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[14 comments]

Will Whole Foods Be a Hit in Motown?

June 6, 2013

Whole Foods is looking to put its conscious capitalism to the test with the opening of stores in underserved areas of Chicago and New Orleans. But nowhere has more attention been paid to Whole Foods' social/commercial experiment than in Detroit where local officials are holding up the chain as a symbol of the city's comeback.

Walter Robb, co-CEO of Whole Foods, has made a point of telling anyone who will listen that opening stores in places such as Midtown Detroit are part of the company's plan to serve all types of communities.

"People perceive Whole Foods as only receiving a particular community and I don't like that," Mr. Robb told Marketplace.

"We try to be competitive with our prices. I made a personal commitment on behalf of the company for us to be affordable," he added. "This market has some special pricing because this is a different market than we usually serve."

Whole Foods has been adamant about its commitment to making it in Motown. The company has signed a long-term lease (at $6 a square foot) and two-thirds of the store's employees are Detroit residents.

The new store features a distinctive Detroit feel, including the use of Motown records at the registers, tables made from the hoods of old cars and more.

"This store celebrates this city, its rich history and its talented, community-minded residents," said Larry Austin, the store team leader, in a statement. "We've incorporated reclaimed wood and signs into the design and invited local artists to contribute murals. We want all our shoppers to feel at home — welcome 100 percent of the time — and we want them to understand how much it means to us to serve them with a store in Motown."

FINANCIALS:     [NASDAQ:WFMI] [ ]

Discussion Questions:

What does opening in Detroit imply for the future of Whole Foods? Will the company's opening in the city change the way other upscale retailers look at inner city locations?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How successful will Whole Foods be in Midtown Detroit?

Comments:

I'd like to think that the answer to this is whether in inner city store makes money or not. If WF can make money with an inner city store, then it's a great idea and they should expand the concept wherever feasible. If it doesn't make money, pull out or write it off as your contribution to society. If the latter, don't expect others to follow—shareholders won't be that amused.

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Dr. Stephen Needel, Managing Partner, Advanced Simulations

STOP THE PRESSES!!!!

First of all, the altruistic Whole Foods received $4.2 million in incentives to build that store.

Secondly, Midtown is the most viable neighborhood left in the city, so they haven't exactly put it in the middle of the hood.

Third—and perhaps most ironic—Papa Joe's, the uber-uber upscale Birmingham, MI-based independent is also putting a store in downtown.

The corridor between downtown and what we Detroiters call Midtown (where Whole Foods has opened) is rife with real estate speculation, big ticket development bets and more media hype than accompanied the launch of the Titanic.

In all fairness Meijer has also announced plans for a city location although they are actually putting their store in an area populated by longtime Detroiters as opposed to the young "urban pioneers" flooding Midtown.

So...now to the questions. I guess the opening means that Whole Foods may be prepared to open stores in areas they would never have thought of before—provided they get the right incentives.

Next, there is a BIG difference between neighborhoods that are located inside a older part of a metro area but are gentrified and "inner city" neighborhoods.

I'll get back to you when Whole Foods opens a store on Detroit's Eastside where I grew up...just don't hold your breath.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Well at $6 per square foot rent, and the fact that the store is very small, the financial risk is negligible for Whole Foods. I'm quite sure Whole Foods is well aware of the dangers and has taken precautions to protect the safety of both employees and customers.

What this implies is that if a company has to spend their own money, they probably will not open a store. I doubt that other upscale operators will follow because the city cannot afford to give "free" rent and tax breaks to everyone. Even if the rent is free, no property taxes, and there is adequate security, its very difficult to find managers willing to work in these difficult areas. It's also not fair to the brave competing supermarket operators in these areas who risk their lives and capital to run their supermarkets.

David Livingston, Principal, DJL Research

The economics will be challenging, however, I applaud them for trying to make it work. Better accessibility to fresh and healthy foods are badly needed in lower income, US urban populations.

Paul R. Schottmiller, Senior Vice President of Strategy, Retail and Consumer Goods, Merkle

Just a clarifying note for David Livingston:

First of all, as I noted in my post Papa Joe's (which makes Whole Foods look like an Aldi's) is planning on opening up in the city, as is Meijer.

Next, Midtown Detroit is hardly the Wild West. Folks can actually walk the streets—even at night—without getting gunned down for the gold in their teeth.

