Just don't call it "Whole Foods light."
Whole Foods (NASDAQ: WFM) executives unveiled a new, lower-cost store concept this week. Called "365 by Whole Foods Market," it's management's answer to surging price-based organic grocery competition from rivals like Kroger (NYSE:KR) and Costco (NASDAQ:COST).
After the announcement, executives held a Q&A to discuss their goals for the store concept. Here are three points that management wanted to get across about this major strategic move.
The core brand still has legs
"Nothing has changed with respect to the potential that we see for Whole Foods Market stores themselves. We think this represents additional potential...this represents considerably more potential for the Whole Foods Market brand in the market place." -- Co-CEO Walter Robb
The first question executives received was whether the new store concept was an admission that Whole Foods' growth outlook is limited. That's a fair question considering that its comparable-store sales have trailed Kroger's for over a year now. Maybe Whole Foods can't grow as quickly in a world where there's a wide selection of organic groceries in everything from traditional grocery stores to discount shops to warehouse clubs.
Management argued that 365 by Whole Foods is a complement to the current setup, not a reflection of anything wrong with the traditional brand. They still believe the market will support a tripling of the Whole Foods base to 1,200 stores from the current 421 locations.
Lower costs but still unique
"We'll look at a more streamlined cost model and also labor model but it's going to look not like what you see out there in the marketplace with respect to some of the other formats. It's going to be something unique that blends our expertise in fresh food with some of these other areas." -- Co-CEO Walter Robb
The new store concept will be smaller and more efficient, which means you won't see many of the luxuries that characterize a regular Whole Foods experience. 365 stores aren't going to feature large sit-down eating areas, wood-burning pizza ovens, or chair massage booths.
Still, "you'll be able to do a full shop," said Jeff Turnas, the leader of the new division. "We are not looking at a discount model, or a dumbed down version of Whole Foods because we're never going to compromise our quality standards."
Going where Whole Foods can't
"The brand can be close to Whole Foods but I think it can be in markets that we would have trouble going in. It's exciting to take the best of Whole Foods, the things that work really well for us, but also shed some of the legacy and some of things that slow us down." -- Jeff Turnas
Due to their smaller footprint, the 365 by Whole Foods stores won't need the same level of population nearby to support them. And their standardized setup means that the company can scale them up quickly as soon as they begin opening the stores in 2016.
The concept can also break new ground from a brand perspective. Even as it's making progress at shedding the "Whole paycheck" image, Whole Foods will never be able to compete on straight price with low-cost sellers like Costco. It just isn't set up for that fight. "We strive to transform food shopping from a chore into a dynamic experience," Whole Foods boasts in its 10-K report. That goal is fundamentally at odds with the type of price-based, no frills shopping experience that you can get at Costco.
But with 365 by Whole Foods, management hopes it's found a happy medium that satisfies price-conscious shoppers while protecting the core Whole Foods experience:
"There are things we can do with the Whole Foods Market brand. We can continue to do a better job on our expense discipline. We can continue to be aggressive in gradually lowering some of our prices, but the Whole Foods Market brand stands for the highest quality, the best selection, the highest degree of service.
That brand can bend a little bit, but we can't break it. We're not willing to break it. But we think we can create a complementary brand that can go places the Whole Foods Market brand cannot effectively go." -- Co-CEO Walter Robb
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of Apple, Costco Wholesale, and Whole Foods Market. The Motley Fool recommends Apple, Costco Wholesale, and Whole Foods Market. The Motley Fool owns shares of Apple, Costco Wholesale, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.