John Mackey, founder and co-CEO of Whole Foods, has famously said: "We're more than just a grocery store; we're a restaurant and a premier brand."
So the recent news that Whole Foods could put tattoo parlors inside its new "365" chain of millennial-focused stores shouldn't come as a surprise. Historically speaking, Whole Foods has always pursued a strategy of accommodating the various "missions" of its customers, even if those missions veer from the traditional role of the supermarket.
Specifically, Whole Foods recognized early on that not every supermarket customer is on the same mission. Some customers want to buy ingredients. Others want something partially prepared to take home and finish. Still others want food that is already cooked.
After parsing its customers' missions on this granular level, Whole Foods used the information to innovate around its offerings. It had the assets: stores, foot traffic, supply chains. All it had to do was invest in prep kitchens--and build out some extra space in the stores for diners. And presto: Whole Foods changed the supermarket business model as we all knew it, morphing from staid supplier of shelved food into a powerhouse retail hybrid that was--and remains--a lucrative mixture of restaurant, high-end take-out place, and old-school supermarket.
In other words, Whole Foods, which has 414 U.S. stores and $14 billion in annual revenues, did not fall prey to the textbook mistake of the once-highflying railroad industry. Here's Theodore Levitt in a legendary 1960 Harvard Business Review article, sounding like a brilliant forerunner to today's mainstream notions of customer-centric innovation. Boldface is mine:
The railroads did not stop growing because the need for passenger and freight transportation declined. That grew. The railroads are in trouble today not because that need was filled by others (cars, trucks, airplanes, and even telephones) but because it was not filled by the railroads themselves. They let others take customers away from them because they assumed themselves to be in the railroad business rather than in the transportation business. The reason they defined their industry incorrectly was that they were railroad oriented instead of transportation oriented; they were product oriented instead of customer oriented....
Had Whole Foods adhered to a belief that it was strictly in the old-school supermarket business, it could not have transitioned to its unique business model. Whole Foods has always recognized that it is not just selling food. It is selling convenience--and whatever is mission-critical for its customers.
Today, those customers are not who they were 10 years ago--or even five years ago. The customer base is increasingly filled with millennials. And as my colleague Zoe Henry has reported, Whole Foods has been making a big effort to attract younger customers. The company partnered with the Cincinnati-based design firm FRCH Design Worldwide, touching up store interiors to "take some of the corporate messaging and not have it feel so corporate," FRCH's Nicole Roberts told Inc.com. Now the stores feature hanging bike wheels, wine barrel strappings, hand-crafted illustrations, and reclaimed wood.
The "365" chain, which could include both tattoo parlors and record stores, is another attempt to appeal to millennials. Yes, there are plenty of generalizations about this generation, but data suggests that millennial shopping habits--in particular, their spendthrift ways--are upending how traditional retailers do business.
In Whole Foods' case, Bloomberg.com noted that same-store sales have recently dropped "as American millennials flock to cheaper natural-goods sellers, such as Trader Joe's, Sprouts Farmers Market Inc. and even Wal-Mart Stores Inc." The most important word in the previous sentence is "cheaper." Whole Foods' "365" chain--three stores are opening this year and 10 more are planned--is the company's attempt to compete on this millennial-centric playing field.
In explaining the idea on Bloomberg TV, co-CEO Walter Robb credited the competition. "There's a number of smaller-store competitors out there that are doing a nice job," he said. "We don't see any reason why we can't go participate in that part of the market as well with our 365 by Whole Foods offer--it's going to be unique."
Time will tell whether the 365 effort pays off for the venerable brand. For now, it's clear the company isn't resting on its laurels, or clinging stubbornly to yesterday's business model.