Following its worst quarter since the recession, Whole Foods Market (NASDAQ: WFM) has unleashed its latest idea for reviving the flagging brand.
To complement its line of millennial-aimed 365 by Whole Foods Market stores, the company is inviting partner businesses to set up shop in the new stores, which are slated to start opening this year. The program, known as Friends of 365, introduces itself by saying, "Friends of 365 can be any type of business -- from food and drinks to fashion, body care products, services, and more. (Record shop? Tattoo parlor? Maybe!)"
The idea of getting fresh ink after picking up some organic veggies and cage-free eggs is sure to draw eye-rolls from some corners of the chattering classes, but the idea of creating a lifestyle brand that draws traffic with complementary products and services is nothing new. In fact, it's becoming a trend.
What millennials want?
Urban Outfitters (NASDAQ:URBN) made a similar move last year, acquiring the Vetri Family restaurant group, with an eye on expanding Pizzeria Vetri at locations neighboring the clothing chain. The market thought little of the decision, sending the stock lower on the news, but big brands are beginning to realize that millennials may be wanting more than a basic shopping experience.
Beyond the pizzeria idea, Urban Outfitters has launched a home-and-garden center called Terrain, and is opening multidimensional shopping centers featuring performance spaces, eateries and bars, and a mix of its clothing brands, Anthropologie, Free People, and its namesake store.
Restoration Hardware (NYSE:RH), a similar high-end brand to Whole Foods, has gleefully extended its high-end home-furnishings brand with restaurants, a clothing label, and an antiques and artifacts division.
The shop-in-store format is also becoming more popular with even a stodgy brand like J.C. Penney, which has found success by opening up its real estate to makeup maven Sephora.
A changing industry
Whole Foods' comparable sales have taken a dive as mass-market competitors have rolled out more organic options. Whole Foods no longer occupies alone the organic grocery market that it pioneered, and some adjustments are necessary. Millennials also have options beyond the traditional supermarket, including food co-ops, farmers' markets and community-supported agriculture (CSA) options, which are growing as a share of the grocery budget.
The Friends of 365 program borrows from staples of millennial culture like food truck rodeos, flea markets, and farmers' markets, all of which draw crowds by offering a range of products. The new program gives the company an opportunity to tap into these changing shopping habits with partner businesses like bike shops, taco trucks, or juice bars, which at the very least would add novelty to a visit to Whole Foods. In addition to bringing in customers, Friends of 365 could also help Whole Foods' image as the perception that it's overpriced has overwhelmed it recently.
With only three 365 store openings planned for this fiscal year, it will take time for the new chain and the Friends of 365 partner program to have an impact on the bottom line.
More important for the company is finding a way to lower its prices to make itself competitive with rivals like Kroger and Trader Joe's, which are thriving as Whole Foods' sales are flattening. Whole Foods is making structural changes to lower costs, such as shifting responsibility for purchasing some products to headquarters and using technology to cut down on labor-intensive tasks, but it's still losing customers as the latest quarterly report indicates.
As Whole Foods seeks to turn around its business, there will be no silver bullet, but incremental steps like 365 and the Friends program show the company is responding to the changing competitive landscape. While tattoo parlors may be a stretch, there are plenty of complementary businesses that the company could house to spice up a visit through its doors. Partnering with start-ups and small businesses will also further integrate the company with its communities, enhancing the brand.
Expect more such bold innovations from Whole Foods as the year goes on.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Whole Foods Market. The Motley Fool recommends Restoration Hardware and Urban Outfitters. 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.