Whole Foods Markets (:WFMN/A) recently confirmed a May 25 opening date for its “365 by Whole Foods Market” small-store concept in Los Angeles. The store is slated to feature a self-service tea bar, vegan fast-casual restaurant, online ordering and even custom uniforms for workers.
All this will be staged in a 30,000-square-foot space. More importantly, Whole Foods describes its 365 brand as “quality-meets value.” Smaller store? Lower prices? Who does Whole Foods think they are? Sprouts Farmers Market (TSX:SFMC)?
Reaction To 365 Is Mixed
Whether Whole Food’s attempt at smaller curated stores and more competitive pricing is a good idea depends on who you ask. Some experts are warning that margins could be hurt as the chain cuts prices. Moreover, since Whole Foods is not exactly noted for maintaining razor-thin margins, there’s skepticism the chain even knows how to operate in a low-price environment.
On the other hand, Whole Foods may not have much choice. Other chains such as The Kroger Co. (NYSE:KRC), Target Corporation (NYSE:TGTB) and Wal-Mart Stores Inc. (NYSE:WMTC) have entered the natural and organic space with much more competitive pricing than Whole Foods. Some analysts believe the 365 launch might turn things in Whole Foods’ favor.
On The Plus Side
Among those who think Whole Foods is making a winning move three basic arguments have been articulated. First, there’s the notion that with regular Whole Foods Markets for the upper end of the organic segment and 365 for millennials and others not able to afford the high prices at that end, Whole Foods can have the best of both worlds.
Second, as a pioneer in the organic world, Whole Foods knows the business better than anybody else. If any chain knows how to make this “quality meets value” concept work – say proponents – it’s Whole Foods.
Finally, by (theoretically) offering Whole Foods quality at lower prices, the chain could well attract converts who eventually move up the chain to the larger, more expansive (and more expensive) Whole Foods Market stores.
Not So Fast Say Some
Others suggest that Whole Foods may be creating the instrument that will bring about its own demise. The theory here is that the company could end up competing with itself, especially in large cities where existing Whole Foods Markets could lose sales to its smaller, leaner cousins.
Still others suggest the energy spent developing the 365 concept could be better spent dealing with some of the problems the parent chain has had of late, including an overcharging scandal and the fact the chain recently lost its “king of organic” crown to Costco (NASDAQ:COSTC).