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Will the New Small-Format Whole Foods Stores Succeed or Fail Yet Again?
Whole Foods Market has unveiled plans to launch smaller stores, aiming to cater to urban dwellers looking for quick shopping trips. The first of these new stores, named Whole Foods Market Daily Shop, will debut in New York City later this year, with plans to expand to other cities nationwide. This new concept is part of Whole Foods’ parent company Amazon’s efforts to revitalize its grocery business. Last August, it announced significant changes to Amazon Fresh, indicating a broader push into the grocery market.
These new stores will be a fraction of the size of traditional Whole Foods outlets, ranging from 7,000 to 14,000 square feet compared to the typical 40,000 square feet. They will offer a selection of grab-and-go meals, snacks, and essential groceries, including produce, meat, seafood, bread, alcohol, supplements, and Whole Foods’ own private-label products. All products sold will adhere to Whole Foods’ quality standards, excluding ingredients like high-fructose corn syrup, as reported by Bloomberg.
Equipped with Amazon One, Amazon’s palm payment service, these small-format stores will provide both self-checkout kiosks and traditional checkout counters, according to a spokesperson.
In a press release, Christina Minardi, executive vice president of growth and development at Whole Foods Market and Amazon, highlighted that the shift to home delivery has altered consumer expectations toward faster service. “At our new store formats, we’re tailoring every square foot to the unique, fast-paced needs of urban lifestyles. We’re excited to introduce a new way for our customers to quickly pick up their Whole Foods Market favorites — from grab-and-go meals to that last-minute dinner ingredient — making the early morning or after work grocery trips more efficient and enjoyable,” she explained.
The first Daily Shop is set to open on the Upper East Side in Manhattan by fall, with plans for other locations in New York City as well as expansion into other U.S. cities. The Manhattan location will also feature a Juice & Java section offering coffee, tea, fresh pressed juices, sandwiches, soups, and desserts.
This move toward smaller stores isn’t new for Whole Foods. In 2016, the company launched 25,000-square-foot stores called 365 by Whole Foods Market — bigger than the new Daily Shops but smaller than typical Whole Foods locations — only to discontinue the project in 2019.
Whole Foods halted the expansion of this smaller, cheaper chain due to a narrowing price gap with its traditional stores. After Amazon acquired the company in 2017, it initiated price reductions on products at the primary Whole Foods stores. Additionally, it started providing discounts to Prime members. Consequently, these actions caused the price difference to shrink between the core Whole Foods brand stores and 365 stores, rendering the 365 stores obsolete.
Despite having opened 12 locations, the company scrapped further growth of the chain. Whole Foods CEO John Mackey wrote in an email announcing the end of the program that all existing 365 stores would remain open, with no job displacements. He also stated, “While we won’t be growing the 365 store format, we will continue to innovate and experiment with new store concepts and designs that will allow us to offer customers unique and differentiated experiences that play to the strengths of the company. The creativity, innovation and entrepreneurial vision that 365 embodies will live on in new ways in the future of Whole Foods Market.”
The Daily Shop concept has been in development for the past two years, spurred by the difficulty of finding large spaces in urban areas. With urbanization trends on the rise and consumers seeking convenience, the launch of these small-format stores could mark a strategic move for Whole Foods to tap into a new demographic of shoppers.
In the grocery retail landscape, there’s been a notable shift from large stores to smaller formats recently, ranging from 10,000 to 90,000 square feet. This transition is driven by factors like changing consumer demographics, a desire for value and quality, and technological advancements. These compact stores offer personalized shopping experiences, focus on sustainability and freshness, and lead to reduced operating costs. Major players like Sprouts Farmers Market, Big Y, Natural Grocers, Meijer, GreenWise by Publix, Target, Wegmans, H-E-B, and Hy-Vee are all adapting to this trend by introducing smaller store models and catering to specific customer segments.
