Aggressive expansion at Whole Foods

Whole Foods Markets, Austin, Texas, one of the icons of natural foods retailing, is in the throes of an aggressive expansion program that includes store development, on-line shopping and development of private label nutritional supplements.

In a recent conference call with Wall Street analysts, the chain's top executives, including John Mackey, chairman and CEO, and Peter Roy, president, said the company recently signed leases for new stores in Denver, Santa Fe, N.M., Ft. Lauderdale, Fla., and Deerfield, Ill. These are larger, higher-volume locations that are expected to exceed $15 million in sales in the first two years, with Denver and Santa Fe potentially reaching even higher levels.

All told, the company, now operating 86 units in 19 states, has 20 units in development. "We will continue to be active in evaluating deals," said Mackey, noting that the chain will have more than 100 stores in operation by the end of 1999.

Meantime, the company is entering the e-commerce arena with the launch of an on-line shopping service in early 1999 on its wholefoods.com Web site. Officials are calling it the "definitive natural foods Web site" and believe the chain's brand name and credibility present an excellent opportunity to build Internet sales of many items and at higher margins than its on-line competitors. The e-commerce business will be handled out of a recently acquired 381,000-square-foot distribution and manufacturing facility in Thornton, Colo., which will also be used to distribute the Amrion line of private label nutritional supplements that were rolled out in all Whole Foods stores in June.

"The great thing about wholefoods.com is that it doesn't require a huge additional investment," said Mackey. "It will have virtually every non-perishable product we sell in the stores, and we anticipate shipping or partnering with other companies to offer a large virtual inventory. This way we don't have to take inventory risks on many SKUs like kitchenware and books." The company is also building a 50,000-square-foot facility in Seattle.

The chain's focus on private labels includes Amrion and its "365" line, a value-priced vitamin and supplement line slated for launch this month. At present, the chain's private label offerings represent 10% of sales, and the company is targeting a 20% share of sales for private label over the next 2-3 years. The "365" program consists of 125 SKUs vs. 600 under the Whole Foods label.