Whole Foods Market is wooing Millennial shoppers with affordability, convenience and technology at a smaller 365 retail concept that made its debut Wednesday in Los Angeles.
The streamlined, lower-price approach extends to Whole Body, which offers a pared-down selection in the store that relies heavily on greatest hits and Whole Foods’ 365 private-label products. Relatively inexpensive natural beauty brands such as Burt’s Bees, Everyone by EO, Alba Botanica, Acure Organics, Yes To and Giovanni Cosmetics are mixed in with the 365 personal care.
The assortment was chosen to appeal to Millennials who aren’t as brand loyal as their older counterparts and are more price sensitive. “Millennials generally want value, and they want a good product for what they are paying for,” said Madeline Hurley, an analyst at market research firm IBISWorld. “They are less phased by private label brands because private label brands have gone further over the last few years.”
The premiere of 365 has caused concern among some natural beauty executives about an escalating commoditization of the segment as brands and retailers — the likes of Target, Wal-Mart, CVS and Walgreens have pushed into natural beauty as well — pursue value strategies to reach younger customers. Already, in a possible effort to head off 365 encroaching on its customer base, Trader Joe’s slashed prices, according to an analysis by Deutsche Bank.
Hurley argued natural beauty brands shouldn’t be too worried about downward pressure on prices. “With beauty and personal care products, they are different from groceries in that they are more differentiated,” she said. “If you have private-label milk versus branded milk, it’s not going to make a huge difference, and you are more inclined to shop on price. That’s not as much a threat in the consumer products industry.”
Whole Foods is certainly experimenting with pricing at 365. It’s introduced a pricing scheme for produce that shifts per-pound pricing to per-item pricing, and uses digital price tags throughout the store that theoretically allow for dynamic pricing. The store marks the launch of My 365 Rewards, a digital rewards program that Whole Foods described as dispensing personalized promotions and product recommendations.
Inside the store, customers can promptly order prepared food on tablets in self-serve kiosks. Instacart is available for shoppers, particularly Millennial parents, desiring home delivery of their groceries. A so-called Flash Finds program brings unique items — Momofuku’s Ssam Sauce is an early one — into the store that cycle out every six months or so.
The 365 by Whole Foods Market in the L.A. neighborhood Silver Lake is 28,000 square feet, covering roughly 35 percent fewer square feet than Whole Foods’ traditional retail format and containing a quarter of the merchandise. The location exudes an upbeat openness with bold graphics (a colorful mural with the words Silver Kale is a highlight) and shorter shelving than is customary at Whole Foods locations.
Whole Foods veteran Jeff Turnas leads the 365 Whole Foods Market team based in Austin, Tex. The beauty buying is handled under the purview of that team, and separately from the Whole Body management overseeing assortments at most Whole Foods. The retailer has signed a total of 19 leases for 365 stores and has announced 365 is headed in California to Santa Monica, San Francisco, Concord, Claremont, Long Beach, Los Alamitos and North Hollywood. Locations are also on deck for Lake Oswego, Ore.; Bellevue, Wash.; Houston; Cedar Park, Tex.; Cincinnati; Akron and Toledo, Ohio; Evergreen Park, Ill.; Bloomington, Ind.; Decatur, Ga., and Gainesville, Fla.
In the second quarter ended April 10, same-store sales for Whole Foods dipped 3 percent, and the company has been challenged by competition both on streets and online. Walter Robb, co-chief executive officer of Whole Foods, christened 365 a “second growth vehicle” for the grocer, but Hurley stressed it’s predominantly a “defense strategy.” She elaborated, “The industry is only growing a little over a percent a year, which is not a huge opportunity and you can’t expand a whole lot. They [grocers] are fighting over market share with each other. More locations are closing than opening, and this is a way not to grow, but to maintain market share as consumers expect more from their grocery stores.”