Grocery wars

The Lempert Report
June 01, 2015

Whole Foods is planning its new chain of less expensive stores, but it won’t be without its competition!

As we’ve all know by now, Whole Foods is planning to open up a chain of smaller, less expensive stores in 2016. Co-CEO Walter Robb says the new store concept will be designed to attract Millennials who “are looking for a different shopping experience” – meaning, they’re looking for cheaper prices! 
Whole Foods reinvention is an example of how the entire supermarket industry is under pressure to change. Forecasts from Willard Bishop Consulting predict that by 2018, conventional traditional supermarket dollar share is expected to decline to 36.2% (from 39.1% in 2013) while other formats including C-stores, Warehouse, Drug, Fresh Format and Dollar stores continue to steal away their shoppers.
Aldi, the European cousin to Trader Joe’s, announced that by 2018 they would operate 2,000 stores here in the U.S. and fellow German retail Lidl also has plans for the US. While both these chains are discount formats, the Aldi and Lidl store brands continue to win culinary awards for their wines, chocolates and other foods; something that will certainly attract food obsessed Millennials. 
At the same time, Whole Foods is seeing more competition from the better-for-you offerings from Kroger’s Simple TruthCostcoTarget and even Walmart as these more conventional  retailers add more produce and organics which are competitively priced – especially critical to Millennials.
Many pundits in both the Wall Street and supermarket Industry are calling Whole Foods new concept a mistake; I disagree. They have no choice. This is a smart move that, depending on timing and execution of the launch, may stave off Aldi and Lidl encroachment.
And then there is the elephant in the room that could turn the entire “better-for-you” retail channel on its tail. Ron Burkle’s high quality and well-priced Wild Oats brand now selling well at Walmart. Burkle is co-founder and managing partner of The Yucaipa Companies and has specialized in taking over underperforming food companies, turning them around and then selling them at a profit. He managed a brilliant deal to take over Fresh & Easy’s 167 stores from Tesco and now is in the process of testing and converting stores to the Wild Oats banner. Walmart has been looking for a small format store and to increase their market stake in organics/natural and to attract new shoppers. If and when Burkle, along with Fresh & Easy CEO Jim Keyes (who had a brilliant success as President & CEO of 7-Eleven), makes the chain profitable, replicate-able and builds a loyal shopper following, I would think that a spin off to Walmart a very interesting purchase that would certainly put Whole Foods concept on a very shaky foundation and finally give Walmart what they need to compete in today’s changing food world.