Retail Format Innovation Memo: The United Kingdom's 'Best' Cybercafe Just Might Be Inside Whole Foods Market, Inc.'s Huge London Flagship Store

Austin, Texas-based supernatural grocery chain Whole Foods Market, Inc. decided to go where few American grocery chains go--overseas, and specifically to the United Kingdom--about a year ago.

Why do we say, "where few U.S. grocery chains go?"

Because it's true. American-based supermarket chains tend to be domestic rather than global enterprises, which is generally the opposite of most other large U.S. corporations, in business sectors ranging from oil and high tech, to automobiles, pharmaceuticals and agribusiness.

For example, the three-largest supermarket chains in the U.S.: Kroger Co. (about $69 billion in annual sales), SuperValu, Inc. (about 44 billion in gross sales per year) and Safeway Stores, Inc. (annual sales of about $42 billion) have no stores outside North America. In fact, Safeway is the only one of the three chains with stores in Canada. Kroger and SuperValu do all there business in the Continental U.S.

The same is the case with nearly every other American supermarket chain. Crossing the Atlantic or Pacific oceans to open stores or acquire foreign-based food retailing companies isn't the industries cup of tea.

Of course, Wal-Mart is a different animal. The world's largest retailer is just that: a global retailer. It owns the Asda chain in the UK, which is that nation's second-largest retailer after Tesco, and has operations in Asia, including Japan, India and China, and in Mexico, as well as Canada. Wal-Mart also is preparing to enter the retailing market in Russia and elsewhere globally.

Wal-Mart however isn't a supermarket retail company. Rather, it's a broadline retailer which sells everything from food and groceries, to books, electronics, garden supplies, clothes, furniture and more.

Austin, Texas-based Whole Foods Market, which also has stores in Canada, decided to break that general U.S. food and grocery retailing parochialism last year however when it opened it's huge, three-story flagship food emporium on Kensington High Street in London, England in the UK.

The store is nearly 75,000 square feet, huge by UK standards, and features an extensive selection of natural, organic and specialty fresh foods and groceries, along with natural and organic health and wellness products, a mega-natural body care department, a fresh produce department itself as big as many London supermarkets, numerous in-store restaurants, and more.

Part of that "more" is an in-store feature that's been getting raves among London's high-tech community as well as just plain folks in the cosmopolitan city which is rivaling New York City as the world's financial capital these days.

On the third-floor of the Kensington High Street Whole Foods mega-market sits a fully-equipped cyber or internet cafe. Cyber cafe's aren't a new development in London--they're located over the city. However, the Whole Foods-London flagship natural foods market's cybercafe is attractive, spacious and rapidly becoming the most popular of the many located in the urbane city.

The open-style, third-floor Whole Foods Market cyber cafe has seating for about 25 people. There are comfortable tables in the open-style cafe as well. Electrical power outlets are in abundance--and the use of the high-speed Wi-Fi internet network is completely free of charge, which isn't the case in many of London's cyber cafes.

The other thing Londoners' are loving about the cyber cafe is that unlike many located in the city, Whole Foods' third floor, in-store operation doesn't put any restriction on how much time a person spends in it using the free Wi-Fi connection. No hassles, not even dirty looks if you spend a full eight hour work day using the internet cafe's free connections and workspaces.

There's not even a restriction that cybercafe users have to purchase anything to eat or drink in order to use the facilities. However, the Whole Foods store offers such a variety of prepared foods and beverages, that one seldom sees a third-floor cyber cafe patron without food or drink of some kind while surfing the net on their laptop computers.

The store has a gourmet pizza station, sushi restaurant, a wine and cheese bar, meat and veggie grilling station, a gourmet sandwich shop, offers fresh coffees and baked goods in the cafe/pastry shop, prepares fresh-squeezed fruit juices and makes smoothies at a separate bar, and has in-store prepared foods ranging from American classics, to British foods, Indian, Thai, Japanese, Chinese and other ethnic cuisines And, this list is just for starters.

