‘Whole Paycheck’ no more? Whole Foods to launch lower-priced grocery chain

May 06, 2015

Whole Foods Market (wfm), the upscale grocery store sometimes derided as 'Whole Paycheck' for its prices, is planning to launch a new chain of lower-priced stores for people who can't otherwise afford to buy its premium and organic food.

The Austin-based company said on Wednesday that stores in the new format would offer a "curated" selection and have a simpler design to cater to people who want Whole Foods quality without paying Whole Food prices, particularly customers in their 20s and 30s. In other words, Whole Foods is taking on Trader Joe's.

Whole Foods co-CEO Walter Robb said that the company is building a team that will be dedicated solely to this project and that it is already negotiating leases to build a chain, whose name was not disclosed. He said the new chain could eventually be as big as the original 373-store Whole Foods.

"It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high-quality fresh food at great price," Robb said in a statement. "We believe the growth potential for this new and complementary brand to be as great as it is for our highly successful Whole Foods Market brand.” Executives on a call with Wall Street analysts spoke of increasing the "accessibility" of organic food.

More details will come by early September, he added. The grocer plans to start opening its first stores in the new format next year, with a quick expansion to follow.

The news comes amid new signs that Whole Foods' fast growth engine is sputtering. The grocer reported same-store sales rose 3.6% in the 12 weeks ended April 12, below Wall Street expectations for 5.3% growth, according to Consensus Metrix, and a fraction of the double-digit growth in recent years that had made Whole Foods a Wall Street darling.

What's more, little improvement seems imminent: same-store sales in the current quarter through May 3 were up 2.8%. Shares fell 12% in after-hours trading, adding to a 17% decline from recent highs.

Whole Foods' performance was particularly disappointing to investors because the company had cut prices on fresh produce and other items to attract new customers who balked at its pricy selection, and rolled out its first ever national advertising campaign.

The company has been losing market share to aggressive rivals like specialty retailers Sprouts Farmers Market and Fresh Market, as well as giants like Kroger (kr). Whole Foods, known for its natural and organic selection, will soon face vastly improved grocery selections at Wal-Mart Stores (wmt), the largest U.S. grocer, and a resurgent Target. (tgt)

For more about Whole Foods, watch this Fortune video:

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