New Whole Foods chain 365 faces tough mission: Cut prices without being 'cheap'
(This version of the May 25 story corrects paragraph eight to show that Trader Joe's sells produce by piece and package, not by the pound)
By Lisa Baertlein
LOS ANGELES (Reuters) - Whole Foods Market Inc (WFM.O: Quote) unveils its new 365 grocery chain on Wednesday with a bright and airy store that offers lower prices and more technology than the company's namesake shops. To thrive, though, experts say 365 has to beat its many rivals without hijacking customers from Whole Foods itself.
The chain, which debuts in Los Angeles' Silver Lake neighborhood, is critical to Whole Foods. In the fiercely competitive market for fresh fruit and vegetables, its sales are being whittled away by Sprouts Farmers Market Inc (SFM.O: Quote) and other rivals who are undercutting Whole Foods on price, if not always matching it on quality.
Low prices are the top demand even among shoppers prioritizing goods promoting health and wellness, said Richard Vitaro of market research firm AlixPartners. "I don't think we can underestimate the power of frugality," said Vitaro.
From the start, 365 has targeted reduced overheads and increased customer convenience, said Jeff Turnas, president of the chain. Whole Foods said recently it has signed 19 leases for 365 stores around the United States, without disclosing financial targets for the new chain.
"Our goal is to compete in the marketplace without lowering the Whole Foods standards," Turnas told Reuters during a recent store tour. He said 365 stores will complement Whole Foods' premium, full-service sister brand - often dubbed 'Whole Paycheck' in popular culture in reference to its perceived higher prices.
But the new chain will have to work hard to avoid being labeled "a cheaper Whole Foods", said Kevin Kelley, a principal at strategy and design firm Shook Kelley, which has worked with Whole Foods and other grocers.