Whole Foods Looks Toward 1,000 Stores in the U.S.
As part of a plan to "reaccelerate" its growth, Whole
Foods has set a new goal of reaching 1,000 stores in the U.S., up from
around 300 currently.
Speaking at the Jefferies 2011 Global Consumer Conference last
week, Walter Robb, Whole Foods’ co-chief executive, said the natural foods
grocer had been vague about its store-opening goals, especially in recent challenging
years. But an improved performance over the last four quarters has emboldened
management to map out an aggressive ten-year growth plan that will be detailed
during its third-quarter conference call.
Expansion had slowed to around 15
openings a year after 2007, but 22 will open in 2012 and even more annually
in further years, he said.
Mr. Robb admitted that the retailer "learned
a lot of lessons from the downturn" and
used that period to clean up its balance sheet and "reinforce our core
values and our culture." The retailer is now debt free, with a significantly
leaner cost-structure delivering "lots of liquidity." Free cash flow
was $645 million in last four quarters.
Mr. Robb also said the company is now
gaining market share again versus national supermarket competitors, with sales
per square foot reaching $888 in its second quarter. In particular, a focus
around value and differentiation drove a strong six percent increase in its
transaction count in identical stores in the quarter. He said Whole Foods has "significantly
closed the price gap" with
national competitors over the last several years and continues to price check
baskets every 30 days against competitors in key markets.
Mr. Robb also said
Whole Foods now has the confidence that it can build smaller 25,000 square-foot
stores "all day and make a lot of money," as
well as pursue its "sweet-spot" 35,000 to 50,000 square foot stores,
and stores as large as 70,000 in markets such as Chicago and New York City that
Also supporting its growth plans has been an "implosion
in the real estate market" that is opening numerous location opportunities.
Amid all these developments, Mr. Robb said "the mindset around health
and wellness" that
the retailer was built on continues to gain momentum.
"It’s a very exciting feeling to feel that there’s that much
space ahead of us after all these years," said Mr. Robb.
Wall Street appears
fixated on Whole Foods ability to reach the less-affluent with its new smaller
stores as reports surfaced last week that Whole Foods was looking to open its
first location in Detroit. Asked on its first-quarter conference call whether
Whole Foods was looking to aim at a lower-income demographic, John Mackey,
also co-CEO, first quipped, "I feel like I’ve been swimming
upstream on this question for 30 years, and I’m going to keep trying to swim
upstream against it."
He added that Whole Foods doesn’t open stores based
on income but based more on "education" and "awareness." He
added that that company has done "extremely well in areas that are not
of high income. But it does require a certain level of consciousness."
he added that Whole Foods was seeking to learn if areas
with less-density of college graduates as well as income will work for Whole
Foods. Encouragingly, stores opening in some markets with these characteristics
have outperformed, partly because they tend to have less competition for the
retailer’s products and services.
"The fact that we’ve done well in these
markets has been very encouraging to us. And as a result, we’re not going to
get to our 1,000-store objective if we’re not successful doing that but I think
we will be," said Mr. Mackey.
- Whole Foods Broadcast of Jefferies 2011
Global Consumer Conference Session – wsw.com
- Whole Foods co-CEO sets goal of 1,000 U.S. stores – Reuters
- Whole Foods Second Quarter Conference Call Script – Whole Foods
- Whole Foods First Quarter Conference Call Script – Seeking Alpha
Discussion Questions: What do you think of Whole Foods’ potential to more than triple its store count in the U.S.? In particular, what do you think of its prospects to open stores in less-affluent areas?