Lower prices, fewer workers and a smaller selection: This is not your mother's
The Austin, Texas, grocery chain is gearing up to open its new 365 by Whole Foods Market concept, choosing Silver Lake for its first location.
When the store opens May 25, shoppers will take more of a do-it-yourself approach.
There is no wine guide in the alcohol section to guide customers to the right vino. Instead, shoppers can scan labels using in-store iPads or on their smartphones to read reviews. Those looking for a quick bite can also order from iPads located near the store, picking them up at the kitchen in the back.
This DIY approach is a core part of the new 365 stores, a concept that seeks to marry the high quality that Whole Foods is known for with lower prices. The goal is to attract new shoppers, including younger customers with less disposable income.
Whole Foods is rolling out its 365 concept at a challenging time for the company. The Austin, Texas, chain boomed for years by bringing organic, natural and tasty foods to high-end shoppers willing to shell out $23 for a rib-eye steak or $6 for a loaf of organic wheat bread.
But many grocers have taken a page out of the company's playbook, with traditional supermarkets such as Ralphs and Safeway expanding their organic produce offerings and big-box chains such as Wal-Mart and Target are bulking up their food selections. In the Southland, the intense competition did in grocery upstarts such as Fresh & Easy and Haggen.
Whole Foods is feeling the pressure. It has posted three straight quarters of sales declines at stores open at least a year. In its second quarter ended April 10, Whole Foods reported flat sales compared with a year earlier.
"Their performance of late has not been as strong," said Joseph Feldman, senior managing director at Telsey Advisory Group. "Mom can buy organic and natural stuff at Kroger now."
That's where 365 comes in. Turnas said the goal is to attract new customers who normally would not shop at Whole Foods, or shop there infrequently.
The 365 store in Silver Lake, opening May 25, will be the first of three locations slated to open this year (the other two are in Bellevue, Wash., and Lake Oswego, Ore.). Another 10 will open next year.
"We want people who don't shop at Whole Foods," Jeff Turnas, president of 365, said Wednesday during a hard-hat tour of the store, where construction workers in orange vests were still drilling concrete outside, and installing displays and testing the fire alarm inside. "We want to be easy to navigate and understood."
That starts with the design of the store, which is splashed with bright colors throughout and lower shelving, enabling a relatively unobstructed view of the space.
Unlike a regular Whole Foods store, where there can be big differences in design, Turnas said 365 locations will have a very similar smaller-format look -- saving money on architects and also optimizing efficiency. (365 stores will average about 30,000 square feet, compared with 45,000-square-feet for Whole Foods stores).
"Cookie-cutter at 365 is more what we are trying to do," Turnas said. "We have a layout we're just going to plop in."
The stores themselves also cost less to build; the Silver Lake store, for example, has exposed insulation on the ceiling and its walls are covered with inexpensive pale-grey panels.
Prices are kept low in part by reducing labor. 365 stores will have about 100 workers compared with 250 to 500 at Whole Foods, and stores will not have butchers slicing cuts of meat to order or bakers baking bread on-site each day.
But the 365 store in Silver Lake will offer prepackaged meats and source most of its bread and pastries from the Larder Baking Co. in Los Angeles.
That eye on keeping prices low can be seen in the selection. In produce, for example, there will be more non-organic produce, compared with Whole Foods stores. Instead of a package of four chicken breasts, Turnas suggested, 365 may offer smaller packages of two breasts.
"It's not just about lowering prices, it's about portion size and the items we'll carry," he said.
A more affordable grocery store would be a welcome change for Whole Foods shoppers who jokingly refer to the chain as "Whole Paycheck."
At a Whole Foods in Pasadena this week, Claudia Reyes, 35, of Sylmar intended to buy just bread and deli meats for her daughters' school lunches. She walked out with nearly $120 worth of staples and snacks.
"I hope it's significantly cheaper, because shopping here can get expensive," the human resources worker said, pointing to her bulging bags. "If it is, I would shop there more often."
Turnas emphasized that 365 -- which got its name from Whole Foods' private value brand already sold in its stores -- still prioritizes quality and great taste. His team worked with olive oil maker Frankies in New York to develop a bottle that will retail for under $10.
They also spent time developing new recipes and tasting offerings from potential vendors, looking for products -- such as pre-made soups and frozen pizza crust -- that will cut down the amount of cooking needed in store.
Retail partners will be brought in at each 365 location to customize the experience. The Silver Lake store will have a restaurant by the chef behind New York vegan eatery By Chloe, a coffee and beer spot by Allegro Coffee Roasters and a robotic tea kiosk called the teaBot. In the future, Turnas suggested, it may bring in a bike shop or a music store.
Analysts said that Whole Foods is smart to go after new shoppers, but that pulling it off can be tricky.
The grocer runs a real risk of cannibalizing its own customers, encouraging Whole Foods shoppers to switch to the lower-price alternative. And the stores could dilute the high-end brand image that Whole Foods has cultivated.
"There's a balancing act they have to perform," said Jim Hertel, senior vice president at Willard Bishop, a food analytics company under Inmar. "I don't know if it takes business away from Trader Joe's or Sprouts or if it just takes most of its business away from Whole Foods."
Those potential obstacles are making investors hesitate, analyst Feldman said. Shares of Whole Foods closed Thursday at $30.51, down from an all-time high of $65.24 in October 2013.
One big challenge is creating stores that are unique enough to stand out from rivals, but with a focus that both complements Whole Foods and sets it apart. The grocer has said it wants to appeal to millennial shoppers, but some analysts questioned whether the lower prices and tech components will be enough.
"The reality in today's world, especially in food retailing, is the more sharply differentiated you are, the better off in general you have done," Hertel said. "If the goal is to become much more relevant to millennial shoppers, then focus on that."
Turnas acknowledged that there will likely be some cannibalization of nearby Whole Foods stores. But he sees 365's rivals to be chains such as Trader Joe's and Sprouts, which often cluster around bigger Whole Foods stores. Eventually, 365 may go into neighborhoods that are less affluent or more in need of grocery stores, Turnas said.
"There are a whole lot of players who... are not committed to natural and organic the way we are," he added. "They are able to price competitively because of that. This is our way of playing in that space."
For now, Turnas said he hopes 365 will add to L.A.'s thriving food scene. More 365 stores are in the pipeline for the Southland: five additional locations have been announced in Santa Monica, Long Beach, North Hollywood, Los Alamitos and Claremont, although no opening dates have been set.