As part of a plan to "reaccelerate" its growth, Whole Foods has set a new goal of reaching 1,000 stores in the U.S., up from around 300 currently.
Speaking at the Jefferies 2011 Global Consumer Conference last week, Walter Robb, Whole Foods' co-chief executive, said the natural foods grocer had been vague about its store-opening goals, especially in recent challenging years. But an improved performance over the last four quarters has emboldened management to map out an aggressive ten-year growth plan that will be detailed during its third-quarter conference call.
Expansion had slowed to around 15 openings a year after 2007, but 22 will open in 2012 and even more annually in further years, he said.
Mr. Robb admitted that the retailer "learned a lot of lessons from the downturn" and used that period to clean up its balance sheet and "reinforce our core values and our culture." The retailer is now debt free, with a significantly leaner cost-structure delivering "lots of liquidity." Free cash flow was $645 million in last four quarters.
Mr. Robb also said the company is now gaining market share again versus national supermarket competitors, with sales per square foot reaching $888 in its second quarter. In particular, a focus around value and differentiation drove a strong six percent increase in its transaction count in identical stores in the quarter. He said Whole Foods has "significantly closed the price gap" with national competitors over the last several years and continues to price check baskets every 30 days against competitors in key markets.
Mr. Robb also said Whole Foods now has the confidence that it can build smaller 25,000 square-foot stores "all day and make a lot of money," as well as pursue its "sweet-spot" 35,000 to 50,000 square foot stores, and stores as large as 70,000 in markets such as Chicago and New York City that "deserve them."
Also supporting its growth plans has been an "implosion in the real estate market" that is opening numerous location opportunities. Amid all these developments, Mr. Robb said "the mindset around health and wellness" that the retailer was built on continues to gain momentum.
"It's a very exciting feeling to feel that there's that much space ahead of us after all these years," said Mr. Robb.
Wall Street appears fixated on Whole Foods ability to reach the less-affluent with its new smaller stores as reports surfaced last week that Whole Foods was looking to open its first location in Detroit. Asked on its first-quarter conference call whether Whole Foods was looking to aim at a lower-income demographic, John Mackey, also co-CEO, first quipped, "I feel like I've been swimming upstream on this question for 30 years, and I'm going to keep trying to swim upstream against it."
He added that Whole Foods doesn't open stores based on income but based more on "education" and "awareness." He added that that company has done "extremely well in areas that are not of high income. But it does require a certain level of consciousness."
But he added that Whole Foods was seeking to learn if areas with less-density of college graduates as well as income will work for Whole Foods. Encouragingly, stores opening in some markets with these characteristics have outperformed, partly because they tend to have less competition for the retailer's products and services.
"The fact that we've done well in these markets has been very encouraging to us. And as a result, we're not going to get to our 1,000-store objective if we're not successful doing that but I think we will be," said Mr. Mackey.