The chain, which debuts in Los Angeles' Silver Lake neighborhood, is
critical to Whole Foods. In the fiercely competitive market for
fresh fruit and vegetables, its sales are being whittled away by
Sprouts Farmers Market Inc and other rivals who are undercutting
Whole Foods on price, if not always matching it on quality.
Low prices are the top demand even among shoppers prioritizing goods
promoting health and wellness, said Richard Vitaro of market
research firm AlixPartners. "I don't think we can underestimate the
power of frugality," said Vitaro.
From the start, 365 has targeted reduced overheads and increased
customer convenience, said Jeff Turnas, president of the chain.
Whole Foods said recently it has signed 19 leases for 365 stores
around the United States, without disclosing financial targets for
the new chain.
"Our goal is to compete in the marketplace without lowering the
Whole Foods standards," Turnas told Reuters during a recent store
tour. He said 365 stores will complement Whole Foods' premium,
full-service sister brand - often dubbed 'Whole Paycheck' in popular
culture in reference to its perceived higher prices.
But the new chain will have to work hard to avoid being labeled "a
cheaper Whole Foods", said Kevin Kelley, a principal at strategy and
design firm Shook Kelley, which has worked with Whole Foods and
AIR GUITARS, FOODIES
365's messaging is breezier than its serious elder sibling's. One
sign offers "Free air guitars", while a "Silver Kale" mural next to
the meat case is a fun, foodie nod to the chain's first
neighborhood, known for a hipster feel.
About half of the brightly colored fruits and vegetables at 365 are
non-organic, a greater proportion than at Whole Foods. Produce is
priced per piece or per package, rather than by the pound as at cult
discounter Trader Joe's.
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365 stores will be about a third smaller than the average Whole
Foods outlet, and carry roughly a quarter the number of products -
reducing real estate and merchandise-related costs.
Staffing is leaner and no longer specialized. An iPad app replaces
wine experts, while meat, cheese and fish are in "grab-and-go"
packages - meaning no butchers or cheese and fishmongers.
While 365 takes aim at budget gourmets and cash-strapped "millennial moms",
grocery experts said it also needs to appeal to people who buy from a range of
other food sellers, from Kroger and Walmart to Amazon.com, restaurant delivery
companies and meal kit providers such as Blue Apron.
Some are skeptical that 365 stores will hit the mark. "I don't see them
generating the efficiency they need to balance value and quality," said Bill
Bishop of retail consultancy Brick Meets Click.
Shook Kelley principal Kevin Kelley disagreed: "Whole Foods gets culture," he
said, and has the experience to successfully choose what goes on the shelves in
smaller 365 stores.
Roger Davidson, a consultant who has held key positions at chains such as Wild
Oats, which was acquired by Whole Foods, Walmart and Texas grocer H-E-B, is
betting on 365 succeeding. But amid intensive competition in the sector,
Davidson said 365 has little room for error.
"They have to make it work," he said.
(Reporting by Lisa Baertlein; Editing by Peter Henderson and Kenneth Maxwell)
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