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Instant Analysis: Whole Foods Market Inc.'s First 365 Store: No Tattoo Parlor, but Vegan Food, Craft Beer, and Tea

By Rich Duprey - Apr 13, 2016 at 10:11AM

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The organic grocer's new format isn't turning out to be quite what was expected.

Seeking to live down its "Whole Paycheck" moniker, organic grocer Whole Foods Market will be opening a chain of lower-priced supermarkets -- but with a twist. Image Source: Whole Foods Market.

What happened?
At least a year in the making, Whole Foods Market (WFM) will formally open its first 365 by Whole Foods Market, a shopping experience that's been subject to much speculation as to what it will look like, but ultimately has at its core a response to the lower prices found on organic groceries at Trader Joe's, Wal-Mart (WMT 0.86%), and elsewhere. The store is set to open May 25 in the Silver Lake neighborhood of Los Angeles, the company announced last week. It pans to open two more locations in 2016 (in Bellevue, Wash., and Portland, Ore.) and up to 10 in 2017.

Does it matter?
Traditional supermarkets such as Kroger and Wal-Mart have invested heavily in expanding their organic offerings while smaller companies like Trader Joe's and Sprouts Farmers Market offer consumers plenty of lower-cost organic ptions. Whole Foods, on the other hand, has yet to live down its image as "Whole Paycheck."

It has a chance to change that with 365 by Whole Foods. By partnering with third-party vendors who will set up shop in the stores, it can even create a whole new shopping experience by creating a destination location that will offer more than just the produce and products you would expect to find in a Whole Foods store.

Although rumors were flying that you might find everything from record shops to tattoo parlors in one of these new locations, the first store that will open in Los Angeles will feature a "curated" mix of products that's only as daring as a vegan food company, a craft brew bar, a coffee bar, and a self-serve tea kiosk. It will also offer online ordering and Instacart delivery.

Whole Foods describes the venue as "a streamlined, quality-meets-value shopping experience," but it's not clear consumers are looking for an open-air bazaar vibe when performing mundane tasks like buying groceries. Clothing retailer Urban Outfitters (URBN 2.14%) thought customers wanted to spend even more time shopping for clothes at its Anthropologie chain and announced plans to vastly expand the square footage of the stores along with introducing garden and bridal products, but same-store sales have tumbled since it first launched the initiative to become the Ikea of clothes.

Still, by developing a lower-priced supplemental chain like 365, rather than just cutting prices across the board in its Whole Foods stores, it shows the retailer is interested in preserving the premium its higher-quality produce deserves and may be able to bridge the divide between the two extremes.

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Stocks Mentioned

Whole Foods Market, Inc. Stock Quote
Whole Foods Market, Inc.
WFM
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$122.63 (0.86%) $1.05
The Kroger Co. Stock Quote
The Kroger Co.
KR
$48.14 (1.71%) $0.81
Urban Outfitters, Inc. Stock Quote
Urban Outfitters, Inc.
URBN
$19.06 (2.14%) $0.40
Sprouts Farmers Market, Inc. Stock Quote
Sprouts Farmers Market, Inc.
SFM
$25.72 (1.58%) $0.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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