Cyber cafe patrons can purchase whatever foods they desire and take them up to the third-floor cafe. All that's missing is being able to wear ones pajamas when using the internet cafe's free high-speed Wi-Fi connections and attractive space.

The Kensington High Street flagship Whole Foods had a bit of a rocky start in the months following its opening about a year ago. However, it's gradually been winning over the stomachs and pocketbooks of Londoners, who marvel at the massive selection of food, grocery and related products the store offers. Both customer count and store sales have been climbing dramatically over the last six months, according to nearly all of the UK analysts we've talked with or who's reports of the store we've read.

In fact, business has improved so much in the last six or so months Whole Foods Market, Inc. recently hired two commercial retail real estate firms in the UK to search for additional sights in London and throughout the UK for the retailer to open more Whole Foods Market supernatural grocery stores. [Read our piece on that search here.]

the inclusion of the spacious third-floor cybercafe in the store is turning out to be a very smart and savvy move by Whole Foods. Even though it isn't a money maker, after all the Wi-Fi connection is free and cafe users aren't even required to purchase anything to use the connection and the space, it's becoming a gathering place, used regularly by everyone from local entrepreneurs and business people to students, as well as people visiting London from elsewhere on business.

We think the popular, and rapidly becoming famous, Whole Foods cyber cafe in its London flagship store is a perfect example of what grocery retailers need to do in order to create brand in a new market--and even in existing ones.

In-store features like the internet cafe also create a "sense of place" in a supermarket, which results in encouraging shoppers to linger and buy more when in the store and to return more often and become primary shoppers of that store.

Not every feature a grocer puts in its stores will be a money maker. However, features such as the Whole Foods-London third-story cyber cafe will make a grocer more money throughout the store. Not a bad trade off.

Retail Memo: Whole Foods Market to Dramatically Expand in the United Kingdom; Will Open Up To 30 New Stores in the U.S. in Fiscal 2009

Austin, Texas-based supernatural and lifestyle grocer Whole Foods Market, Inc. plans to expand from its current one store in London, England under the Whole Foods' banner, to additional stores in the London Metropolitan region and elsewhere in the United Kingdom.

In addition to its current 75,000 square foot Whole Foods Kensington High Street flagship store in London, Whole Foods Market, Inc. owns the small natural and organic foods' chain Fresh & Wild, which it acquired from its British owners about four years ago. The Fresh & Wild natural and organic foods' markets are located in and around London.

At the time of the Fresh & Wild acquisition, Whole Foods' CEO John Mackey said the grocer was buying the British-born natural foods chain in part as a stalking horse, in that it would provide a base of business in the UK so that Whole Foods could eventually start opening larger stores under its Whole Foods banner. Mackey also said then, and repeated recently, that most if not all of the grocer's new stores in the UK would be under the Whole Foods banner rather than Fresh & Wild.

The grocer started doing just that almost a year ago when it opened its first Texas-sized (75-k square foot) Whole Foods Market in London. The London flagship store got off to a bit of a slow start. However, business has picked up dramatically over the last couple months.

We've now learned Whole Foods has hired a two commercial retail agencies in London to search for new store sites in the London Metropolitan area and beyond in other parts of the UK.

Those two agencies, Green & Partners and Gilbert, have been given marching orders from the grocer's Austin, Texas corporate headquarters to look for potential store sites of between 20,000 square feet -to 75,000 square feet within an hour or so drive from central London as the top priority, and elsewhere in the UK as the secondary priority. Twenty thousand square feet is considered a very decent-sized supermarket in London. Seventy five thousand square feet--the size of the grocer's flagship store in London--is considered a massive supermarket in the region.

Whole Foods has taken a further step, which demonstrates the grocer is serious about its UK expansion. That step is the hiring of Nina Shores, who is the former retail property director for British retailer Bank Fashion, to head up the supernatural grocer's UK expansion program.

