How Will Whole Foods' New Millennial Targeted Store Fare? Analysts Weigh In...
AUSTIN, TX - As we reported last week, Whole Foods has announced a new store banner that is targeted towards millennial shoppers.
"Clearly this is where the customer is and we are trying to serve the customer," said Whole Foods Co-CEO Walter Robb. "The younger-generation customer continues to look for new choices. You see lots of new formats coming into the market."
This however, has many analysts and investors concerned.
"The new format has caused some investors concern that maybe this is a sign that we’re heading down the price and margins curve for the industry, and maybe there is some concern that this could be some distraction for management that should be focusing on improving the same store sales at existing stores," says Jeffries Analyst Mark Wiltamuth.
Whole Foods’ goal of expanding to 1,200 stores from the current 400, especially in competition with the new, smaller-format stores, "seems like a big stretch," said Barclays Capital Analyst Meredith Adler, according to Market Watch.
While investors have expressed concerns about the launch of this new chain that can be perceived as a decline in Whole Foods' faith in its business model, Robb describes the move as an offensive one, which will give the company "another growth vehicle to take Whole Foods into the future."
The new chain will complement Whole Foods' current one, Robb said.
"We will be able to leverage the common structure, but also be able to create new growth for the company in both directions," added Robb.
Adler said she has yet to see any food retailer successfully create an entirely new and different format. She believes that multiple formats only work if retailers acquire a new chain and its management team. Many retailers have tried discount formats, including Kroger, but she said that Kroger only found success in buying Food 4 Less and keeping its management in place, Market Watch reports. She also pointed to Supervalu’s purchase of Save-a-Lot stores.
"We see this as a capitulation," continued Adler. “Management has pointed out [that] the current concept can never offer consumers a true value experience.”
It’s not all bad news from investors, however, some believe there is room for cheaper organic formats.
"We have a broadening out of demand occurring, if you look at whats happening in the marketplace today, its looking like a democratization of organics,” Wiltamuth said. “As the price is coming down, we’re seeing the middle class and even lower income consumers start to come into this base, and Whole Foods can look across and see Sprouts and Trader Joe's and others playing this low price card and I think this is a way that they can get after that opportunity."
Stay tuned to AndNowUKnow for continued updates on Whole Foods Market’s new format.