The only people risking their lives in that neighborhood are the party people in all the so-hip-it-hurts bars with their liver-defying feats of over-consumption.

If you ever come to Detroit, I'll be happy to take you on a tour.

Believe it or not, all of Detroit doesn't look like the backdrop from a Mad Max movie. There are some nice neighborhoods—and—not surprisingly, that's where the smart money is going.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

I like this story. Doesn't America love a comeback? The poverty penalty—the phenomenon that poor people tend to pay more to eat, buy, and borrow—is a sad fact, so I applaud Whole Foods trying to empower this great city.

Whole Foods does have the perception of being in more upscale, affluent communities. I don't know if this opening will change that fact (which is a hidden reason why some of their consumers shop there), but it may inspire other retailers to get involved. They will have to make sure the people in the community can actually afford to shop there, so I think that would be their biggest challenge. I'm interested to see what other companies follow suit. Staying tuned....

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Zel Bianco, President, founder and CEO, Interactive Edge

The outside version of Detroit is the epitome of the collapse of the nation's industrial core. As Mr. Mathews points out, the "Midtown" section of Detroit is not the worst place on the planet that it may be depicted as by national media. This section of Detroit is just as viable as any quality core section of any major city in the country. Why hasn't it been more taken advantage of until now? Because for no other reason than it carries the name "Detroit."

Whole Foods is just one piece of a puzzle that is coming to shape in this corridor of Detroit. Papa Joe's as mentioned is coming downtown also. Other major players in what is going on in this section as well as down the entire Woodward Ave. corridor are Dan Gilbert of Quicken Loans, Mike Illitch of Little Ceasars, Roger Penske, as well as others. They are buying up real estate and creating a viable opportunity for other business to join in this vital section of Detroit. Another building was just purchased this week by this same group to keep business alive. Together, they have grown occupancy rates of near zero to above 70-80%.

Whole Foods will do just fine. They are committed. That is what it takes. The tax incentives and low rent would have been available to anyone accepting the risk they have taken. They see the opportunity. In doing so, they are part of something larger.

Meijer is also opening just inside the city limits, but that is a completely different proposition, as well as, a different area.

There is an undercurrent of activity going on in Detroit. I hope that it continues to happen with as much little outside attention as possible. If it does, it has a chance of continuing.

Visit the store. Visit Detroit. Enjoy the venues of Comerica Park, Ford Field, growing food and entertainment options. There is a beat going on there. It is quietly getting a bit louder. See it for yourself. You might even run into Kid Rock!

'Scanner'

Applause to Whole Foods, Papa Joe's and others bringing opportunity to the area. Don't forget, this will also create jobs. Let's give this a chance and hope we are seeing others enter these areas because of their successes.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

I am rooting for Whole Foods to be successful in Detroit. It's good to see another corporate entity getting involved as the auto companies can't support the region and the Illichs and Gilbert can only do so much to get people back into the city. Good to see things like the opening of Whole Foods as it can only help the city as it attempts to stabilize it financial footing—the appointment of a solid emergency manager is a good step but there is a long way to go. (Full disclosure: Former, long-time Detroit suburb resident.)

So on to business, in upscale, natural grocery, Detroit has an under-served population, very little competition, low rent and labor rates, and a city government that must have provided subsidies. I don't see much risk for WF in this instance. Whether WF can translate this model to other urban markets and make it successful will be interesting to watch.

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Larry Negrich, Vice President, Marketing, nGage Labs

I'm sure Whole Foods, Papa Joe's and Meijer will not mind going to the very best neighborhoods of Detroit. Especially when they do not have to risk their own money. I disagree with Ryan that that smart money is going there. No, the free government handout corporate welfare money is going there. The smart money will stay in a bank in Austin, Texas.

While these areas are relatively safe, they do not represent Detroit as a whole. I get a good bit of business from Detroit. However I no longer will go there to work. I will handsomely pay an unemployed Supervalu analyst to perform that task.

There is a reason why Kroger and Farmer Jack shut down all their stores a few years ago. Now if the government would have given each store $5 million they would most likely still be open. If Whole Foods is not going to open in the most blighted under-served area using their own money, there really is no story here. If this is an isolated urban upscale area that just happens to be surrounded by a war zone, it's really no more of a story than Whole Foods opening in Ann Arbor.