Additionally, during a recent trip to the store in London, numerous store-level employees mentioned to us they were aware that Whole Foods' is looking for sites throughout the UK. One store team member said he was thinking about quiting because of a lack of advancement opportunities at the single store. However, he said he was told by a higher up not to worry because the grocer was going to be opening many stores in the next few years, and that there would be multiple opportunities soon.

Whole Foods' target customer in the UK is similar to its target shopper at home in the U.S. College educated, and post undergraduate degree-holders, are key. Upper income is a key demographic as well. Additionally, ethical consumers, "greens" and health conscious shoppers round out Whole Foods' key variables when looking for neighborhoods to locate it new United Kingdom stores in.

There are plenty such neighborhoods within a one hour's drive of central London. And many more throughout the United Kingdom. Further, London is arguably the current global capital of ethical and green or sustainable consumerism, which fits Whole Foods' retailing and merchandising philosophy extremely well.

UK upscale supermarket chains Waitrose and the Co-op (and Sainsbury's in part) are currently the primary grocers of choice for London Metro region consumers who fit the Whole Foods' demographic profile.

And, of course, there are the Whole Foods'-owned Fresh & Wild stores already in the area. Those stores are much smaller than a typical Whole Foods' banner store, and as a result carry a much smaller selection of natural and organic products. They also don't have the extensive in-store prepared foods venues and other special lifestyle features that a 45,000 -to- 80,000 square foot Whole Foods' banner store does. They do have a nickname similar to Whole Foods' "Whole Paycheck" in the U.S. though. The British wags call the stores "Fresh & Wildly Expensive."

Our UK industry sources have told us a number of sites in Metro London and elsewhere in the UK have been rumoured to be high on the short list of possible locations for new Whole Foods' banner stores. These potential sites include: numerous locations in the city of London, the dockland banking district's Canary Wharf, Manchester, Bristol and Edinburgh.

We, nor do our UK sources, know the number of Whole Foods' banner stores the grocer wants to open in the United Kingdom. What we do know though is Whole Foods Market, Inc. knows it needs a critical mass of stores in the region in order to do its brand of merchandising and promotion. As such, we believe the supernatural retailer will embark on a multi-year new store development program in the UK--beginning first with opening new stores and filling out in the London Metropolitan region.

Along with that strategy, we see the grocer opening stores at the same time--but at just a slightly slower pace--in key parts of the UK that fit its education, income, environmental and ethical consumer demographic variables best. In other words, the UK is no longer a mere retail test for Whole Foods Market, Inc.. Rather, it is along with Canada becoming nearly as important corporately as the grocer's U.S. expansion plans are.

Whole Foods' to open up to 30 new stores in U.S. in 2009

Speaking of those U.S. expansion plans. Whole Foods' announced today in a filing with the U.S. Securities and Exchange Commission that it plans to build and open between 25 -to- 30 new stores in the U.S. next year. That's a new store opening somewhere in the U.S. at a rate higher than one every other week.

The 29-30 new stores will all likely be no smaller than 45,000 square feet (except in special cases like urban neighborhoods where there are geographical limitations of course) and as big as 80,000 square feet. The new stores also will be located both in regions like Texas and the west and east coasts, where Whole Foods' already has a substantial number of stores, and in new areas of the U.S. where the grocer has little or no current retail presence.

Whole Foods also is set to open its Whole Foods Express small-format, convenience-oriented prototype store in a renovated former Wild Oats market building in Boulder, Colorado later this year. If that test--and format--proves successful, we could see the supernatural grocer join the growing small-format grocery store revolution in the U.S. with additional Express stores in other parts of the country perhaps even beginning next year.

From what we've been able to learn thus far, the Whole Foods Express format will be about 15,000 square feet -to- 20,000 square feet in size. It will feature a limited selection of natural and organic grocery products, fresh produce and meats and other perishables.

A key feature of the Express store will be an extensive selection of natural, organic, healthy and tasty ready-to-eat and ready-to heat prepared foods. We also expect to see some sort of an in store cafe in the Express store, as well as a small version of a Whole Foods-style in-store Bistro food service venue.