Ask just about anyone who works at the corporate headquarters of Whole Foods Market in Austin these days how they're doing, and you get a nearly identical response: "There's a lot going on."

It's not all doom and gloom, as Whole Foods tries to fend off activist investor Jana Partners and potential buyers such as Albertson's and Amazon. The company is also pushing forward with its efforts to re-ignite growth, after a disappointing two years in which it has seen declining comparable-store sales and its stock price has lost half its value.

Key to that effort is Whole Foods' nascent chain of stripped-down, lower-price stores called 365, and the company celebrated a milestone for that brand Wednesday: 365 unveiled what CEO and founder John Mackey calls its "2.0" version, in the Austin suburb Cedar Park. The new location is the fourth 365 store overall and the first in Texas. The first three stores, all on the West Coast, have produced "mixed results," says 365 president Jeff Turnas, so this store represents a new blueprint going forward.

Hundreds of shoppers lined up Wednesday morning to be the first ones in the door of the new store. Mackey was there signing copies of his new book, The Whole Foods Diet, a band played jangly funk-rock on the sidewalk, and dozens of Whole Foods execs milled around, no doubt relieved to be celebrating something entrepreneurial rather than worrying about Wall Street.

Turnas, a more-than-20-year veteran of the company whom Mackey tapped two years ago to lead the important 365 project, gave Inc. a tour of the store a day earlier.

Waving the flag

The most dramatic change is right outside the building: Whereas the first three stores had a giant "365" logo with small type underneath that read "By Whole Foods Market," the Cedar Park store looks from the street a lot like ... well, a regular Whole Foods Market. A full-size version of the mother-ship logo dominates the wall above the entrance, with a small "365" off to the side.

It's not hard to see why the company tried to distance 365 from the Whole Foods brand in the first iteration: The parent brand has struggled to shake its "Whole Paycheck" nickname for years, and the perception of high prices could undercut 365's value message. The move to now hang the Whole Foods banner more prominently on 365 stores flips that equation: The company hopes some of the perception of value that people get from shopping at 365 could rub off on Whole Foods proper.

"We talked about it a lot and decided to connect the two brands more closely," Turnas says. "I think people will learn that this is a 365 store." He says much of the debate centered on the simple fact that Whole Foods is an instantly recognizable brand, and it sends a message about healthy eating and quality products--which can help 365 compete with the likes of Trader Joe's and Sprouts, not to mention mainstream grocers.

Price and convenience

Inside, the changes from the previous 365 stores are "more tactical than philosophical," says Turnas: There's a new olive bar, a room with an actual butcher in it, more bulk goods as in a typical health store. But the general idea is the same as for the earlier stores--more convenience and better prices in a smaller package. "We've learned a lot from the first three stores and made tweaks and added things, but we've proven that the overall strategy works," Turnas says. "The idea is 'I can't get everything there, but I sure can get a lot, and the prices are amazing.'"

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To be sure, the store doesn't feel at all like a regular Whole Foods. Whereas the mother ship is all about theater--the impressive displays of seafood and cheese and baked goods--365 is all about getting you in and out in a hurry. A typical Whole Foods is laid out to send customers through a mazelike journey of discovery, but 365 is the opposite. Here no shelves are higher than about six feet, and you can see across the whole store from almost any point. There's a small juice bar and a cafe (both run by popular local chains that rent the space), but no wine bar or sushi restaurant, as at the company's flagship in downtown Austin. This is a place to shop--efficiently--not a place to linger over your Sancerre.

Built for the 'burbs

Mackey recently acknowledged to the Wall Street Journal that Whole Foods struggles "in the suburbs with people who have an expensive mortgage ... three and a half children and a golden retriever." The first 365 store (and most successful one so far) also doesn't cater to that crowd: It's in the Los Angeles hipster enclave of Silver Lake. The Cedar Park store, on the other hand--situated off a highway access road in a newly built strip mall housing big-box value chains such as DSW, Nordstrom Rack, and Old Navy--caters directly to that population.

And while critics have long urged Whole Foods to create a rewards program for frequent shoppers, 365 already has a solid one. A digital rewards card is tailored to shoppers who come regularly and buy many of the same things over and over--busy parents, in other words. For many products around the store--Driscoll's strawberries, for instance--if you buy them five times, the sixth is free.

Competition in the cross hairs

Turnas says Whole Foods has 24 more 365 stores in the works over the next couple of years, and that one day he could envision it being a chain as big as Trader Joe's (which has about 500 stores) or Sprouts (200-some stores). "We talk about being able to build these stores with half the money and half the time of a Whole Foods store," he says.

The way Turnas sees it, 365 combines some of Whole Foods' greatest hits in a way that creates an advantage over both of its main competitors. You can get a wider assortment of produce than at Trader Joe's, and it's competitive with Sprouts on price. In the packaged-goods aisles, "we have Trader Joe's pricing but a bigger mix," Turnas says. "And in the middle of the store, we have all the fresh prepared foods that neither Trader Joe's nor Sprouts does like us. This store was designed to compete--and that's what we're doing."

That's a fine reason to celebrate. The question will be whether the company is able to move quickly enough to keep the party going.

Published on: Apr 28, 2017