David Livingston, Principal, DJL Research

In owning/operating Quick Service Restaurants in New Orleans (Wendy's and Sisters), we quickly learned that the urban areas of the city were some of our best performing restaurants. We offered super food, friendly service, strong value, exceptionally clean facilities, a terrific work environment for associates, and, in some instances security of an off-duty police officer for the comfort of associates and patrons.

The local community rewarded us with some the highest revenue restaurants in the chain.

Whole Foods has to recognize that they will have the same opportunity in the downtown and midtown locations they may be considering. What they also have to keep in mind is the differences between the patrons who frequent there stores now, vs. the expectations of the general population when they shop for groceries.

The Prosper Insights & Analytics Monthly Consumer Survey asks respondents for the reasons that they buy their groceries at their favorite store. The Whole Foods shopper is less price sensitive and more quality focused. Given the correct environment, they can achieve the same reaction in urban Detroit, provided they are willing to see the consumer from a 360 degree perspective.

What are the reasons why you buy your Groceries there? (Check all that apply)
Price 26.0% (W.F.),76.3% (All)
Selection 56.0% (W.F.), 56.1% (All)
Location 46.9% (W.F.),71.9% (All)
Quality 81.5% (W.F.), 47.1% (All)
Service 23.4% (W.F.), 28.9% (All)
Accepts food stamps (SNAP) or WIC
4.6% W.F.), 11.5% (All)
One-Stop Shopping 15.4% (W.F.) 28.7% (All)
Bakery 28.1% (W.F.), 19.3% (All)
Deli 30.3% (W.F.), 20.4% (All)
Ethnic Foods 21.0% (W.F.) 6.7% (All)
Fresh Produce 59.0% (W.F.), 34.8% (All)
Meat/Seafood Department 38.3% (W.F.)26.5% (All)
Organic/Whole Foods 76.0% (W.F.)9.6% (All)
Double Coupons 9.1% (W.F.)13.4% (All)
Knowledgeable Employees 18.2% (W.F.)11.9% (All)
Trustworthy Retailer 32.3% (W.F.)21.9% (All)
Open 24/7 2.4% (W.F.)18.8% (All)
Store Appearance 35.0% (W.F.)20.2% (All)
Store Layout 32.5% (W.F>)21.7% (All)
Unique Products 43.1% (W.F.)7.3% (All)

*The sum of the % totals may be greater than 100% because the respondents can select more than one answer.

Other reasons are offered, but the important point to keep in mind, "Know Your Customer," and stay in tune with their unique needs.

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Roger Saunders, Managing Director, Prosper Business Development

"People perceive Whole Foods as only receiving a particular community and I don't like that...." Mr. Robb needs to calm down—I'd suggest a nice glass of discounted almond milk—and face reality. WF DOES (sic) receive a particular community...upscale shoppers; not because it doesn't price "competitively," but because its specializes in products that tend to be more expensive.

As for the broader implications of this opening, hopefully without offending either Mr. Mathews or 'Scanner', or futher turning this into a referendum on Detroit's future, I'll venture to say what Detoit really needs is more retail of the mundane variety...more Targets, GAPs, etc. The fact is though, as Detroit and other cities continues to face depopulation, budget, and crime issues, it will be an uphill struggle.

'notcom'

The midtown area of Detroit, as evident by Google street view, has seen a lot of redevelopment in recent years. Whole Foods had already opened a store several years ago in a redevelopment area in Pittsburgh's East Liberty section. There are other cities that Whole Foods would be interested in locating, but substantial redevelopment already having taken place will be their prerequisite for any store opening decisions.

What Detroit and other big cities need are more Aldi's and Bottom Dollar's with their smaller footprints and more affordable prices. The only difference between a head of green leaf lettuce at Bottom Dollar and Whole Foods is the price, more than $1.50 cheaper at Bottom Dollar.

'weo'

This is a terrific way for Detroit to continue its quest to revitalize sections of the city and the incentives paid to retailers like Whole Foods is a smart way to encourage others to take a chance. The store is smaller than usual and is likely to be able to prosper at a level that is not materially challenging to the overall bottom line of the company. And it adds good PR to their quest to be seen as serving more than the very wealthy.

There won't likely be hundreds of these opportunities for Whole Foods, but there will certainly be 2 or 3 dozen such situations they can take advantage of—helping these communities, and improving their public perception.

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

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