US Insights

Will 365 drive a Whole Foods 180?

Diana Sheehan

Director

Brands 06.01.2016 / 15:45

Shopper in supermarket with trolley

Kantar Retail on whether 365 by Whole Foods Market will spur the growth Whole Foods is hoping for

The recent opening of 365 by Whole Foods Market in Los Angeles led industry news. Pictures, press, and points of view were everywhere. The question remains: Is 365 the format that can turn around Whole Foods? Do shoppers really care enough today to make an extra trip to a store that only sells almost exclusively organic and natural foods?

With the launch of 365 by Whole Foods Market, the legacy Whole Foods has hedged its bets on organic completely. It has moved forward with the assumption that format and product are right, but pricing has been the critical component impairing its ability to grow in a highly crowded and increasingly complex retail landscape.

However, when considering the new format, the implications and complexity for Whole Foods are considerable. 

  • Price: The company insists it can maintain both formats, even with the 365 format offering 15% to 20% below those at legacy Whole Foods stores, according to several industry sources. The company firmly believes that because the 365 format uses private label Whole Foods products to drive the pricing differences, its core stores and traffic are protected. Yet, the cannibalization risk to legacy stores is quite real. In fact, Whole Foods' increased focus on building the strength of its private-label brand to stand on its own in a format could have negative long-term impact. Why would a shopper pay for branded organic if private label will do?
  • Placement: Because of the inherent risk of cannibalization to legacy stores, Whole Foods must be very careful of the location development of future 365 by Whole Foods Market stores. The retailer needs to learn a lesson from Walmart in format expansion. Sam’s Club in most markets serves as the strongest competition for the Walmart Supercenter shopper’s dollar because the stores share a parking lot. Because the formats are so different, they have survived, but for Whole Foods, the formats are too similar for both to survive.
  • Product: Looking beyond the internal factors, the real question comes from the product focus. Shoppers appreciate organic and natural products, but the products are no longer unique or hard to find. These products are carried everywhere. Consumer Packaged Goods manufacturers have flocked to invest in creating or acquiring respected organic or all-natural brands in recent years. More so, many mainstream retailers have embraced the shopper demand and invested heavily in their own private label organic lines. Walmart, Target, Kroger, and Ahold are just a few retailers that continue to grow their private label organic/all-natural product line.

So the question remains: Will 365 by Whole Foods Market be the catalyst to growth that Whole Foods hopes it will be?

The competition has never been fiercer in this space, nor has the product ever been more available. Whole Foods has a long road ahead, and while 365 is a great concept, in the evolving retail landscape, it could be too little, too late.    

Source: Kantar Retail

Editor's Notes

This article was originally published on the Kantar Retail blog on June 1, 2016. Journalists, to speak with the author, contact us. Follow @Kantar and sign up for our insight alerts. 

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