New Whole Foods chain 365 faces tough mission

Los Angeles | Reuters — Whole Foods Market’s 365 grocery chain offers lower prices and more technology than the company’s namesake supermarkets, but experts say the fledgling brand must beat its many rivals without hijacking customers from its parent.

365, which debuted on Wednesday with a bright and airy store in Los Angeles’ Silver Lake neighborhood, is critical to Whole Foods. In the fiercely competitive market for fresh fruit and vegetables, Sprouts Farmers Market, Trader Joe’s and other rivals are taking sales from Whole Foods by undercutting it on price, if not always matching it on quality.

Even among shoppers seeking goods promoting health and wellness, “I don’t think we can underestimate the power of frugality,” said Richard Vitaro of consultancy AlixPartners.

365 president Jeff Turnas said reducing overhead and increasing convenience are part of the new chain’s DNA.

“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 would complement the Whole Foods premium, full-service brand, which is fighting to shake its “Whole Paycheck” nickname stemming from the perception that it charges high prices.

The company, whose Whole Foods Market chain includes 11 stores in Canada, said recently that it had signed 19 leases around the U.S. for 365, without disclosing financial goals for the new chain.

Turnas said 365, which targets busy, value-minded shoppers, would carefully curate and price products to avoid undermining Whole Foods and keep the two chains distinct.

Shook Kelley principal Kevin Kelley said 365’s challenge is to avoid being labeled “a cheaper Whole Foods.” His strategy and design firm has worked with Whole Foods and other grocers.

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.

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 and cheese are in “grab-and-go” packages, eliminating the need for staff like butchers and cheesemongers.

While 365 takes aim at budget gourmets and cash-strapped “millennial moms,” grocery experts said it also must appeal to people who buy from a range of other food sellers, including Kroger, Walmart and Amazon.com, as well as 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.

But Kevin Kelley disagreed, saying Whole Foods has the experience to successfully choose what goes on 365’s shelves.

Roger Davidson, a consultant who has held key positions at chains including Wild Oats, which was acquired by Whole Foods, is also betting on 365’s success.

But he said the intense competition in the sector leaves little room for error.

“They have to make it work.”

Lisa Baertlein is a Reuters correspondent covering the U.S. retail grocery and restaurant sectors from Los Angeles.

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