Whole Foods Market: Over Here and Over Priced?

The impact of the global natural and organic retailing champion on British grocery retailing can be felt across the capital already, with Waitrose announcing the launch of its first upmarket food store in Marylebone. Despite an unrivalled organic and natural product offer in the UK, Whole Foods’ long term prospects are questionable.

In Kensington this weekend, shoppers were queuing to sample the US behemoth’s offer. On Saturday, staff at the M&S outlet on Kensington High Street were giving away free fruit salads to entice customers to their premises and distract them from Whole Foods Market’s (WFM) new flagship store.

With its natural and healthy product ranges, resident artist, in-store DJ, trolley escalators and large food service operation, the store closely resembles its US operations. Some of WFM’s US retail style has also crossed the Atlantic, evident in the ‘pile it high’ approach in terms of category management and exceptional service. With these new elements, WFM looks set to give British grocery retailing a much needed shake-up.

But, what about WFM’s long term prospects? Last week brought bad news for WFM, as US authorities held up the proposed merger with smaller rival Wild Oats, which the company wants to see through to gain significant scale effects stateside. Moreover, questions can be raised about the future success of its UK operations.

On the bright side, the affluent catchment area in Kensington is a shrewd choice, with some customers spending GBP180 on a single transaction and, thanks to the location, the outlet is likely to attract tourists. Its organic and natural product offer is unrivalled in the UK, and, currently, demand is boosted by trends towards healthy and organic products and trading up. Besides the ethical shopper, many other consumers have started to buy organic, largely because it is perceived as healthy. In time, many might consider conventional foods are no longer good enough.

Currently though, organic produce is keenly priced and while many consumers are prepared to pay a premium for it, there are still many who aren’t. WFM’s pricing architecture could become its main stumbling block. Rents in Kensington are notoriously steep and the company has very high staffing levels; as a result the retailer has to generate exceptionally high footfall levels to make a profit. One thing though is clear; Kensington will retain its destination status for the cash rich tourist visiting London for some time.

Source: Verdict Research