Special Report: Whole Foods Market
T he seafood case is shorter by eight feet and there are miles of bulk bins on display at Whole Foods Market's newest store. On opening day local politicians expressed delight that an abandoned urban store front is thriving once again while angry protesters criticized CEO John Mackey's healthcare beliefs a refl ection of the times. A walk-through of the 16,790-sq.-ft . remodel in San Francisco's Noe Valley neighborhood reveals much about the now 30-year-old chain. Th e store is one of the smallest to open in recent years, reminiscent of the late 1980s before WFM decided its sweet spot was 35,000- to 50,000-sq.-ft . destination venues. Multi-story stores as large as 75,000 to 80,000 sq. ft . were constructed. Stores in Fairfax, Va., and Scottsdale, Ariz. feature a sit-down Smokehouse Grill and as many as four in-store restaurants. Smaller Stores, Fewer Stores Smaller stores benefit from lower fixed costs for rent and utilities and require fewer employees. Whole Foods wants to improve key profitability metrics such as sales-per-employee and sales-per-square foot ($882 in 2008). The chains' fabled 14,000-sq.-ft. Mill Valley store, where co-founder Walter Robb got his start, is one of the top performers in the nation, averaging $500,000 to $600,000 a week in sales, according to Natural~Specialty Foods Memo. Downsizing is a trend. Nine leases were downsized in 2008. In its fourth-quarter fi nancial statement for the period ending Sept. 27, the company reported existing leases for two stores will average 16,200 sq. ft . smaller. New leases averaged 33,000 sq. ft . In November, developer Mark Brennan announced that the 47,000-sq.-ft . WFM and condominium complex proposed for Haight Street in San Francisco had been downscaled to a 23,600-sq.-ft . renovation. In 2005 the then 176-store Austin, Texas-based chain reported 15 percent same-store growth and 35 percent gross margins, its stock was trading at nearly $80 a share with multiples greater than Google. In his 2006 Letter to Stakeholders CEO John Mackey predicted WFM would exceed $12 billion in sales in 2010. Analysts told BusinessWeek the company could grow to 500 stores. Four years later identical same-store growth had fallen to -2.0 percent. Shares are trading at $26. While 2008 was the toughest year in our history, we still produced strong growth... with sales increasing 24 percent, Mackey wrote in his 2008 stakeholders letter. Whole Foods is the 15 th largest grocery chain in North America with $8 billion in 2009 sales and 275 domestic stores, six properties in Canada and five in London. There are 17 California stores in development and 28 more in 16 states, including Texas. Whole Foods opened nine stores in 2009 (scaled back from 25) and relocated six. It plans to open 13 in 2010. At this pace it may reach 300 by FY 2013. Value Pricing A cornerstone of WFM's new strategy is healthy offerings at value prices, signaling a shift from more expensive gourmet and organic offerings. The Noe Valley store occupies a former Bells Market (operated by Ralph's). It is efficient and carefully stocked to emphasize healthy offerings. Nationally branded products are value priced and positioned. The chain's 365 Everyday Value private-label offerings occupy a significant number of facings in every aisle. The bulk bins with peanuts and almonds, for example, are located above electric grinders used to make your own nut butter. Signs promoting low prices throughout the store suggest the chain is sensitive to Safeway's recent shift in its $100 million Ingredients for Life campaign to an ELDP slashing prices message. Safeway, headquartered near San Francisco and operating 1,730 U.S. and Canadian stores, competes head to head with Whole Foods in 16 Bay Area cities. To combat low-cost rivals such as Trader Joe's, Mackey insists the 2,150 365 brand products off ered by WFM meet or come in lower than Trader Joe's prices. SPECIAL REPORT Whole Foods Market WHAT WFM DOES BEST IS ENCOURAGE A CONSUMER LIFESTYLE THAT BENEFITS SOCIETY AS A WHOLE By Dan Bolton Natural Food Network Newsletter Editor Expansion of bulk foods and innovations like grinders to make custom nut butters, an increase in private label goods and signage promoting value buys are signs of the times. Natural Food Network 7