Discussion Questions
In an era of shifting consumer expectations and urbanization trends, what strategic advantages and challenges might Whole Foods face in launching smaller-format stores like the Daily Shop, particularly in highly competitive urban markets such as New York City?
With the discontinuation of the 365 by Whole Foods Market concept, what lessons can other retailers, particularly in the grocery industry, draw from Whole Foods’ experience in managing pricing strategies and brand differentiation within a diversified portfolio of store formats?
As the grocery retail landscape evolves toward smaller, more specialized formats, how can industry leaders like Whole Foods adapt their store designs and offerings to meet consumers’ evolving needs and preferences?
Poll
Loading …BrainTrust
Mark Self
President and CEO, Vector Textiles
Brian Cluster
Director of Industry Strategy - CPG & Retail, Stibo Systems
Another day, another experiment from Amazon in grocery. There’s nothing wrong with smaller format stores in cities, especially if they are designed for the quick-pick up of essentials and grab-and-go items. Grocers like Tesco in the UK have long since pioneered smaller stores for urban areas, and the convenience format has served them well. All that said, Tesco’s format was very well conceived and developed. With Amazon I get the impression that this is more experimental and that it is dabbling at a time when others are getting serious about expansion and growth in grocery.
I also still maintain my view that there are many, many deficiencies in Whole Foods’ proposition whether in large stores or small: it is a very expensive grocer that doesn’t quite know how to add significant value – and I don’t think that will change in smaller format stores. Now, if New York City was getting some small M&S Foodhall stores, that would be tremendously exciting…
Of course Tesco also brought us fresh and easy: even a history of competence is apparently no guarantee of an experiment succeeding.
A failure that cost them the best part of £2 billion!
“we’re tailoring every square foot to the unique, fast-paced needs of urban lifestyles.” What are those needs and in what way are these stores “tailored” is a question I’d want answered before I switch my vote from “fail again” One of the ways NYC – specifically Manhattan – is highly competivive is, presumably, that there are a multitude of full service stores within close proximty to each other. So setting up shop with a limited selection store in this sea of choice seems…curious; alternately, locating in the downtown area, with a budding residential population, still large office population, and (I would think) fewer alternatives, might make more sense. But really all this is musing: what did they learn from 365, and how does it help them move forward? Amazon is often lauded for experimenting, but it you don’t really gain anything from these “experiments”, they might be better described as a waste of effort.
I am totally confused by the Daily Shop idea. I understand the idea of a Whole Foods convenience store, but after viewing the renderings of the proposed “small stores” on the WF website, I am perplexed. https://media.wholefoodsmarket.com/whole-foods-market-to-open-smaller-format-stores-as-part-of-ongoing-expansion/
Those renderings show a store considerably larger than my Whole Foods on East 57th Street, between Second and Third Avenues. My WF is tight. (Fortunately, I haven’t seen the hired shoppers in months.) When it is busy, moving around can be challenging. The aisles are tight, just two carts wide. I’ve learned to stay away during lunchtime when the store is deluged by people looking for prepared food.
That said, is it possible for the Whole Foods brand to be transferred to a convenience store-type operation?
Notice that there are no shopping carts in these images? Hmmm…
This may work in NYC, however I do not see it replicating past that, assuming this time it is successful. Whole Foods in general have a larger challenge-the shopping experience (for a high end grocer) has deteriorated since Amazon purchased the chain. What you have now is a nice assortment of food presented in a warehouse setting, with individuals vying for shopping space with the many “professional” shoppers constantly stopping to look at their phones trying to figure out what a Kiwi looks like.
The success or failure of this venture will boil down to one word. “Tailoring…tailoring every square foot.” And I think the curation process will be harder than it may sound at first. Different neighborhoods in NYC will have different tastes. Some portion of the data from one store will not be transferable to other NYC stores. NYC data won’t necessarily transfer to Boston or Chicago. Amazon is about as data rich as you can get, so maybe they have the bandwidth to pull this off. We are off on another ride on another learning curve.
