Whole Foods bets 365 format will transform stores

Whole Foods Market (NASDAQ:WFM) is betting that the new 365 store format will help transform the company's existing stores as the grocer tries to transform its image from a high-priced grocer to a more value-oriented one.

The retailer reported a 3 percent increase in total sales for the chain even as comparable store sales fell 1.8 percent.

"We delivered record sales of $4.8 billion this quarter and are pleased with the progress we have made on our nine-point plan outlined in November," said Walter Robb, co-CEO. "We improved our cost structure, stepped up our value efforts, and are excited to announce today the national launch of digital coupons within our mobile app. We believe we will deliver strong returns to shareholders over the long term as we improve our price perception, better communicate our higher quality standards and differentiation, and continue to fundamentally evolve our business." 

A big part of that evolution is the new 365 by Whole Foods Market store format. The first store opened in Los Angeles in July, and the company has since opened several more. Five more leases were announced this week in Claremont, Concord and Los Alamitos, California; Gainesville, Florida; and Evergreen Park, Illinois.

Whole Foods sees the potential for 1,200 Whole Foods Market stores in the United States; it currently operates 436. The new 365 format could push that number higher, thanks to the smaller size and locations in neighborhoods with lower real estate costs.

Management said it will try to cluster stores together as it begins to grow the format.

The grocer is also planning to expand digital programs including coupon scanning and a new digital circular later this year, according to Robb. There's a new POS system being tested in select stores that will be rolled out at an accelerated pace through 2016.

The company will continue to lower prices on some items as part of its new value messaging, and the 365 stores are playing a big role in that for the retailer. Not only are the stores being positioned as a value brand, many operational initiatives are now finding their way into the flagship stores, said Robb.

"The 365 stores are going to leapfrog ahead on many of the practices that we will be evolving in Whole Foods Market," he told analysts. "There's no culture. There's no legacy there to overcome. So we can go radical on 365 stores and assuming those are going to work as well as we think they do, they will serve to help accelerate transformation within the mother brand, Whole Foods Market."

"With 365 stores we won't have anything holding them back. So in some ways we think they represent the future for where Whole Foods Market will be evolving."

For more:
-Read this earnings call transcript at Seeking Alpha
-See this financial release from Whole Foods
-See this Supermarket News article

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