Whole Foods Mania Hits London

Glynn Davis - Thu 14 Jun, 2007

Who would have thought that a single shop could create so much interest within the retail industry and media? But this is certainly the case with the first Whole Foods Market store that opened in London on June 6. The US-based operator has brought its upmarket offer to the UK in order to tap into the current desire by consumers for authentic, healthy and high quality produce. We are not even talking the equivalent of a Waitrose here as Whole Foods is seriously upmarket and is understood to be benchmarking its offer and pricing against that gastro paradise Borough Market in South East London... What also makes the proposition interesting is its sheer size.

Who would have thought that a single shop could create so
much interest within the retail industry and media? But
this is certainly the case with the first Whole Foods
Market store that opened in London on June 6.

The US-based operator has brought its upmarket offer to
the UK in order to tap into the current desire by
consumers for authentic, healthy and high quality
produce. We are not even talking the equivalent of a
Waitrose here as Whole Foods is seriously upmarket and
is understood to be benchmarking its offer and pricing
against that gastro paradise Borough Market in South
East London.

What also makes the proposition interesting is its sheer
size. At 80,000 sq ft it is a quantum leap away from the
5,000 sq ft stores in the small specialist Fresh & Wild
chain, which Whole Foods bought in 2004 as a means of
researching the UK market.

So what exactly are the prospects for this new foodie
emporium? Although the pricing will be super-premium in
the extreme the high quality of the products and the
visual appeal of its merchandising should ensure that it
will successfully attract masses of hungry and
inquisitive customers – in much the same way as Harrods’
food hall.

But whether the store can deliver a return on investment
for Whole Foods’ shareholders in the US is highly
questionable. Part of the problem is that the store will
be costing a packet to run. Its rent will be nose-
bleeding high as will its wage bill because it uses an
above-average number of employees, and there is the
potential for high levels of wastage because a large
proportion of its produce is fresh.

To offset these costs Whole Foods will have to really
crank up its sales per sq foot, just as it does in the
US, where it is understood to accrue £400 average sales
per sq ft - double that of other national players. The
only problem with this is that it is still nothing like
the impressive £1,000 that Tesco achieves in the UK.

Admittedly the operating costs for its Kensington store
will be much higher than for any other outlets that it
might open in the future in less affluent areas of the
country. But in these other locations there will then be
the issue of whether customers will be willing to pay the
super-premium prices that Whole Foods will be demanding.

Adding to the challenge for Whole Foods is the fact that
all the UK’s major grocers now have high-end ranges of
their own. The private label ready-meal ranges such as
Tesco’s ‘Finest’ and Sainsbury’s ‘Taste the Difference’
will provide stiff competition. The supermarkets have
also been increasing their exposure to organic and
natural products with Waitrose leading the way – it now
has an 18% market share of total UK organic sales.

Recent data from TNS Worldpanel showed sales of organic
products were up by 30 per cent for the 12 weeks to mid-
February. In recognition of how foods stuffs have been
going down the healthy and organic route as well as
recognising the threat from Whole Foods Tesco slyly
copyrighted the ‘Wholefoods’ brand name in the UK
last year.

Even the more downmarket players such as Morrisons and
Wal-Mart-owned Asda along with the German-based Aldi have
been increasing their premium and organic ranges. Lidl
has gone as far as to state its aim of deriving 20 per
cent of sales from organic products.

What this all means is that the point of difference
of Whole Foods in the UK is far less than it has
historically been in the US. Jonathan Pritchard, food
analyst at London-based Oriel Securities reckons
“If they’d come two years ago then the time was right
but they didn’t and the majors have now cut them off at
the pass.”

Over this period organic produce has become
increasingly difficult to source in the UK as domestic
operators have fought for the limited supplies
available – with most having to resort to air freighting
goods in from overseas.

What this suggests is that Whole Foods will have a tough
time finding sufficient stocks to fill its shelves.
Although this will unlikely be too much of a problem for
the first store it could become a bigger deal further
down the line if/when Whole Foods expands its operation
within the UK.

And the plan certainly is to open further outlets,
according to John Mackey, chairman and CEO of Whole
Foods, who recently said: “If it does really well, say as
good as our New York stores do, then we’re going to do a
lot more stores in the UK, and we’ll probably try to do
one in another capital in Europe.”

This would certainly be sensible as it would enable the
company to reduce its overall fixed costs by leveraging
the costly infrastructure that it has put in place for
its Kensington store.

But again this will be a challenge because the fight for
suitable-sized stores in the UK between the major grocers
is ferocious and Whole Foods would be in their fighting
for prime locations where the competition will be most
intense. It will need to pay top dollar prices for sites,
which will only add to the difficulties it will face in
reaching profitability in the UK.

What might help it reach profitability is its secret
weapon – foodservice. Its Kensington store has one whole
floor - with 250 staff - set aside for food preparation
for its 11 restaurants and takeaways. These will not only
likely be a good earner in their own right but will also
act as strong footfall drivers for the rest of the store.

This in-store eating brings something genuinely new to
the UK food scene and will hopefully be copied by the
domestic grocers as it will undoubtedly make food
shopping a whole lot more interesting in this country.

So while there are undoubted challenges for Whole Foods
in the UK it must be hoped that it does ultimately prove
to have a sufficiently profitable model as an injection
of excitement into our supermarkets is much needed.

Regards

Glynn Davis
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