WHOLE FOODS MARKET

Under Amazon, what does the future hold for Whole Foods’ 365 brand stores?

Posted February 6th, 2018

Prior to its sale to Amazon, Whole Foods Market envisioned its own innovation through the launch of a new store concept.

Named after the grocer’s private label brand, 365 by Whole Foods Market was promoted as a smaller, more value-driven option that would cater to younger shoppers and bring Whole Foods into new markets when it was announced in 2015. 

Then Amazon bought Whole Foods last fall, and the future of the 365 stores was in question. 

As the merger has matured and the companies have begun to integrate, Whole Foods has indicated that it has no immediate plans to end or significantly alter the 365 store concept. While it’s unclear what Amazon’s long-term plans are for the 365 stores, the grocer is continuing to open new stores amid industry speculation on the concept’s future. 

“The 365 stores were pitched to try and mitigate the Whole Foods ‘whole paycheck’ reputation. It’s been a mixed bag result so far,” said Neil Stern, a consultant with retail firm McMillan Doolittle. “And now, you have a new owner that might have different ideas to what they want to do.” 

Austin-based Whole Foods has opened seven of the 365 stores since launching the concept in Los Angeles in May 2016, with its newest store having opened in Brooklyn last month. The first 365 store in Texas opened last April in Cedar Park

At least for now, Amazon and Whole Foods are continuing with the concept. According to its website, Whole Foods is planning to open at least 16 more 365 stores, most of them in California and one planned for Houston.

When Whole Foods announced the 365 concept, it said the stores would represent a modern, streamlined design with innovative technology such as kiosks for ordering food, electronic price labels, digital scales and tablets that described products to customers. The stores have also been a way for Whole Foods to test pricing and other operations.

At the time of the launch, Whole Foods was amid a decline in comparable store sales -- an important financial measure -- and needing to better compete with stores like Trader Joe's, as well as legacy grocers that were ramping up their organic product offerings at cheaper rates.

Tom McCarthy Jr. for the Austin American-StatesmanThe 365 by Whole Foods store in Cedar Park.

“It will offer a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high quality, fresh food at great prices,” John Mackey, Whole Foods CEO, said in June 2015.

To date, the 365 stores have shown both promise and uncertainty. While analysts say some stores appear to be finding niche markets in hot spots like Los Angeles, Whole Foods also ordered in October the closing of a 365 store in Washington, citing store performance and location. 

Whole Foods did not respond to requests for comment on this story. 

“It is hard to open new formats and hard to get it right out of the gate. They over-promised like a lot of companies do,” Stern said. “Right now, they seem to be reading it out, and Amazon is trying to understand what they bought and how they will be able to leverage it.”

The 365 stores are generally about 25,000 to 30,000 square feet, smaller than the typical Whole Foods store, which has averaged 38,000 square feet but can surpass 50,000 square feet. The Whole Foods store at The Domain in North Austin, for example, is about 65,000 square feet, while the 365 store in Cedar Park is 30,000 square feet.

Because 365 stores are smaller and cheaper to operate, Stern said the stores could help Whole Foods expand its capital if Amazon continues with the concept. 

Amazon, known for collecting detailed sales and customer data, is also likely doing the same now with Whole Foods, said Eric Anderson, a marketing professor at Northwestern’s Kellogg School of Management. That testing is likely to be extended to the 365 stores, Anderson said.

"I think you'll start to see more testing in more stores and more changes on the horizon," Anderson said. "We won't know about when they do the testing, but I think they will be testing assortments, pricing and all other aspects of the stores. It should be evidence-based testing."

Whole Foods MarketA map shows 365 store locations around the United States. 

Amazon has built its strategy around building numerous distribution centers across the United States, which gives the company the ability to quickly deliver products.

Similarly, analysts have said the Whole Foods buyout could provide the online retailer a faster way to deliver groceries in the future.

If Amazon were to do that, the 365 stores could be a way for Amazon to better capitalize on food delivery, said Jim Hertel, senior vice president of analytics at retail consultancy Inmar Willard Bishop Analytics.

“Amazon has recognized for a long time that there will be a role for brick and mortar in food retail because of food distribution and importance of fresh food," Hertel said. "If you have the 365 banner, your costs are less and the labor costs are smaller. 

"It may be where (Amazon) in the future can say, ‘if we can establish these stores at least on a break even basis, we can also use them for distribution or express pickup.’”

The 365 stores will also have to adapt to plans Amazon has for its new Amazon Go convenience stores.

Amazon opened its first Amazon Go store at its Seattle headquarters in January. The store, only 1,800 square feet, operates without cashiers using sensor technology and hundreds of cameras. Customers walk in, pick up groceries, and their tab is automatically tallied on an Amazon Go phone app.

The store concept, while new, could be a taste of the future of grocery shopping, Stern said. But that doesn’t mean the concept would necessarily affect the 365 stores or cause their end, he said.

“The Go stores are more of a technology showcase right now than a real store concept,” Stern said. “It would be a game-changer if it could scale up to a 365 store, but … I don’t think Amazon Go is a substitute for 365 or regular Whole Foods stores.”

It’s likely too early to tell what could become of the 365 stores, Stern said, but with a corporate giant like Amazon, there are a number of possibilities.

“They didn’t outright come out and kill it, which some people speculated, and they didn’t outright come out and support it,” Stern said. “There are some good parts to 365, and it does appeal to different types of customers. It could still open up the market of the future.”

Anna Marum/The OregonianInside the 365 by Whole Foods store in Lake Oswego, Oregon. 

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