscientious of consumers ought to be willing to pay a little more for products that reflect their values. That’s why coffee as Whole Foods’ “loss leader,” just kind of, like, hurts. You know?

(editor’s note: A previous version of this story incorrectly stated that the forthcoming Allegro Coffee location was planned for inside a Whole Foods store.)

Comment

8 Comments

Kyle Freund

I would like to ‘second’ this comment and add that all thst focus on helping farmers build productivity and quality is just helping to dig farmers deeper. Better prices, more support for diversification = healthier supply chains.

David P.

My issue with whole foods is it demands to know everything, as it relates to your coffee,sourcing, buyers ect. It’s no wonder they’ve become so well versed in the industry. For all the good they’ve done, they are every bit as ruthless as any corporation looking to get ahead at the expense of anyone and everyone.

Kim Elena Ionescu

Hi, Nick! I’m totally with you (and Andy Newbom) in thinking that coffee is too cheap! I also agree that Whole Foods has a strong track record for supporting specialty coffee companies, including brands with price points above and below Allegro’s. It would seem that we interpret that track record differently, though, in relation to this campaign, because I don’t read this as a compromise in values. Despite the campaign’s gimmicky-ness (which I don’t fault Whole Foods for trying any more than I fault a great local coffee shop for their “free single-origin shot Friday” program), I see this as a short term promotion and possibly even a means of outreach to non-specialty coffee drinkers in their stores. I’d much rather see Whole Foods trying to increase sales and awareness of their coffee by giving away coffee for (almost) free for two weeks than to see them, say, lower the price of brewed coffee by a quarter in all of their stores to try to hook more price-sensitive shoppers.

Meister

I agree with Kim here: A simple flip of perspective leads one to see that this could be a great jump-starting promotion to increase sales and coffee revenue (which of course is what increases buying leverage on the green market), rather than a long-term price-chop that would have the effect of diminishing specialty coffee’s overall value to customers.

Also, I think it’s worth noting that the coffee deal is intended as “customer appreciation,” which is a bold statement and a great tactic: No retailer worth its salt would appreciate its customers with something it didn’t value as a product, and Allegro’s apparent quality as a roaster and the emphasis that Whole Foods puts on Allegro’s presence in the stores speaks volumes to that end, I think.

Nema Etheridge

I agree about coffee being too cheap!!! And on Kim’s thoughts that it is a short-term effort to engage non-specialty coffee drinkers- a good idea. I would prefer, though, that during this promotion Whole Foods spotlight some of those wonderful specialty coffee roasters already on their shelves rather than relentlessly promote Allegro. The timing for the promotion is perfect for getting consumers to think about coffee as a gift item or legit grocery expense over the next several months as the weather gets cooler across most of the country and consumers are more inclined to buy coffee. My only wish would be (and maybe they are doing this and I’m just not aware) that they work with some of those great suppliers – specialty coffee roasters who are roasting and sourcing some exceptional quality beans- to include them in this September promotion.

Darrin Daniel

I appreciate your correction on our new roastery/cafe in the Highlands of Denver being a stand alone on Tennyson St. later this year. I would take issue with Nick’s summation of ACR (allegro coffee roasters) as a separate entity; we are all connected as a subsidiary of WFM. ACR and Allegro Coffee are connected but segmented by differing deliveries of product and experience. We’ve evolved right along with all the other smaller companies you’ve mentioned as a specialty coffee leader(s). Whether you agree with the love fest and coffee as a vehicle is fine, but Allegro had championed and helped to shape the coffee programs around the Country in order to provide transparency and excellence within Whole Foods Market since we began our partnership with them in 1995. I’m confused by the author’s comment about a difference between other brands in the stores vs. Allegro Coffee and its sourcing. Nick, can you clarify you rationale on this comment? Sorry you feel that we threw coffee under the bus..

Leave a Reply

Your email address will not be published. Required fields are marked *