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Bloomberg's Giammona on Whole Foods Expansion Problems (Audio) · Bloomberg Intelligence

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  Speaker 1: Whole Foods fell as much as seven point two percent
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  Speaker 1: after spouts, Farmers Market cut its use, and HD supply
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  Speaker 1: live from the first Breaking news desk on Bill Maloney. Charlotte,
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  Speaker 1: all right, thank you very much, Bill Maloney, and to
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  Speaker 1: I'm Charlie Pelof. That's the bloom Bird business splash you're
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  Speaker 1: listening to. Taking Stock with Kathleen on Bloomberg Radio. Cutthroat competition,
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  Speaker 1: falling food prices. All of these are hitting some of
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  Speaker 1: the biggest names in the grocery business, including today Whole
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  Speaker 1: Foods markets questions about its expansion plan and also the
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  Speaker 1: share price down a dollar sixty nine cents, the share
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  Speaker 1: to nine dollars and one cent after Sprouts Farmers Market,
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  Speaker 1: competing specialty foods retailer, reduced its same store sales guidance,
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  Speaker 1: making investors wondering about what's going on. A Whole food
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  Speaker 1: joining us now to dive into this is our Bloomberg
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  Speaker 1: News reporter Craig Jemona Craig, Welcome to the show. Thanks
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  Speaker 1: thanks for having me. So, first of all, put this
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  Speaker 1: in context at a time when Whole Foods has announced
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  Speaker 1: expansion plans. You want a terrific story starting in Chicago.
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  Speaker 1: Just just set the stage with that, what's happening there
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  Speaker 1: and why. It just personifies illustrates what's going on in
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  Speaker 1: the terms of the Whole Foods challenge. So there's been
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  Speaker 1: questions for a while about whether or not Whole Foods
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  Speaker 1: can never get to twelve stores. That was the number
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  Speaker 1: that John Mackie, the founder, put out there a couple
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  Speaker 1: of years back, and there's just a lot of people
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  Speaker 1: that have thought for a while that that's an aggressive
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  Speaker 1: target because is there really room for that many high
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  Speaker 1: end stores. So, you know, we used an analyst note
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  Speaker 1: talking about a store outside of Chicago that was next
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  Speaker 1: to a dress barn and a shoe carnival, and just
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  Speaker 1: questioning whether this was sort of emblematic of is this
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  Speaker 1: the right place for a Whole Foods. You know, they
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  Speaker 1: do well in Brooklyn. The end of the store here
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  Speaker 1: near our office in Midtown East in New York City
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  Speaker 1: is always packed. All the ones in New York City,
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  Speaker 1: from what I can tell, are packed. But as they
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  Speaker 1: expanded to other parts of the country, they've sort of
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  Speaker 1: run into trouble. Now they run into trouble because there
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  Speaker 1: are copycats or because their prices are demonstrably higher than
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  Speaker 1: the competition. Both both, you know, the copycats have I
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  Speaker 1: think put a spotlight on the fact that their prices
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  Speaker 1: are higher. So for years, Whole Foods created the organic
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  Speaker 1: food market in this country. They built it up and
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  Speaker 1: for years the margins were soaring. Obviously, Walmart and Kroger
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  Speaker 1: saw this and said, well, we can sell organic food too,
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  Speaker 1: and we can do it cheaper. So now people are saying,
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  Speaker 1: you know what, I'm not gonna pay twenty send premium
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  Speaker 1: that Whole Foods. I'm gonna go to Kroger by private
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  Speaker 1: label stuff. Maybe I'll go to the Farmers Market a
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  Speaker 1: little bit. There's just other places to get organic food now,
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  Speaker 1: and it's really hurt Whole Foods. So what do you
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  Speaker 1: do if your Whole Foods? Because I couldn't read a
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  Speaker 1: few more everybody's follow the lead and and um my
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  Speaker 1: neighborhood Westside Market. You know, you look at the last
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  Speaker 1: year the number of stores like that of all kinds
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  Speaker 1: who carry grass fed beef, who carry not just cage
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  Speaker 1: free eggs, but you know, free rowing, pasture raised, it's
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  Speaker 1: all kinds of product. It's a really upward sloping right.
