How Much Will Whole Foods Bend In New Retail Environment?

March 2018 – Like most department stores, Kohl’s finds its stores too large. So, it is looking to use its real estate more productively and has made a deal to add Aldi stores to 10 of its locations as a kind of test. It is certainly worth a try, and between Aldi paying rent and attracting frequent shoppers, the deal probably will be a win for Kohl’s and, if the locations are good and the price is right, the deal will probably be a win for Aldi. So, it is easy to see this cooperation growing.

Mall shopping is being transformed in America and not just because of online shopping. In suburbia, malls came to replace town squares. In fact, there were legal battles in which protest groups and religious entities argued even though malls are private property, they functioned as public squares and any group should have a right to assemble in such places.

Legalities aside, many a teen would head off to the mall in the hope of meeting up with friends, talking up the opposite sex and, in general, getting into the heartbeat of the community.

The availability of social media, texting and other communication tools have rendered this “gathering place” function less important. If you want to meet up with your friends, you don’t go someplace and hope they will be there. In 2018, you either direct-message them, swap text messages, join a WhatsApp Group or track your friends on social media. Want your friends to find you? You don’t grab a table in the food court and hope they pass by; you send out a Tweet or Snap  and let them know where you are going.

So, malls are rapidly changing. The new model of malls is heavy to restaurants and entertainment, but also using space for health clubs, medical offices and, yes, frequent shopper venues such as food stores.

When the Kohl’s/Aldi announcement was made, Barclay’s came out with a note speculating that maybe there would be an opportunity for Whole Foods to get in on the game. Business Insider put it this way:

If Whole Foods struck a similar deal with Kohl’s on its lower-cost chain of stores, 365 by Whole Foods Market, it could expose the chain to tens of millions of new customers, turning it into an unstoppable threat.

“A Whole Foods/Kohl’s relationship would introduce new customers to the Whole Foods concept and could meaningfully increase the number of households shopping at Whole Foods, which we currently estimate at 8 million well below Kroger at 60 million and Walmart at 100 million,” Barclays analysts wrote in a research note published Friday.

“Meanwhile, it would be vastly negative for the grocers not only would Whole Foods be accelerating its unit growth but a partnership of this type would also be a clear signal it’s looking to broaden its base of shoppers,” the analysts added.

Amazon-owned Whole Foods and Kohl’s haven’t said whether they are pursuing this kind of partnership, but the move would make sense for both companies.

Amazon’s acquisition of Whole Foods quickly became a kind of tabula rasa, a blank slate on which analysts could project whatever their own thoughts and dreams might be.

Separately, Yahoo Finance reports Amazon wants Whole Foods to start selling Coke and other products that are very popular but don’t meet Whole Foods’ traditional standards on things such as artificial preservatives, colors, flavors, sweeteners and hydrogenated fats.

It is not that these analysts are wrong. Amazon could open hundreds of Whole Foods stores in Kohl’s units or anyplace else — that is just spending money. It can certainly sell Coke and Twinkies — that is just issuing a purchase order. But we doubt this would be “vastly negative for grocers.” After all, what it would mean is Whole Foods would just be another grocer.

Imagine how silly it sounds if it were written that Ferrari was going to open showrooms in every Kohl’s and this “exposed its cars to tens of millions of new customers, turning it into an unstoppable threat.” It is, of course, silly. Ferrari needs very wealthy buyers who appreciate Italian design and fast cars.

The reason Ferrari doesn’t have thousands of dealerships is because there are not thousands of places with a clientele to match. If it opened these dealerships in all Kohl’s department stores, it would have to produce a car for the average Joe at a price he can afford. This means it would have little to do with what Ferrari is today, and its clients likely would be alienated.

Amazon has money, so Whole Foods can do anything, but if it broadens its reach, it can’t be what Whole Foods was. So, Amazon will have paid a fortune for a lot of real estate, and it will destroy its own brand by adding Coke and similar products. And for what? Why not reinvest in making Whole Foods the best upscale, natural/organic retailer it can be and then create other banners to brand other concepts?

In Fiddler on the Roof, Tevye, a devout Jewish man, bends to allow his first daughter to choose her own husband. He bends further to allow his second daughter to enter into a marriage that will take her far away, but when his third daughter asks him to accept her wedding to a person of a different faith, Tevye explains that “If I try to bend that far, I’ll break.”

Whole Foods can open in downscale markets. Whole Foods can be a giant seller of Coca-Cola. Whole Foods can broaden its customer base by tens of millions, but then it won’t be Whole Foods, as we know it, anymore.

Amazon might gain from this, but the customers for lots of regional, organic and Fair Trade products will be gone. And there would certainly be a loss for the industry, and for consumers, in seeing that fade away.      pb