Grocery’s focus on value and deals leaves a lot of money on the kitchen table. This new format helps Amazon reach high-end, urban shoppers, cater to their needs closer to home and offer the speed and convenience they expect.
The stores will also shift habits to frictionless Amazon One and enrich Amazon’s data on upscale shoppers.
Store designs increasingly align with consumer demand for localized offerings, convenience and efficiency (thanks to AI, RFID) and multisensory experiences.
I’m trying to figure out why this would be more attractive to urban shoppers. As someone who lives in the city myself, I appreciate larger format stores because you don’t always have a suburban-level assortment nearby. This has to be more about grabbing locations that they couldn’t otherwise get if they kept their typical footprint, which is great, but it’s not really an initiative that does something uniquely useful for its target.
With its Daily Shop convenience store test, Whole Foods is searching for the urban format it can roll out in great numbers.
If the assortment is right – including quality prepared foods for take-home – it might resonate as a neighborhood anchor. Still an experiment – and we know that prior food store concepts from Amazon haven’t fully hit the mark.
Near me, we only had a Whole Foods (365), and after trying it a few times, was left with an overwhelming “ho hum” While visiting another city with a large (normal format) Whole Foods the difference and desirability of shopping there was completely different. Maybe Small Foods will appeal to an existing brand loyal customer, but if it’s like our local Small Foods, it’s not likely to draw in new customers at high rates.
I won’t be underestimating Whole Foods. Amazon is behind them holding a data trove, learnings from past mistakes, and Just Walk Out tech. This alone gives them a good shot to succeed.
Big key is to align the right product mix for urban spots with high traffic volume. It’s a play for high efficiency.
This is another chapter of a continuing saga of innovation of Amazon and Whole Foods. We should be familiar with it and know that it will continue. Although, we have seen the Amazon bookstore, variations of the fresh store and as well as the 365-format come and go as well as Fresh and Easy, there is always room to learn and create something more targeted with more valuable for the future for the target customer.
Whole Foods and Amazon have plenty of new data and trends and successful smaller formats to learn from since the closure of the 365 format. Two examples from Chicago are: 1) Dom’s Kitchen (17.8k) format that has the prepared food focus and neighborhood relevancy. and 2) Foxtrot which is a smaller format chain of 15 corner stores across the Chicago metro area. Both of these are urban focused and are growing.
Another trend could potentially increase the need of smaller urban stores is the conversion of more commercial real estate to smaller apartments in the urban cores across many cities. With my experience in Chicago and San Diego, some neighborhoods are underserved in terms of grocery and as density increases it only gets worse creating an opportunity for WFM Daily Shop.
Source; https://fortune.com/2024/03/04/chicago-mayor-1-billion-revamp-empty-downtown-buildings-commercial-real-estate-crisis/
Data will set them free. All they have to do is listen to it. I expect a big win.
Every format and size has a place based on customer location and density. Higher-density environments are well-suited for daily shopping trips. Whole Foods’ pricing has gotten sharper, especially their on-sale items with the extra discount kicker for Prime members. Given the narrowing of the quality offering gap among the major chains, Whole Foods future financial success (in any format) will turn on being true to the core brand values (no longer “whole paycheck”) and the proper infusion of technologies that facilitate convenience, reduce friction, and deliver a value-added connected Amazon Prime experience.
Whole Foods’ move to launch smaller Daily Shop stores offers convenience to urban consumers but poses challenges in standing out in a competitive market like NYC. While smaller formats cater to quick shopping trips, they may struggle against local competitors.
The lessons learned from discontinuing 365 stores highlight the importance of clear pricing and brand differentiation. Whole Foods must balance operational efficiency with maintaining its premium image as the grocery landscape shifts.
It’s true! Ultimately, adapting the store designs to meet the evolving needs of customers is crucial for convenience and sustainability, however, while smaller formats present growth opportunities, strategic execution will be the key to success amidst fierce competition.