How craft beer and restaurants are helping Whole Foods Market fend off competitors
When Whole Foods Market opened a megastore in Tustin in 2007, it boasted premium services from a seafood-grilling center to wine and tea bars.
But after surviving a Great Recession that forever changed consumer buying habits, the Orange County store is unveiling a major overhaul to meet consumer demand for chef-driven dining, value, convenience and personalization. The remodeled store, the biggest overhaul since it opened, features easier-to-navigate aisles, a wider selection of takeout foods, order-ahead coffee service, meat value packs, expanded selection of craft beers, a self-serve pizza station and more express checkout lanes.
Yet the centerpiece of the year-old makeover has little to do with shopping for GMO-free crackers or organic hemp nut ice cream. In fact, no shopping cart is required. The 60,000-square-foot market, a key anchor at the District shopping center, has added two dining venues: gourmet sandwich chain Mendocino Farms and the Hangar Bar.
“We love to turn people on to new foods and new retail experiences,” local marketing executive Marci Frumkin said.
The changes come as Whole Foods, often nicknamed “Whole Paycheck” for its premium prices, has scrambled to fend off rivals from all fronts.
Traditional supermarkets like Ralphs and discounters such as Wal-Mart have ramped up organic private labels over the years. Online retailers like Amazon Fresh are also coming on strong in the $69 billion natural and organic foods market. Grocery and restaurant industries are also competing with a surge in meal-kit delivery programs.
Whole Foods has responded, in part, by adding in-store restaurants. Of the Texas-based chain’s 464 stores, 180 have bars or tap rooms.
Adding popular branded food chains like Mendocino Farms is the latest iteration of that dining strategy.
“It’s an experiment. Whole Foods continues to break boundaries,” said Mario Del Pero, co-founder of Mendocino Farms.
On Wednesday, a remodeled store in El Segundo unveiled a Kogi restaurant; it also recently added a bar. The Kogi eatery is popular Los Angeles chef Roy Choi’s second food venue inside a Whole Foods. Last year, the food truck pioneer opened Chego at a downtown Los Angeles store.
ARE RESTAURANTS THE RIGHT MOVE?
The Mendocino Farms at the Tustin store is the first of several expected to open inside select Whole Foods Markets.
The fast-casual concept, which has locations in Orange and Los Angeles counties, is known for creating specialty sandwiches with locally sourced ingredients. The sandwich shop opens Thursday, sharing a 140-seat dining area with Hangar Bar, named after the Tustin blimp hangars.
While Mendocino sells sandwiches, salads and stews, the Hangar Bar offers a gastropub-style menu with comfort foods, as well as vegan and vegetarian dishes. Some items include grass-fed beef burgers, fish and chips, sushi rolls, jackfruit crab cakes and cauliflower nachos.
Del Pero said the goal of a restaurant within a market is to give time-pressed consumers a variety of eating options – smoked meats, vegan dishes, burgers, all-day breakfast, salads, sushi, pizza and sandwiches.
Recently, Emil Davis, 25, and a friend took advantage of the choices.
He dined on a house burger, fries and a pint of grapefruit Sculpin IPA at the Hangar Bar, while his friend drank a cold-pressed juice from the store. Davis, who shops and eats at Whole Foods frequently, said he’s happy to see more dining options.
“I’ve been waiting for this for a long time,” he said.
Industry watcher Brian Todd, president of the Food Institute, said adding restaurants makes sense if Whole Foods is trying to attract Gen Y shoppers, who spend about 44 percent of their food dollars dining out, according to a Food Institute analysis of government data.
That’s almost $300 more annually than baby boomers, he said.
“And those millennials also like their craft brews, perhaps explaining why Whole Foods and other supermarkets are adding tap rooms and specialty brews where customers can bring their growlers when picking up their dinners, or even a snack,” Todd said.
Still, grocery analyst Burt P. Flickinger questioned the bar program.
“It just seems really ill-advised,” he said. “It’s an expensive initiative when they have so much more to fix.”
Flickinger, managing director of retail consulting firm Strategic Resource Group in New York, recently visited a few taverns and bars inside Whole Foods stores in Texas, Chicago and Orange County. Each time, the stores had very few customers with baseball playoffs on TV, including the Back Bay Tavern at the Whole Foods at Fashion Island.
Whole Foods declined to offer sales data on its bars. According to regulatory filings, store shoppers enjoy the chain’s ready-to-eat foods. Prepared foods and bakery accounted for 19 percent, or $3 billion, of the chain’s total sales in 2015.
“We find that our customers appreciate being able to come to one place to do everything,” marketing executive Frumkin said.
SHIFTING OF SPACE
While Flickinger said the Whole Foods dining experiment is a waste of “productive space,” Tustin store leader Chris Cintula said very few grocery services have been eliminated by adding the two restaurants.
During a store tour last week, Cintula said departments are now better organized – and in many cases, offer more products. The craft beer aisle, for example, has doubled to 800 types of beers – ranging from 22-ounce bombers from local breweries to obscure brands.
The Whole Body department has added more makeup and facial care products. Pet supplies also have increased.
Customization and convenience have played a large role in the new layout.
Aisles have be realigned so they are parallel, making it easier to navigate. (Some departments were previously boxed in, causing traffic jams). Checkout lanes are no longer stacked with two registers.
The Food Institute’s Todd said the changes are a smart move “as time-starved consumers look for ways to provide meals for their families and themselves as quickly and easily as possible.”
Changes throughout the chain appear to be helping the bottom line.
On Nov. 2, Whole Foods reported fourth-quarter sales increased to a record $3.5 billion. However, same-store sales decreased 2.6 percent, which marked the fifth straight quarter of declines.
As for the the next Mendocino Farms inside a Whole Foods, Del Pero said it’s too soon to speculate where it will go. “We’re absolutely going to study it and see how it goes.”
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To taste the best craft beer in your neighborhood, stop into Kelly Brothers Irish Pub, Fort Lauderdale Florida.