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Whole Foods Is Going Into the Restaurant Business

By Daniel B. Kline - May 26, 2017 at 9:12AM

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The supermarket chain has slowly been expanding its food offerings beyond salad bars, pizza, and sushi.

While Whole Foods ( WFM ) remains under pressure in the grocery game, it is continuing to expand its food offering into full-scale restaurants. The chain, which has always had self-help sushi bars, pizza bars, and salad bars, and even sandwich counters in its supermarkets, has quietly added about 30 full-service restaurants with waitstaff and 250 quick-service concepts in spaces inside or adjacent to its markets, according to Eater.

It's a bold play for a company that has always been part eating destination and part market. Adding restaurants with wait service or even branded quick-serve choices might attract consumers to a Whole Foods when they weren't intending to shop. In theory, that could lead to impulse purchases while, of course, also adding revenue from the restaurant check.

Whole Foods has been somewhat quiet about this strategy, but it's further along in implementing it than Barnes & Noble (NYSE: BKS), which has has tested models that expand its cafes into full-service restaurants and in some cases add a bar component.

A Whole Foods

Whole Foods has been expanding its dining options to include full-service restaurants. Image source: Whole Foods Markerts.

Why restaurants?

At a time when many actual restaurant chains are struggling and the amount of Americans dining out has dropped slightly, it seems odd that a struggling business would move into a field that's also having problems. The model for Whole Foods and Barnes & Noble, however, is not all that different from the store-within-a-store concept that helped power Best Buy's turnaround.

Putting multiple concepts under one roof gives people more reasons to visit, In the case of Whole Foods, having a compelling restaurant may not only bring in diners, but actually get people to do their shopping at the chain instead of another one.

In addition, the supermarket could be a draw for the restaurant in the same fashion. It's a case where neither product may be enough of a lure on its own, but together the value to the customer becomes stronger.

What is Whole Foods doing?

The supermarket chain has been partnering with well-known restaurants or chefs unique to the market a store operates in. So far, the project has been working well, according to Whole Foods Vice President of Culinary and Hospitality Tien Ho, who told Eater, "The response has been amazing, so well so that they're starting to be in more of our stores."

The latest restaurant in the chain, The Roast, is slated to open June 1 in a space next to a Whole Foods in Atlanta. A take on a Brazilian churrascaria, the fast-casual eatery offers digital ordering kiosks, a set menu, and the option for customers to build their own bowls by making choices from a list of ingredients, according to Atlanta Magazine. The eatery will also have a bar menu featuring beer, wine, and liquor available only at night.

Will this work?

It makes more sense for Whole Foods than it does for Barnes & Noble to go into restaurants. It's easier to see people coming for dinner at a chain that already has a reputation for having quality self-serve food than it is to picture them opting to eat at a bookstore. Yes, Barnes & Noble has cafes now, but those are mostly about serving coffee and snacks while people read magazines for free.

Whole Foods has a history as a dining location and adding actual restaurants just takes that a step further. The chain has been struggling and recently overhauled its board and hired a new CFO. In its most recent quarter, the company saw comparable-store sales drop 2.8% while the number of transactions dropped by 3%. Offering a new reason for people to come to stores should draw back lapsed or occasional customers while perhaps bringing in some new ones.

This is a logical next step for Whole Foods and as long as it's executed well, with interesting restaurant concepts, it should work.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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