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Showdown between Whole Foods and Trader Joe’s coming to L.A.

A shopper leaves the Whole Foods Market store in New York's Union Square on June 24.

A shopper leaves the Whole Foods Market store in New York’s Union Square on June 24.

(Julie Jacobson / Associated Press)

The first test for Whole Foods Market Inc.'s new value-oriented stores will be in one of the nation’s most competitive grocery landscapes.

The Austin, Texas-based chain said the first of its new 365 by Whole Foods Market stores will open next year in Silver Lake, setting up a potential showdown with rival Trader Joe’s.

The former site of a Ralphs was originally intended for a regular Whole Foods Market, but the company decided to renegotiate the lease to expedite the new store’s opening. The store will be about 30,000 square feet and may have a wine bar.

Whole Foods operates 24 stores in the Los Angeles area. A downtown Los Angeles store will open in November inside a luxury apartment complex on Grand Avenue.

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“Los Angeles is the perfect dense, urban market” to introduce the more convenient store format, co-Chief Executive Walter Robb said in an earnings call Wednesday with analysts.

The 365 stores have been touted as a smaller shopping experience with more competitive prices than the traditional Whole Foods markets. John Mackey, company co-chief executive, said the intent is to expand the company’s reach to customers who may have thought Whole Foods prices were too high.

Four other 365 by Whole Foods Market stores will be opened in Santa Monica; Bellevue, Wash.; Houston; and Portland, Ore., in the second half of 2016. The company said it plans to double the number of 365 store openings in 2017.

Analysts say the new stores will have to differentiate themselves to stand out in the already crowded Southern California grocery market.

In March, El Segundo-based Fresh & Easy closed 30 Southland stores. Two weeks ago, newcomer Haagen Inc. said it was laying off employees and cutting worker hours only months after the Pacific Northwest chain arrived on the scene.

“Southern California has a lot of savvy food shoppers who want quality as well as value,” said Burt Flickinger III, managing director of consulting firm Strategic Resource Group.

The region is Whole Foods’ most important and highest-volume market anywhere in the world, he said. It is also the best market in the nation for Trader Joe’s, setting the two rivals up for a face-off.

“It’s going to be one of the fiercest food retail battles in decades in natural and organic and healthy high-volume food retail,” Flickinger said. “Trader Joe’s has been uniquely successful in consistently having success competing against Whole Foods in every single market where they’re in the same trading area.”

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In May, Trader Joe’s controlled 5.9% of Southern California’s grocery market share with 113 stores, according to the Shelby Report, a publication for the food and grocery industry. Whole Foods, which had 17 stores at the time, took 1.3% of market share.

If the new 365 by Whole Foods Market stores can have a narrower assortment that allows shoppers to get in and out faster, it could be successful, said Phil Terpolilli, healthy living analyst at Wedbush Securities.

“I think they see it as a truly differentiated concept that’s more streamlined,” he said.

Whole Foods shares fell $4.74, or 12%, to $36.08.

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