According to a report Monday in The Arizona Republic, Whole Foods Market
The new, larger stores will dedicate most of the additional space to prepared food offerings -- including tapas and freshly cooked meats -- that customers select themselves. It appears the expanded offerings will also include a wine bar, beer, and additional seating.
What I find interesting is that while Whole Foods is an up-market grocery store, it is still a grocery store. Now it is adding square feet and essentially adding a number of restaurant-like offerings. So you have a grocery store with a restaurant-like twist. Color me unimpressed.
Whole Foods has developed its brand very well, but at the end of the day there's very little Whole Foods does which cannot be copied by other grocers or restaurants. Some grocers such as Trader Joe's successfully compete with better prices and Delhaize
Leaving leases out of the equation, I estimate Whole Foods earns somewhere between 12% and 14% on its invested capital. That's respectable, but hardly a sign of a world-beating competitive advantage. Add in leases, and the returns drop into the high single digits. Starbucks' return on invested capital is 20% without leases, and around 13% with leases included.
It's important to note that these large stores with expanded offerings are early in the development phase for Whole Foods, and the company can pull the plug at any time. But I'd be surprised if the large format stores earn returns above what the company gets from its current store base, and it has some improvement to do there as well.
Whole Foods and Starbucks are both Motley Fool Stock Advisor recommendations.