Whole Foods Market has set a partnership and investment deal with restaurant operator Mendocino Farms that will lead to the opening of restaurant outlets within some of the retailer’s units.
The information was disclosed by Mendocino Farms in an exclusive interview with Nation’s Restaurant News, a sister publication to SN at parent media company Penton.
Mario Del Pero, co-founder of the Los Angeles-based restaurant operator, told NRN about a minority investment by Whole Foods, the first restaurant partnership for the natural and organic grocery chain in recent history. A formal company statement about the arrangement is expected shortly.
Del Pero did not disclose terms of the investment, but said the partnership will help the 11-unit sandwich chain build infrastructure as it expands into the San Diego and San Francisco Bay area markets in late 2016. As part of the deal, Whole Foods plans to test the opening of Mendocino Farms outlets in select market locations.
Though specific locations have not been set, the test likely will include locations of the new more value-positioned secondary brand “365 by Whole Foods Markets,” which are scheduled for launch in the second half of 2016, mostly on the West Coast. Five leases have been signed for the 365-concept market locations, with the first scheduled to open in Los Angeles’ Silver Lake neighborhood, and the grocery chain expects to double the number of 365 units in 2017.
More restaurant concepts may be coming to Whole Foods. In the grocery chain’s July earnings call with Wall Street analysts, officials said the new 365 concept will have “Friends of 365,” vendors that will rent out part of the space to give more local flavor and lower capital investment and labor costs.
David Lannon, executive vice president of operations at Whole Foods, said in a statement, “Mendocino Farms is one of the best sandwich and salad concepts coming out of Southern California and we believe it’s one of the top emerging restaurant brands in the country. We are always looking at trends in the food industry, especially those that complement our existing offerings. Aside from offering delicious, high-quality products we think our customers will love, Mendocino Farms’ core values align well with our own, and that’s very important to us.”

Founded in Austin, Texas in 1978, Whole Foods has 431 stores in the U.S., Canada and the United Kingdom. In fiscal 2014, the chain recorded about $14.2 billion in sales and about 100 store locations are in development.
Mendocino Farms is scheduled to open its 12th restaurant in Santa Monica, Calif. in November, and another restaurant is scheduled to open in Brea, Calif., in early 2016.
Del Pero said the first Mendocino Farms in a Whole Foods will likely be in Orange County, Calif., or the Los Angeles area, but the test may also include Northern California.
“We’re planning to test a couple and assess from both the Whole Foods and our standpoint,” said Del Pero. “We want it to be mutually beneficial.”
The Mendocino Farms units in Whole Foods will be wholly operated by the sandwich chain, he said.
“Whole Foods will be a defacto landlord,” said Del Pero. “We’ll have the full Mendo menu and kitchen, and it will be fully staffed by Mendo team members.”
The partnership makes sense because Whole Foods and Mendocino Farms share a customer base, he added.
“We think we can be a great anchor for their food halls,” said Del Pero. “We think it will bring that consumer to Whole Foods more often.”
At Whole Foods, the Mendocino Farms units will also be able to keep the sandwich brand’s unique emphasis on design, with a standalone feel and brand identity. Del Pero said the test locations will be developed by design firm D.L. English, which is also designing the Brea unit to open next year and has worked with Whole Foods in the past.
For Mendocino Farms, Del Pero said he hopes the partnership will also give the sandwich chain help in building access to local suppliers in the organic and natural food world as the chain moves outside California.
“So much of this is about needing to learn about how to scale sustainability,” said Del Pero. “Whole Foods can help mentor us in that area. It’s pretty incredible to have them share with us how to do it the right way.”
Founded in 2005, Mendocino Farms falls into the premium fast-casual niche, with chef-driven sandwiches and salads made with sustainable ingredients, including produce from Oxnard, Calif.-based Scarborough Farms; free-range chicken from California suppliers and meats that are humanely raised without hormones or antibiotics.