Whole Foods Looks Toward 1,000 Stores in the U.S.

Discussion
Jun 27, 2011

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
"deserve them."

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."

But
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.

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?

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20 Comments on "Whole Foods Looks Toward 1,000 Stores in the U.S."


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Paula Rosenblum
Guest
10 years 2 months ago

I’m not sitting with the numbers (number of communities with correct income level, etc.) but I must repeat my same mantra…”No Market is Infinite.”

I hope Whole Foods “gets” that. Because very few others really do. Let’s take a lesson from Sears. Cheap real estate does not a successful business make.

Doug Stephens
Guest
Doug Stephens
10 years 2 months ago

The gap between rich and poor in America is wider than it’s been in more than 100 years and widening further as we speak. That said, there will essentially be two kinds of grocery stores in America. Low price leaders catering to an ever expanding hand-to-mouth segment of the market and the premium segment for those who can afford to eat well.

In this reality, Whole Foods and stores like Whole Foods are poised to thrive.

It’s all the other chains that have positioned themselves to serve the shrinking middle-class that will struggle.

Gene Hoffman
Guest
Gene Hoffman
10 years 2 months ago

There are thousands of consumers who want to eat high-priced natural foods and be rewarded with both good health and psychic income from the experience.

Whole Foods has found itself on top of that particular niche and it is taking advantage of it. So let’s give them kudos to go along with their debt-free balance sheet.

The prospect of opening stores in less-affluent areas strikes me as heady wine.

Roger Saunders
Guest
10 years 2 months ago
Whole Foods has built a loyal following among their shoppers. The BIGresearch Consumer Intentions & Actions (CIA) Survey shows that Consumers who shop Whole Foods MOST often for groceries offer them an impressive 80.3% Net Promoter Score (NPS). The average grocers holds an NPS of 29.7% with their shoppers. That type of endorsement bodes well for added store growth. And, Mackey’s view that “education” and “awareness” are key to attracting their customer base appears to be on target. The CIA points to 59.7% of Whole Foods shoppers hold a Bachelor or Post Grad degree, with a an average number of years in education of 15.5 years, compared to the overall population’s levels of 14.3 years. Income levels for Whole Foods shoppers indexes at 110 to the General Population. However, competition is not standing idly by in their efforts to attract these consumers. Trader Joe’s is the store that Whole Foods diehards tend to shop second MOST often. With positive cash flow, a slow, deliberate path to store growth is likely the best path for Whole… Read more »
Kevin Graff
Guest
10 years 2 months ago

I can only address this from the Canadian perspective where Whole Foods has only a few stores but is ramping up expansion here. Consumers are loving what they do. Not all of them, of course. But more than enough ‘get’ and want the shopping experience they provide that is very superior to the standard grocery store shopping trip. While their potential target market is smaller, they have much more room to grow and thrive here.

Dick Seesel
Guest
10 years 2 months ago

Whole Foods is by far the dominant player in its segment of the food business, and its penetration of potential markets is nowhere near complete. And the company does not need to target the most affluent areas in a given city as long as population density, demographics and the “right” lifestyle is in play. In my market (Milwaukee) Whole Foods could easily absorb more than its single location, and there are plenty of mid-sized cities that would support at least one store.

While plenty of competing grocery chains and supercenters have dabbled in “organics” and fresh-prepared food, nobody at this point can touch Whole Foods as the category-killer in this business.

Carol Spieckerman
Guest
Carol Spieckerman
10 years 2 months ago

When will they hit 1,000 stores? The key word is “potential.” Mr. Robb, like many retail executives, is hedging quite a bit on timeframes and reserving the right to “slow down” as needed. The days of retailers revealing, and sticking to, detailed store rollout plans are over. Whole Foods’ 1,000 stores would more accurately be called a “goal.”

That said, it does appear that Whole Foods has awakened and smelled the Fresh & Easy, Walmart, Target, Walgreens, etc., small format coffee brewing. Whole Foods can’t afford to sit on the sidelines, even from a pure PR standpoint.

Tony Orlando
Guest
10 years 2 months ago

As long as Whole foods stays in the higher income areas, they will do well. They wouldn’t last 2 weeks in my area, as customers can not afford the higher prices, and there are many towns just like ours. Chase the money where it is, and they’ll do fine.

Ed Rosenbaum
Guest
10 years 2 months ago

Whole Foods goal of 1,000 stores in the U.S. is quite ambitious. I doubt that will be the number as time marches on and the economy stays in the tank. We have learned to be frugal and cautious with our spendable income. Whole Foods does not match this commitment. To reach anywhere near the goal Whole Foods will need to reassess who their customers are and how to attract more from those of us less financially well to do. Whole foods has to attract the less financially secure and possibly college students before this growth program has a chance to even meet 500 much less 1,000.

That said, I do like their aggressive mindset. It is inspiring and will challenge others in the industry to examine their positions.

