Whole Foods' New Lower-Cost Store 'Hip, Cool, Technology-Oriented'

The new concept sounds like a robot-run organic store for millennial hipsters.

BySUSANNA KIM
May 7, 2015, 12:30 PM

— -- Whole Foods is staying coy about the new store concept announced Wednesday, but the few details released so far have intrigued both customers and investors.

From the description provided by Whole Foods' founder and CEO John Mackey, the specialty retailer's new concept sounds like the grocery chain for "The Jetsons" targeted toward young hipsters.

"So you can't envision it yet because it hasn’t been created yet,” Mackey said during a conference call Wednesday. “We’re creating it."

What we do know is that it will target a younger shopper with "value prices," which is retailer-speak for cheaper.

"There will be more tailored product mix,” he said. “They will be very tech-savvy stores and they will be very exciting to, we think, to [the] millennial generation of about 90 million people."

Here's what you should know about Whole Foods' plans for its new store concept:

1. The name of the new concept

The name of the new concept will be revealed before Labor Day.

"We're going to have a special event where we'll communicate all the details about this in much more particulars at that time, but that's pretty much what we're going to say today," Mackey said during the Q&A period of the conference call.

Sean Naughton, senior research analyst with Piper Jaffray & Company, said he's reserving judgment until the new concept and its business plan are fully unveiled.

"I do think it's very clear that the consumer is looking for more fresh, minimally processed foods in their diet,” he said. “The consumer can get a lot of those things at specialty retailers in the market today but they are typically a little bit more expensive. Given that there is a huge opportunity here, I think it is an interesting idea to go after a new segment with a value proposition associated with it.”

PHOTO: Whole Foods worker Max Koval rings up customers at a Whole Foods Market on Oct. 20, 2014 in San Francisco.
Whole Foods worker Max Koval rings up customers at a Whole Foods Market on Oct. 20, 2014 in San Francisco.
Justin Sullivan/Getty Images

2. Why they're announcing now

Co-CEO Walter Robb said Whole Foods is announcing the news now because the company is already signing property leases.

"We're very excited about it, but we knew this information is going to leak out because we're negotiating leases and so then if it leaks out, then ... we ought to deny it," Robb said. "So it's better just to be proactive, get it out there."

Analyst Naughton said he had hoped Whole Foods' leadership would focus on its core stores.

PHOTO: Two employees puts up signage at a new Whole Foods Market in the South End neighborhood of Boston, Mass. on Jan. 6, 2015.
Two employees puts up signage at a new Whole Foods Market in the South End neighborhood of Boston, Mass. on Jan. 6, 2015.
Sean Proctor/Boston Globe/Getty Images

3. Coming in 2016

Robb said, "The plan is to begin opening stores next year, and given the more standardized design and product assortment, the company expects a fairly rapid expansion from there."

Investors already had some concerns about new Whole Foods stores cannibalizing existing stores, but Mackey and Robb said this new concept would be "complementary." The company said it expects to reach 500 stores in 2017 and in the long-term it "sees demand" for 1,200 Whole Foods Market stores in the United States.

Naughton said the track record for retailers’ opening new or additional concepts is mixed.

"That's not to say it hasn't been done before and hasn't been successful," he said, pointing to Abercrombie and Fitch's opening of Hollister, which has found relative success compared to its women's underwear brand Gilly Hicks.

4. Whole Foods' CEO is down with millennials

PHOTO: CEO of Whole Foods Market John Mackey participates in a Dreamforce 2013 Fireside Chat at Moscone Center on Nov. 19, 2013 in San Francisco.
CEO of Whole Foods Market John Mackey participates in a Dreamforce 2013 Fireside Chat at Moscone Center on Nov. 19, 2013 in San Francisco.
Tim Mosenfelder/Getty Images

Mackey described the "millennial generation" as follows: "They're idealistic, they’re values oriented, they're mission-driven. These all play to Whole Foods Market's strength. They’re also very value cautious."

5. Will robots replace labor?

Mackey said Whole Foods is learning and evolving as more people become interested in organics and as competition is as strong as ever. What's the solution?

"So we think a streamlined hip, cool, technology-oriented store unlike any store anybody has ever seen before that has lower capital, lower cost, perhaps little labor cost and lower prices is going to be very, very attractive to that particular generation," Mackey said.

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