Whole Foods' 365 Offshoot Moving Ahead Under Amazon's Watch
(Bloomberg) -- Whole Foods Market’s lower-priced offshoot chain, whose future was questioned after Amazon.com Inc. took control of the company last year, is cautiously plowing ahead.
The business, known as 365 by Whole Foods Market, opened its latest store this week in Brooklyn -- its first location on the East Coast. And the division is still signing leases and plans to open at least five more 365 sites this year, an indication that Amazon hasn’t backed off the concept.
The spinoff remains an experiment for Whole Foods, and there’s no pressure to expand quickly if the payoff isn’t clear, according to Jeff Turnas, president of the 365 chain.
“We’re not going to grow just to grow -- we want to go to the right places,” Turnas said in an interview. “It’s a great learning ground for a lot of stuff that will hopefully move into Whole Foods.”
When it launched in 2016, the 365 concept was an attempt to shed Whole Foods’ image for being overpriced. The idea was to make stores smaller and cheaper to build, letting them get into areas that full-size Whole Foods locations couldn’t penetrate. The stores also emphasized technology, such as electronic price labels.
Since then, not all of the new locations have performed well. But they’ve provided an incubator to test new ways to lock in customers, stock shelves and price products. All that is still relevant in the aftermath of Amazon’s takeover, Turnas said.
Amazon has mostly been mum about its plans for Whole Foods, but its arrival put 365 under scrutiny. It wasn’t clear that the e-commerce giant would need to maintain two separate chains.
Turnas, who leads a team of about 40 based at Whole Foods headquarters in Austin, Texas, made a presentation to Amazon executives about 365 shortly after the merger. Since then, the e-commerce company has studied the brand’s development. Still, the new owner has remained mostly hands-off, he said.
Amazon recently debuted a cashierless convenience store prototype, known as Amazon Go, but that technology hasn’t yet made it to 365 or Whole Foods.
The 365 stores employ a system known as “auto replenishment,” which uses artificial intelligence to help keep shelves full. That program has moved over to flagship Whole Foods stores, where it has reportedly contributed to stocking issues that have hampered sales.
Prior to the deal with Amazon, when the first four 365 stores were open, Whole Foods Chief Executive Officer John Mackey acknowledged that two of the initial locations weren’t performing well. The company closed one of those stores -- in Bellevue, Washington -- and tweaked the concept before moving forward with the next set of locations.
Turnas said the Brooklyn store marks the culmination of the 2.0 edition of 365. The company likes the look and feel of the stores, and the next phase of growth will focus on improving the product assortment, he said.
The new Brooklyn location, which debuted Wednesday, is next to a new Apple store and a short walk from the Barclays Center and the busy transit hub at Atlantic Terminal. The company has roughly 16 additional leases signed for 365 sites.
The stores are named for the Whole Foods house brand, which is featured prominently at the Brooklyn location. The company also boosted the amount of bakery items at the 30,000-square-foot location and added a butcher. The meat is all still prewrapped, but having a butcher on site allows for a better selection, Turnas said.
He acknowledged some of the changes will boost labor costs, but said it will be offset by the potential sales boost. There were also boxes of Cheerios displayed on a palette, a technique used by the German discounters Lidl and Aldi. The price: $2.99 a box, cheaper than what was available on Walmart.com.
“I want to get people who aren’t necessarily Whole Foods shoppers,” Turnas said.
©2018 Bloomberg L.P.