Will Whole Foods‭ Bend In New Retail Environment‭? ‬

Jim Prevor - The Fruits of Thought

Originally printed in the March 2018 issue of Produce Business.

Jim Prevor - The Fruits of ThoughtLike most department stores‭, ‬Kohl’s finds its stores too large‭. ‬So‭, ‬it is looking to use its real estate more productively and has made a deal to add Aldi stores‭ ‬to 10‭ ‬of its locations as a kind of test‭. ‬It is certainly worth a try‭, ‬and between Aldi paying rent and attracting frequent shoppers‭, ‬the deal probably will be a win for Kohl’s and‭, ‬if the locations are good and the price is right‭, ‬the deal will probably be a win for Aldi‭. ‬So‭, ‬it is easy to see this cooperation growing‭.‬

Mall shopping is being transformed in America and not just because of online shopping‭. ‬In suburbia‭, ‬malls came to replace town squares‭. ‬In fact‭, ‬there were legal battles in which protest groups and religious entities argued even though malls are private property‭, ‬they functioned as public squares and any group should have a right to assemble in such places‭.‬

Legalities aside‭, ‬many a teen would head off to the mall in the hope of meeting up with friends‭, ‬talking up the opposite sex and‭, ‬in general‭, ‬getting into the heartbeat of the community‭.‬

The availability of social media‭, ‬texting and other communication tools have rendered this‭ ‬“gathering place”‭ ‬function less important‭. ‬If you want to meet up with your friends‭, ‬you don’t go someplace and hope they will be there‭. ‬In 2018‭, ‬you either direct-message them‭, ‬swap text messages‭, ‬join a WhatsApp Group or track your friends on social media‭. ‬Want your friends to find you‭? ‬You don’t grab a table in the food court and hope they pass by‭; ‬you send out a Tweet or Snap‭ ‬and let them know where you are going‭.‬

So‭, ‬malls are rapidly changing‭. ‬The new model of malls is heavy to restaurants and entertainment‭, ‬but also using space for health clubs‭, ‬medical offices and‭, ‬yes‭, ‬frequent shopper venues such as food stores‭.‬

Whole Foods can open in downscale markets‭. ‬Whole Foods can be a giant seller of Coca-Cola‭. ‬Whole Foods can broaden its customer‭ ‬base by tens of millions‭, ‬but then it won’t be Whole Foods‭, ‬as we know it‭, ‬anymore‭.‬‭

When the Kohl’s/Aldi announcement was made‭, ‬Barclay’s came out with a note speculating that maybe there would be an opportunity for Whole Foods to get in on the game‭.‬‭ ‬Business Insider‭ ‬put it this way‭:‬

If Whole Foods struck a similar deal with Kohl’s on its lower-cost chain of stores‭, ‬365‭ ‬by Whole Foods Market‭, ‬it could expose the chain to tens of millions of new customers‭, ‬turning it into an unstoppable threat‭.‬

“‬A Whole Foods/Kohl’s relationship would introduce new customers to the Whole Foods concept and could meaningfully increase the‭ ‬number of households shopping at Whole Foods‭, ‬which we currently estimate at 8‭ ‬million‭ ‬‮—‬‭ ‬well below Kroger at 60‭ ‬million and Walmart at 100‭ ‬million‭,” ‬Barclays analysts wrote in a research note published Friday‭.‬

“‬Meanwhile‭, ‬it would be vastly negative for the grocers‭ ‬‮—‬‭ ‬not only would Whole Foods be accelerating its unit growth but a partnership of this type would also be a clear signal it’s looking to broaden its base of shoppers‭,” ‬the analysts added‭.‬

Amazon-owned Whole Foods and Kohl’s haven’t said whether they are pursuing this kind of partnership‭, ‬but the move would make sense for both companies‭.‬

Amazon’s acquisition of Whole Foods quickly became a kind of‭ ‬tabula rasa‭, ‬a blank slate on which analysts could project whatever their own thoughts and dreams might be‭.‬

Separately‭,‬‭ ‬Yahoo Finance‭ ‬reports Amazon wants Whole Foods to start selling Coke and other products that are very popular but don’t meet Whole Foods’‭ ‬traditional standards on things such as artificial preservatives‭, ‬colors‭, ‬flavors‭, ‬sweeteners and hydrogenated fats‭.‬

It is not that these analysts are wrong‭. ‬Amazon could open hundreds of Whole Foods stores in Kohl’s units or anyplace else‭ ‬‮—‬‭ ‬that is just spending money‭. ‬It can certainly sell Coke and Twinkies‭ ‬‮—‬‭ ‬that is just issuing a purchase order‭. ‬But we doubt this would be‭ ‬“vastly negative for grocers‭.‬”‭ ‬After all‭, ‬what it would mean is Whole Foods would just be another grocer‭.‬

Imagine how silly it sounds if it were written that Ferrari was going to open showrooms in every Kohl’s and this‭ ‬“exposed its cars to tens of millions of new customers‭, ‬turning it into an unstoppable threat‭.‬”‭ ‬It is‭, ‬of course‭, ‬silly‭. ‬Ferrari needs very wealthy buyers who appreciate Italian design and fast cars‭. ‬

The reason Ferrari doesn’t have thousands of dealerships is because there are not thousands of places with a clientele to match‭. ‬If it opened these dealerships in all Kohl’s department stores‭, ‬it would have to produce a car for the average Joe at a price he can afford‭. ‬This means it would have little to do with what Ferrari is today‭, ‬and its clients likely would be alienated‭.‬

Amazon has money‭, ‬so Whole Foods can do anything‭, ‬but if it broadens its reach‭, ‬it can’t be what Whole Foods was‭. ‬So‭, ‬Amazon will have paid a fortune for a lot of real estate‭, ‬and it will destroy its own brand by adding Coke and similar products‭. ‬And for what‭? ‬Why not reinvest in making Whole Foods the best upscale‭, ‬natural/organic retailer‭ ‬it can be and then create other banners to brand other concepts‭?‬

In‭ ‬Fiddler on the Roof‭, ‬Tevye‭, ‬a devout Jewish man‭, ‬bends to allow his first daughter to choose her own husband‭. ‬He bends further to allow his second‭ ‬daughter to enter into a marriage that will take her far away‭, ‬but when his third daughter asks him to accept her wedding to a person of a different faith‭, ‬Tevye explains that‭ “‬If I try to bend that far‭, ‬I’ll break‭.” ‬

Whole Foods can open in downscale markets‭. ‬Whole Foods can be a giant seller of Coca-Cola‭. ‬Whole Foods can broaden its customer‭ ‬base by tens of millions‭, ‬but then it won’t be Whole Foods‭, ‬as we know it‭, ‬anymore‭.‬

Amazon might gain from this‭, ‬but the customers for lots of regional‭, ‬organic and Fair Trade products will be gone‭. ‬And there would certainly be a loss for the industry‭, ‬and for consumers‭, ‬in seeing that fade away‭.