Christopher P. Ramey
Guest
10 years 2 months ago

The new smaller Whole Foods footprint holds the key to a large number of stores.

Let’s not forget that Whole Foods, as a grocer, doesn’t supplant competition. Affluent consumers still shop other grocery stores for products that aren’t available at Whole Foods. A smaller store, with fewer products, further changes the market dynamics.

Wellness, as an emerging trend, fits well with the Whole Foods’ raison d’ etre. But, new competitors will emerge and traditional grocers will upgrade their stores to compete more effectively. Furthermore, executing a business model with 1,000 stores is a challenge–particularly when the mantra is organic products.

David Biernbaum
Guest
10 years 2 months ago

I’m a Whole Foods fan and I think they do a great job in the business they are in. However, unless they find virgin markets for new locations I think they might have a problem with finding enough new consumers to shop all the new stores. Whole Foods is very pricey and they don’t carry the mainstream brands that the majority of consumers still want to buy. All in all, I think their consumer base is still limited and I hope they won’t provide too many stores for their own good. I have noticed in the market where I live there might already be one too many stores.

David Livingston
Guest
10 years 2 months ago

Whole Foods could do this but they have to be small stores. The number of expensive college campuses, with wealthy professors along with large medical complexes employing well paid professionals, will provide the opportunities. I think for now, it’s all talk for the press release but it gives investors hope. One thing for sure, Detroit is not the answer. The only way they are going to the mean streets of Detroit is if the city foots the bill and they have a free walk-a-way clause.

Craig Sundstrom
Guest
10 years 2 months ago

Expansion might well make sense, but I find the 1,000 store goal pointless: nothing has been presented to show this (conveniently round) number can be supported in the U.S., and even if it could, WF would need to radically increase their openings to reach it. Even if they doubled their current rate to 40 per year, you’re talking about 18 years…by which time we’ll probably all be having our food beamed into our houses directly.

Roy White
Guest
Roy White
10 years 2 months ago

Expansion is necessary for retailers, no matter what type of store they operate. However, one of the risks that a retailer like Whole Foods encounters is a massive expansion like that announced (albeit over many years) is losing their way to keeping the store opening engine humming. Whole Foods, in a very important way, depends on high quality, usually quite knowledgeable store associates. In a 700-store expansion, I would posit that this vital part of their presentation to customers is in serious jeopardy. For my part, I would be a great deal more comfortable with a more modest rollout. Growth for growth’s sake is not necessarily a wise course.

Lee Peterson
Guest
10 years 2 months ago

Even though they get dinged for being ‘whole paycheck’, please note how WF sailed through the recession. Quite an achievement (not without hard work and the 365 brand of course) for a fairly new brand. But also testament to the need for what they’ve created and the power with which they execute. The niche in the market is huge and right now and they’re the only ones that vaguely understand how to scale to meet the obvious demand.

We always ask the question, “could there be thousand of these?” when considering the viability of a concept. With Whole Foods, the answer has always been a resounding ‘yes’.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 2 months ago

Starbucks, er, Whole Foodsbucks, is going to expand exponentially! Whoo!! According to Mr. Robb, “It’s a very exciting feeling to feel!” Yes, that clarifies it. In his comments, was Gene Hoffman being satirical when he wrote that “There are thousands of consumers who want to eat high-priced natural foods and be rewarded with both good health and psychic income from the experience?” If so, I’m LOL. Thousands of elites aren’t going to buoy Whole Foodsbucks sufficiently to meet their goals unless, of course, they include Abercrombie and Fitch sections in their stores. And ATMs offering psychic income deposits and withdrawals. You heard it here first.

Mark Burr
Guest
10 years 2 months ago

How old is Mr. Robb? It’s a lofty goal. It’s a great goal. Everybody needs a goal. Don’t we?

Some folks talk in terms of the next quarter. Some folks talk in terms of their next fiscal year. Some talk in terms of a 3-5 year plan. You have to give Mr. Robb credit based on their current growth rate for looking out to the next 32 to 46 years.

Their prospect of a store in Detroit (within the city limits) is interesting. It’s been talked of for some time. The talk continues. Will it happen? Who knows. It is interesting.

You just have to like a guy with a long term goal.

Bernadette Budnic
Guest
Bernadette Budnic
10 years 2 months ago

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It is the hope of those that do not have high incomes but have awareness and education about healthy eating that the increase of demand will bring prices down.

Kai Clarke
Guest
10 years 2 months ago

This is a great goal considering the market conditions and the real estate opportunities for growth. Add to this the positive cash flow that Whole Foods is generating and you have an incredible win for WF!

Odonna Mathews
Guest
Odonna Mathews
10 years 2 months ago

To meet their expansion goal, Whole Foods will need to go beyond their loyal following and develop new loyal customers aimed at combining value and health. Trader Joe’s has done that well with their private brands and I see no reason why Whole Foods won’t do that, too.

1,000 stores is a reach for the future but a smaller format could have great appeal.

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