Whole Foods Market announced today that it would name its new value-oriented chain of stores 365 by Whole Foods Market. The namesake is the company’s more accessibly priced private label brand, whose products will anchor the new stores.
Whole Foods’s (WFM) decision to launch a new chain, first announced in May, comes as the grocer has seen an increasing number of competitors try to take a bite out of its turf in the organic and fresh food arena, resulting in lower same-store sales for the Austin-based company.
As consumers have gravitated toward fresh and organic products, mainstream retailers have fought for a piece of the market that Whole Foods helped originate. Wal-Mart (WMT), for example, has launched its own organic line of products, while Kroger’s (KR) Simple Truth brand of natural goods reached $1 billion in annual sales in less than two years after launching in 2012.
The 365 announcement from Whole Foods is a clear sign that the company is throwing down the gauntlet.
“This is a fundamental strategic decision of the company to say at this fork in the road, as we read the tea leaves and the marketplace, we’re going to go attack,” said co-CEO Walter Robb today at a conference with analysts. “For the last couple of years, we’ve been the hunted. This turns us back into the hunter.”
The first of the new 365 groceries will open in 2016. They will not change the company’s target of hitting 1,200 locations with its original Whole Foods Market (it currently has about 420). The company didn’t specify how many 365 stores it plans to open, but it has said it believes it could have the potential for the same scale as its parent.
The decision to launch a new chain of stores rather than go after a more price-sensitive customer with its flagship brand is an acknowledgement that Whole Foods both does not want to water down its high-end brand or participate in a race to the bottom to gain share. “That’s not a game we want to play or a game we can win,” Robb said. He added that the decision came from a sense of “realism about what Whole Foods is.” Instead, 365 is the company’s “competitive response” to aggressive pricing tactics from some of its competitors.
The 365 chain will be able to keep prices lower by building its stores with cheaper materials, operating them in smaller footprints, and offering a smaller, more curated assortment of products. The stores will have less autonomy and be more prescribed than the company’s original concept.
Robb, however, stressed that 365 will have the same quality standards as its parent brand, such as a list of banned ingredients, and will also emphasize the company’s expertise in perishables. “I want to make it very clear we’re not dumbing down quality standards,” he said. “We’re taking these quality standards and making them more broadly accessible at a time when the market is asking for that to happen.”
The company sees its 365 brand as complementary to what Robb called its “mothership” chain. Jeff Turnas, a 20-year veteran of the company who will run 365, gave an example from his experience heading up Whole Foods in the U.K. Whole Foods has a location in Kensington in west London but opened up a smaller store right in the heart of the city for people who could only get out to Kensington on the weekend. The move ended up growing the entire region.
Robb focused primarily on the new chain during the conference, but he also touched on the strengths of the company’s core, including 8 million customers a week with $1,000 a square foot on average, and over $1 billion in cash. “The reports of our death are greatly exaggerated,” he quipped.