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  Speaker 1: There were years where that Whole Foods was the only
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  Speaker 1: place to get that kind of thing. Now it's ubiquitous
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  Speaker 1: and so people and it's cheaper at other places. So
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  Speaker 1: the thing that the big thing they're doing is this
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  Speaker 1: new chain called three sixty five by Whole Foods. It's
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  Speaker 1: kind of targeted at millennials. The stories are cheaper to build,
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  Speaker 1: their smaller, cheaper to operate. They've been gushing about the
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  Speaker 1: economics of that store model. Is only two open so far,
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  Speaker 1: one in l A, one in Oregon. Another one is coming,
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  Speaker 1: i believe next week in Washington State and in Bellevue
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  Speaker 1: and your Seattle so that's the thing they've hit on
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  Speaker 1: that they think it's working. So far, haven't said much
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  Speaker 1: about the results. Were expecting that November when they were report.
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  Speaker 1: But maybe they can get to twelve hundred by doing
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  Speaker 1: six d three sixty five and six hundred flagships. But
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  Speaker 1: the question is they've said to this point twelve hundred
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  Speaker 1: stores plus three sixty five, so a lot of questions
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  Speaker 1: about whether they can get to that total. I was
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  Speaker 1: also looking at the stock of United Natural food shares
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  Speaker 1: down about four and a quarter percent, because they are
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  Speaker 1: the biggest supplier right the Whole Foods Right there there
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  Speaker 1: are the large The Whole Foods is the largest customer.
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  Speaker 1: I think I could be you know, wrong here on
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  Speaker 1: a little bit, but I believe the revenue for United
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  Speaker 1: Natural comes from Whole Foods. It's a gigantic customers. So
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  Speaker 1: any day that you see Whole Foods up or down,
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  Speaker 1: United Natural tends to move with them. Sprouts is the
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  Speaker 1: same way. You know. Sprouts is two stores, so a
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  Speaker 1: little smaller than Whole Foods, but it's an organic natural retailer.
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  Speaker 1: They cut their forecast this morning. That just leads people
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  Speaker 1: to again, people are very sensitive about Whole foods right now.
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  Speaker 1: So any any little blip, any negative news I think
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  Speaker 1: pushes the stock down. Can you talk to us a
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  Speaker 1: little bit about Starbucks? First of all, I was like, whoa,
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  Speaker 1: they're gonna Stevia, you know, alongside the splendor to there
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  Speaker 1: you know, there their coffee customers. And then we've got
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  Speaker 1: the ceo endorsing Miss Hillary Clinton for president. That's right there.
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  Speaker 1: He was at an event this morning of breakfast in
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  Speaker 1: New York City, rolling out a series of videos that
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  Speaker 1: they're calling up standards. You know, he hired a former
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  Speaker 1: editor from the Washington Post to create this sort of
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  Speaker 1: almost like a news operation for him in Starbucks. So
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  Speaker 1: they're saying, you know, he basically said, it's been very
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  Speaker 1: divisive election season and we need change. We can't do this.
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  Speaker 1: He called Donald Trump a divisive candidate. So it's always
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  Speaker 1: a little surprising for the CEO of a big company
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  Speaker 1: like that to wait into politics. Really haven't seen that
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  Speaker 1: much of it, but he he did come out and
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  Speaker 1: said he supported Hillary Clinton. He also sort of headed
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  Speaker 1: a bit on whether he would ever run. A lot
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  Speaker 1: of people think of him as a potential candidate. He's
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  Speaker 1: ruled that out prior, but today he said, never say never.
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  Speaker 1: Now is not the right time. But I'm a young man,
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  Speaker 1: so you know, he's sixty three years old. But some
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  Speaker 1: people think that Schultz is setting himself up for a
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  Speaker 1: run at some point. Any chance that we're going to
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  Speaker 1: see Starbucks move into other retail establishments. I mean, there
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  Speaker 1: are a lot of malls which are going through a
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  Speaker 1: big transition. He talked about that. He talks about the pressure.
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  Speaker 1: You know, there's just less people out brick and mortar retailing.
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  Speaker 1: You know, you don't go out on Saturday and shop
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  Speaker 1: the malls pick up your Starbucks. They've invested heavily in
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  Speaker 1: e commerce. You know, he likes to call it a
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  Speaker 1: tech company inside of a coffee company. So he was
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  Speaker 1: asked that question this morning and kind of said that
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  Speaker 1: the e commerce is how they're going to pick up
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  Speaker 1: for that. So you're still you know, you're out and about.
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  Speaker 1: Maybe you're not visiting traditional retailers. But I guess his
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  Speaker 1: hope is that people don't ultimately just sit on the
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  Speaker 1: couch and you know, shop online all day every day.
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  Speaker 1: That would, you know, sort of remove some of the
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  Speaker 1: coffee customers. Thank you very much for joining us. Craig Giamona.
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  Speaker 1: He is consumer reporter for Bloomberg News. You can follow
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  Speaker 1: him on Twitter at stick a writer. That's s t
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