• by Sarah Mahoney  @mahoney_sarah, June 17, 2015

Ever since Whole Foods revealed it was opening a new chain of grocery stores created specifically for Millennials, food and branding experts have been buzzing. Snarks have said “Half Foods” will replace its “Whole Paycheck” nickname. But in recent weeks, industry trackers have confirmed that Whole Foods is losing at its own game: Costco is said to be currently outselling it in terms of organic purchases, and Kroger is poised to pass it soon as well, indicating that Whole Foods can’t waste any time with its new strategy.

The Austin, Tex.-based grocer revealed last week that the concept would be called 365 by Whole Foods Market, and that name — after its private-label brand — is likely the biggest clue to its competitive strategy. “Besides chains like Costco, Kroger and Walmart, Whole Foods is also going after Trader Joe’s,” says Kevin Meany, CEO of BFG Communications, Hilton Head, S.C., and an expert in the natural food market. “Trader Joe’s is said to have two times the sales per square foot as Whole Foods, primarily on the strength of its house brands. By selling more of its lower-priced private label items, Whole Foods can go on the offensive.”

Despite its history of rapid growth, he tells Marketing Daily, “the issue is that the grocery landscape has changed dramatically since Whole Foods developed its main concept. Organics are mainstream, and people are comfortable buying them in warehouse stores, and even at Walmart.” (Walmart has emerged as the favorite big store of Millennials, according to recent data from InfoScout.)

The new brand will be run by Jeff Turnas, a 20-year veteran, who says it intends to focus on smaller stores that are “fun, exciting, modern, streamlined, cool and convenient,” reports Supermarket News. Besides a more edited assortment, it will “reflect a lot of new ideas around the integration of technology into the customer experience.”

Some observers are concerned about cannibalization, not to mention the risk that regular Whole Foods shoppers might feel permanently dissed by the idea that they like paying more at regular Whole Foods stores that are less fun and inconvenient. But given Whole Foods’ reputation for shrewd real estate decisions, the new chain also makes sense to Andy Mantis, president of Checkout Tracking, a new division of NPD that analyzes spending by tracking receipts from some 50,000 consumers, as well as point-of-sale data. 

While those under 35 spend less on groceries than older shoppers (which makes sense, since they typically earn less and have smaller household size), he thinks there are enough clear differences in the way they shop for food to potentially justify an entirely new store. “They spend more online, even on food, which we can see from the way they use sites like GrubHub. But overall, they’re shopping at stores that are both specialty and upscale, yet still offer real value — they love Bloomingdale’s, but it’s why they also love brands like H&M and Nordstrom Rack.”

And their tastes are different: They drink less regular coffee, but more frozen and iced coffee. They overindex on grilled chickens, but turn up their noses at carbonated beverages. “And while they don’t eat many hamburgers, when they do, it’s at someplace like In-And-Out Burger,” he tells Marketing Daily. “They are looking for a different experience. It can’t feel old-fashioned.”

If Whole Foods can “weave that sense of good value with appealing assortment, it might pull it off,” he says. “It will take a strong multichannel presence, both on and offline. And branding has to fit that lifestyle price-to-value equation.”