Apple Pay Helps Whole Foods Market Give Shoppers What They Want

Whole Foods' first brick-and-mortar store was built 36 years ago, and the company has come a long way since then. And in this age of tablets and smartphones, Whole Foods has not shied away from hopping on the digital bandwagon, especially in the face of Whole Foods' dwindling sales at brick-and-mortar locations.

In the last few months, the company has undertaken several digital strategies, including an overhaul of its mobile app, a partnership with grocery delivery start-up Instacart, and acceptance of Apple Pay -- Apple's new mobile payment system that's taking the industry by storm.

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Here's a look at Whole Foods' digital tactics, and a peek into how Apple Pay seems to be hitting the right chord with Whole Foods shoppers.

Picture taken by Dwight Burdette via Wikimedia Commons

Big back-to-back movesNew mobile app -- Whole Foods recently redesigned its mobile app that's compatible with Android and iOS devices. On the fourth-quarter earnings call,Whole Foods co-CEOJohn Mackey said the new app will "dramatically improve our customers' digital and mobile experience before, during and after visiting our stores." This seems to be coming true withmore than 600,000 downloads already. The new app contains features including recipes, cooking tips, shopping-list creation, and information aboutstores, specials, sales, events, etc. It allows users to sync shopping lists and a recipe box between the app and Whole Foods' website. Management has promised more upgrades throughout the year.

Instacart -- Whole Foods has partnered with Instacart for same-day delivery services in 15 cities. Whole Foods' customers need to download the Instacart app to their mobile devices or log in to Instacart and place their order. Customers have the option of receiving deliveries within an hour, two hours, or any other time frame. Same-day deliveries are a big attraction for online shoppers. The tie-up has already thrown up some healthy numbers. In November, Whole Foods' Chief Information Officer Jason Buechel said the digital shopping cart was 2.5 times bigger than the brick-and-mortar cart.

Apple Pay -- When Apple forged into the territory of mobile payments in October last year, Whole Foods was among the early adopters. Apple Pay is a new feature foriPhone6, that lets people pay with their mobile phones. The feature will also be available on Apple Watch. It uses credit and debit card data of users to make payments at any terminal that supports contactless payments. Contactless payment is not a new concept and the market is dominated by the likes of PayPal. But, Apple Pay is fast becoming popular and has the support of 60 banks and credit unions including Bank of America, Capital One, Chase, Citi, and Wells Fargo.

Apple Pay numbersThe Whole Foods and Apple Pay partnership has been a big hit. Though these are initial days, the following facts signal that Whole Foods' customers may have already developed a preference for Apple Pay.

  • Based on the 150,000 Apple Pay transactions that Whole Foods reported in November, payment expert Mike Dudas calculated that Apple Pay transactions accounted for 1% of all purchases at Whole Foods in the 17 days after Apple Pay launched.
  • In December, ITG Investment Research published a report that showed Apple Pay had captured 1% of the U.S. digital payment market in November, barely within a month of launch. And Whole Foods was its strongest retail partner accounting for 20% of all Apple Pay transactions, and 28% of all Apple Pay dollars in the month.
  • In a January interview, Buechel said the company had seen "double-digit" week-over-week growth in Apple Pay transactions and "solid" results even after the holiday season.
  • On Apple's latest earnings call, on Jan. 27, CEO Tim Cook said Apple Pay accounts for two-third of all contactless payments across three major U.S. card networks. He also revealed that Whole Foods has seen its mobile payments jump four times since the Apple Pay adoption.
  • On Whole Foods' latest earnings call on Feb. 11, co-CEO Walter Robb said Apple Pay now accounts for 2% of Whole Foods' sales and the proportion could increase when Apple Watch launches.

Analysts are upbeatWhole Foods earned a recommendation from Morgan Stanley in January when analysts there said they were bullish about the grocer's future prospects. The firm attributed this to six operational initiatives, which included the new app, Apple Pay, and the Instacart partnership.

Analysts at Morgan Stanley are expecting Whole Foods' same-store sales to increase 5.5% in 2015 compared with consensus projections of a 4.5% rise. This signals that Whole Foods' digital push is in the right direction.

The Internet and smartphones are fast changing the retail landscape in the U.S. and across the globe. The initial success that the natural food retailer has witnessed with Apple Pay and Instacart is an indication of how new technologies can boost the prospects of even a veteran player like Whole Foods. And then there's also the new mobile app. The endorsement from Morgan Stanley could give confidence to Whole Foods investors about the prospects of the stock.

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. ICRA Online and Eshna Basu have no position in any stocks mentioned. The Motley Fool recommends Apple, Bank of America, Wells Fargo, and Whole Foods Market. The Motley Fool owns shares of Apple, Bank of America, Capital One Financial., Citigroup Inc, JPMorgan Chase, Wells Fargo, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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