Whole Foods Market (WFM, Financial) launched a fresh store concept at the second quarter earnings release. The company would be opening a chain of small stores at various locations to expand its reach in the market. The upscale grocery store said that the new chain would offer “industry leading standards at value prices”, said co-CEO Walter Robb. This would help the company tap the price sensitive market that’s not able to afford its premium organic food. The company is mainly looking to attract millennial and young shoppers. Walter Rob said that the grocery stores will be “unlike anything that currently exists in the marketplace,". Here’s a detailed look at Whole Food’s strategy.
New format to add value
The announcement is an effort to alter Whole Foods’ image of a pricey brand. The grocer is nicknamed “Whole Paycheck” for the high prices it charges for organic food items. By introducing the new format, it aims to do away with the image of being an expensive supermarket chain. Besides, the move to introduce chains offering high-quality fresh food at attractive prices would add a new avenue of growth for the company.
It would help in broadening its appeal to a larger customer base. The new grocery stores would give customers a unique experience. This will assist the company increase its penetration together with effectively fighting competition in the organic food market.
Whole Foods has more than 400 stores in the U.S., Canada, and the U.K. It plans to add another 100 in the near future. The company recently released its second quarter earnings with sales climbing 10% to $3.6 billion compared with a year ago quarter, but fell short of analysts’ estimate of $3.7 billion.
Huge upside potential
Whole Foods understands the potential of this market, and thus wants to solidify its dominance before the market matures. The organic food sales in the U.S. rose to $35 billion in 2014 which is more than thrice compared with $11 billion in 2004.
The company hasn’t yet revealed the name of the new format, but it’s filed applications under the following names - Dailyshop, Clever egg, 365, Swiftgoods, Small batch, and Greenlife. Robb said: "Offering our industry-leading standards at value prices, this new format will feature a modern, streamlined design, innovative technology and a curated selection. It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shippers, while appealing to anyone looking for high-quality fresh food at great prices."
Getting more competitive
Whole Foods’ not the only company trying to develop fresh format stores. Other retail giants such as Wal-Mart (WMT, Financial) and Target (TGT, Financial) are also working on similar strategies. These retailers are opening smaller formats and convenience stores. They are giving special attention to fresh food after sensing its growing demand. Whole Foods’ new stores would be targeting the same audience.
Research reports by investment firm JLL reveals that Trader Joe’s and Whole Foods have contrasting sales. While Trader Joe’s sells $1,734 per square foot, Whole Foods sells $930 per square foot. This shows that Trader Joe’s sells nearly twice as much per square foot than what Whole Foods sell.
Consumers are clearly more attracted to the brand Trader Joe’s than Whole Foods as its products are distinct when compared with the others. Around 80% of Trader Joe’s products are private label, and some of the popular ones include Chilli-Lime, Chicken Burgers, Cookie Butters and Chilli salsa.
Whole Foods is building a team for this new concept and is presently negotiating leases. It targets to start opening stores in 2016 and expects this concept to see rapid expansion. The company believes that this brand has tremendous growth potential and shall add value to the Whole Foods Market brand. Whole Foods’ decision of opening the new format should bear positive results. The company’s strategy would support its financial over the long term.
