Wanting to avoid becoming a victim of its own success, Whole Foods Markets plans to start a new chain of smaller stores, with lower prices and a cooler vibe, according to the Wall Street Journal.
The new stores would target US millennials—the most price-sensitive generation (and the source of those Whole Paycheck remarks) but also the consumers most aligned with Whole Foods’ ethos of selling natural and organic, sustainably produced foods and beverages in an information-rich retail setting.
Whole Foods “still has a problem on price,” Neil Saunders, CEO of retail consultancy Conlumino, told USA Today. Millennials “just don’t have the disposable income to make that their destination of choice for grocery shopping.”
The new chain will cost less to run and be “hip, cool and tech-oriented,” Co-CEO John Mackey said on an investor call today. Mackey’s Co-CEO, Walter Robb, added that stores in the new chain will have “modern, streamlined design, innovative technology and a curated selection” and will appeal not only to millennials but also to “anyone looking for high-quality fresh food at great prices.”
The company, which didn’t say what the stores will be called, filed applications for retail grocery services today under the names 365, Dailyshop, Clever Egg, Small Batch, Swiftgoods and Greenlife, according to the Boston Globe. 365 Everyday Value is already the name of a Whole Foods private-label brand.
Mackey and Robb acknowledge that the problem that has led them to create this sub-brand of stores is largely of their own making. Whole Foods’ success in spreading the gospel of better-for-you food and charging high prices not only helped popularize the chain but also allowed ample opportunity for other specialized retailers, especially general-market grocers and discounters, to sneak in below Whole Foods’ price points with their own extensive natural and organic offerings.
On Wednesday, the chain reported that same-store sales were up just 2.8 percent over the past five weeks, down from historical averages of 7 percent to 8 percent, according to the Journal. It left some wondering if the company will stick with its plans to increase the number of Whole Foods stores in the US from the current 417 to its projected 1,200 stores. Consequently, 17 analysts announced lowered financial expectations.
As Bill Chidley, a consultant with ChangeUp Inc., told brandchannel, “The challenge will be walking that fine line between brand extension and brand betrayal.”
Mackey emphasized that the company wants to “underscore we see this as an ‘and” to our Whole Foods Market brand, and not an ‘or.’ The reality is, there’s more competition. Everybody is jumping kind of on the natural- and organic-food bandwagon, and that’s really, frankly due to our success.”
So while details about the new chain remain sketchy, it will complement the Whole Foods stores and target millennials “who are too cost-conscious to shop at the current [stores] but want the high standards of food quality and ethics that Whole Foods is known for,” as the Journal put it.
Chidley noted that announcing its plan to add a new down-market chain doesn’t necessarily guarantee success. “Being perceived as having good prices will require brand work and merchandising changes,” he said. Whole Foods doesn’t have “known value items” to create a low-price perception, he added, and will have to rely on perishable categories “to create a price image that, being organic, will not be cheap.”
Whole Foods Markets continues to dominate the better-for-you trade in another respect: It remains by far the most important gatekeeper for start-up companies and new products by established companies to get shelf space in front of their target foodie consumers, reports the Journal.
Entrepreneurs have multiple opportunities for trials within the company’s structure. But, as the Journal pointed out, its “imprimatur can open the way not only to Whole Foods’ more than 400 stores, but to bigger retailers who covet the cachet of brands carried” at the chain.
Take, for instance, Third Street, a startup brand of bottled chai tea concentrate. Founder John Simmons began selling his products to the chain in Colorado in 1998, and today has multiple products in Whole Foods nationwide. “When Whole Foods gives you an opportunity,” Simmons told the paper, “you take it.”
But some food and beverage entrepreneurs are wary of loss of control due to Whole Foods’ dominance. Pressed Juicery, for one, passed up the chance at Whole Foods. Co-founder and CEO Hayden Slater told the Journal he was worried his brand and products would get lost in the mix of hundreds of beverages being sold at Whole Foods, and he was also concerned about his capacity to produce enough juice for a retailer that large.
Maybe the new sibling chain to Whole Foods will create a different kind of opportunity for startups like Pressed Juicery. Certainly the Whole Foods strategists believes the new retail brand will attract a different kind of shopper.