Whole Foods Co-CEO Walter Robb was widely criticized by analysts earlier this month when he outlined strategies for the rollout of the company’s smaller “365 by Whole Foods Market” format. According to Whole Foods’ website, the new stores, slated to begin opening this year, will offer convenience and everyday low prices on natural and organic products.
“Whole Foods is tilting its growth towards an unproven, discount format that appears to be directly aimed at a strong competitor, Trader Joe’s,” said Wolfe Research Managing Director Scott Mushkin. “Trader Joe’s has been in the business for roughly a half century, does the discount treasure-hunt format exceptionally well, and is private, meaning it doesn’t have to answer to public equity investors each quarter.”
Mushkin added that Whole Foods’ decision to reduce store labor to fund price investments has already had a negative impact on store conditions, and was critical of the company’s decision to maintain earnings by buying back stock.
Many analysts probably also don’t like Whole Foods’ new program called “Friends of 365,” where approved suppliers and vendors can set up shop in the 365 stores. The new chain’s website says shoppers may see businesses such as record shops and tattoo parlors inside 365 stores in order to appeal to younger customers.
During a conference call with investors, Whole Foods said they have 13 leases signed for the new format, with the first 365 stores set to open in California, Oregon and Washington.