The 365 by Whole Foods stores scheduled to begin opening in mid-2016 are likely to have a positive impact on Whole Foods itself, John Mackey, co-CEO, told investors Wednesday.
“If you’re not willing to attack your own business model, you can’t expect other people not to attack it,” he said. “You have to be willing to disrupt yourself because others are going to disrupt you.
“But I don’t think 365 is going to disrupt Whole Foods Market. I think it will actually help the key brand to evolve because the stores are going to introduce some new ideas that will accelerate Whole Foods’ evolution.”
Speaking at the Morgan Stanley Global Consumer & Retail Conference, Mackey said the company is taking “the best elements of competitors like Trader Joe’s and Sprouts and also the very best of Whole Foods, putting [them] in a very compelling package and marketing them to the Millennial generation.
Whole Foods' co-CEOs don't expect significant cannibalization from the small-format 365 stores. (Photo by Getty Images)
“These stores are going to have a techno buzz to them, and they’re going to be fun and very accessible. And they are going to be less expensive.
“Are they going to cannibalize Whole Foods stores? Probably less than another Whole Foods store would because it’s going to appeal to a different part of the marketplace.”
According to Walter Robb, co-CEO, “We see 365 very much as an ‘and,’ not an ‘or.’ It’s something that complements Whole Foods. Sometimes the shopper may want that experience, and sometimes they may want the other experience.
“And 365 may well serve as a gateway for people to come to the larger experience at different times of the week. So we see them working together.”
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Asked about the company’s pricing strategy for its Whole Foods banner stores, Mackey said, “That’s something that’s been misunderstood. Our major competitive strategy is not price reduction. Our major competitive strategy is to continue to have the highest quality — to be America’s healthiest grocery store.
“Whole Foods is not systematically going in and cutting all our prices. We don’t think that would do anything except reduce our profitability and reduce our comps in the short term.
“What we’re doing is looking at where we really are out of line on the same products and making selected price investments in certain categories and on certain items to make sure there are no big price sore thumbs.”
Asked what mistakes Whole Foods might have made over the years, Mackey replied, “If there’s anything we underestimated, it was that we thought Whole Foods would be in a niche. We never thought it was going to go mainstream.
“And the mistake we made was probably not doing a better job to protect our supply chain from poaching. That was a mistake, but it’s correctable because, over time, we can replace our supply chain and have proprietary products that cannot be knocked off.
“One of our big challenges going forward will be to create a differentiation so our products cannot be found in our competitors’ stores. That starts with nurturing new suppliers, bringing them along and making sure deals are in place, but our brands will stay proprietary.”