365 by Whole Foods
The first location of 365 by Whole Foods Market opened in the Silver Lake neighborhood of Los Angeles four weeks ago.

BOSTON — Executives of Whole Foods Market, Inc. already have learned a lot in the four weeks since its first smaller format store, 365 by Whole Foods Market, opened in May.

John Mackey, Whole Foods Market
John Mackey, co-c.e.o. of Whole Foods

“…we are quickly going to school on our learnings for 365,” said John Mackey, co-chief executive officer of Austin, Texas-based Whole Foods, on June 22 at the Oppenheimer Global Consumer Conference in Boston. “And we already have our regional presidents are meeting together, and we’re plotting out the learnings that we’re taking away that we’re going to integrate into Whole Foods Market so that we can take cost out of our system and invest that in lower prices at Whole Foods as well.”

The first location of Whole Foods Market’s budget-conscious concept, located in the Silver Lake neighborhood of Los Angeles, features an automated tea kiosk, a craft brew bar and an in-store selection of vegan prepared foods. Each 365 by Whole Foods Market store will sell a curated mix of products in a fun and convenient setting, according to the company. The Silver Lake store is partnering with several businesses, including by CHLOE., a New York-based vegan restaurant, which will serve a menu of plant-based burgers, salads, market specials, pastas and desserts, which may be eaten in the restaurant, taken to-go or to a communal dine-in experience in the store, according to the company.

Because the 365 stores stock a much smaller selection — approximately 7,000 stock-keeping units compared to 25,000 at a Whole Foods Market — executives expected consumers would buy fewer items per trip at the 365 stores.

365 by Whole Foods TeaBot
365 by Whole Foods Market features TeaBot, an automated tea dispenser.

“We’re having to actually redo the entire front end, and the next two stores opening, Lake Oswego in the Portland area and Bellevue in Seattle, we are busily taking the learnings that we’ve got and integrating them,” Mr. Mackey said. “I suppose one thing potentially relevant is that the register system … we didn’t have conveyor belts because we were expecting with a smaller store curated mix that we’d get a lot more kind of smaller baskets, but that’s been the opposite. We’re getting bigger baskets than we traditionally get at Whole Foods. So that’s been a surprise, and we’re very happy with the beginning.”

Additionally, the new concept has attracted a different consumer than Whole Foods Market’s typical shopper, he said.

“We know we’re getting a different customer at 365,” Mr. Mackey said. “I never saw so many Trader Joe’s bags in a Whole Foods Market store before… So we are going to be experimenting. We are going to try lots of things. Whole Foods is a very experimental entrepreneurial company, so… we’ve already got three different distinct strategies for Whole Foods pricing vis-a-vis the 365 store. And Whole Foods will continue to differentiate away from 365. And it will match where it needs to, probably, and we’ll learn and evolve.”

365 by Whole Foods ordering kiosks
The new concept also offers digital ordering kiosks.

True to executives’ expectations, the primary shopper at 365 falls into the millennial category.

“If you go there in the mornings you get older people, and if you come there at night you get younger people,” Mr. Mackey said. “And most of the business is being done at night. So I would say it’s … overall millennial. If you go to by CHLOE, which is the Friend of 365 that’s part of the store, I was eating there when I was there and I was the only person over 30, over 40, over 50 and over 60 in the restaurant. And that’s doing very, very well for us, too.”

With 20 additional locations currently under development, Mr. Mackey said he expects to open “a lot of those stores” in the future.

“It has such superior economics because you’ve taken your capital down I mean 50% to two-thirds what a Whole Foods Market is and you’ve got more of a cookie-cutter approach, and yet you’ve got a really still exciting format and you’ve taken all these costs out of labor,” he said. “If you get anything close to Whole Foods Market sales per square foot, the economics of it are astounding…

“So we think we have this exciting growth story ahead. And assuming that the first few stores do anything close to what Silver Lake does then we’re probably going to roll that out very rapidly.”