Texas Real Estate Business

MAY 2016

Texas Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in Texas.

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46 • May 2016 • Texas Real Estate Business www.REBusinessOnline.com meet the company's industry-leading standards for quality." "The 365 by Whole Foods stores will be streamlined, smaller stores with a tighter selection aimed at customers who are convenience-oriented and price-conscious," says Marshall Mills, president and CEO of Dallas-based brokerage and management frm The Weitzman Group. "Without a doubt, this is a signifcant percentage of gro- cery shoppers. It makes sense that Whole Foods would design a store to aim squarely at this demographic, rather than try a lot of modifcations to the upscale, experiential stores they operate now." Tapping New Potential The frst 365 by Whole Foods loca- tion will open this month in the Los Angeles neighborhood of Silver Lake Two more stores will open this year in Bellevue, Wash., and Portland, Ore., and up to 10 are expected to open in 2017. Overall, Whole Foods has signed 13 leases for 365 locations, according to MarketWatch. The company expects to open most 365 by Whole Foods Market locations in markets where it already has a presence with its full line Whole Foods Market stores. "The 365 by Whole Foods stores will likely be built in a lot of mixed- use developments, with retail on the ground foor and multifamily above," says Gottschalk. "You'll fnd these in urban areas, like Austin, Houston and Dallas." 365 by Whole Foods stores in Texas are planned in Houston, along with the Austin suburb of Cedar Park. The Houston location will open near the Houston Heights neighborhood, where the cost of a two-bedroom apartment averages $2,000 per month and the median household income is $63,500, according to MarketWatch. "Extremely strong levels of mul- tifamily residential development in our urban cores is leading retailers, including grocers, to secure spaces in dense trade areas," says Mills. "This often requires redevelopment, going into street-level retail in mixed-use projects or going vertical." Whole Foods declined an inter- view request for this article, but has named Jef Turnas, a 20-year veteran of the company, as president of 365 by Whole Foods Mar- ket. "We are excited to introduce 365 by Whole Foods Mar- ket to bring healthy foods to even more communities with a fresh, quality- meets-value shop- ping experience that's fun and con- venient," Turnas said in a company statement. "A mod- ern, streamlined design with innova- tive technology and a carefully curat- ed product mix will ofer an efcient and rewarding way to grocery shop." Whole Foods frst announced the 365 by Whole Foods concept in June 2015, saying the new prototype would be "hip, cool and tech-oriented." Whole Foods has struggled over the past year as its stock price (NAS- DAQ: WFM) fell from $50.21 on April 15, 2015 to $29.62 on April 12, 2016. Same-store sales also declined 1.8 percent between the frst quarter of 2015 and 2016, according to the com- pany. Increased competition has come from lower-priced alternatives such as Trader Joe's and Sprouts, which the 365 by Whole Foods stores are antici- pated to compete with closely. "365 by Whole Foods will ofer a more afordable product mix as compared to their existing fagship stores," says Peter Jacobsen, senior vice president of Fort Worth-based The Woodmont Co. "From a product ofering and price point perspective, it appears the 365 stores will compete most directly with existing grocers Trader Joe's and Sprouts. The new brand appears to be targeting the millen- nial demographic, so it will likely look to many sub-mar- kets where Trader Joe's or Sprouts has developed or would like to develop." Trader Joe's operates 11 locations in Texas, with eight more planned, ac- cording to the company's website. One company that has struggled in the grocery segment lately is Walmart, which recently announced the closing of 269 stores, including fve Walmart Neighborhood Market stores in Texas. "Walmart was paying healthy rents on their Neighborhood Market stores. They have a low price point and thin margins so Walmart needs to sell big volumes to be proftable," says Jacob- sen. "Most of the stores recently closed seemed to have been miss-matched for the neighborhood." Jacobsen says some of the closed Neighborhood Market stores could become candidates for 365 by Whole Foods locations at some point. Targeting Millennials Many of the features of 365 by Whole Foods Market are targeted at millennials, the generation born be- tween 1980 and 1999. Features at 365 by Whole Foods will include online ordering and delivery, and the company made headlines in February with news that 365 stores could even include on-site tattoo par- lors. Other potential vendors inside the stores — which would be inde- pendent businesses also likely tar- geted at millennials — could include food vendors, lifestyle brands, record shops and services. A statement from Whole Foods says it is seeking "to partner with startup as well as established brands across a va- riety of categories to help enhance the 365 by Whole Foods experience. We're looking for friends with a strong ofer- ing and personality that can stand out in our space." The company says 365 by Whole Foods aims "to be good for your body, your budget, your lifestyle and the planet." The 365 by Whole Foods will also be smaller, about 14,000 square feet, compared to the average Whole Foods Market size of 38,000 square feet. "Whole Foods is looking to expand their footprint in more dense, urban areas," says Gottschalk. "For custom- ers, it will be easier to get what they want quickly. Many millennials tend to be health conscious, which will be another appeal." Jacobsen adds that the company may build 365 by Whole Foods stores in suburban markets that have a younger demographic, citing Cedar Park as an example. He also expects the new brand will be a success. "This will be a great addition to the lineup of grocery concepts in Texas," he says. "I'm sure Whole Foods will do as fne a job with the 365 by Whole Foods brand as they've done with their fagship stores, and it will be a great success amongst their targeted consumers." n WHOLE FOODS HEATS UP GROCERY SECTOR GROCERY from page 1 Adam Gottschalk Vitorino Group Marshall Mills The Weitzman Group Peter Jacobsen The Woodmont Co. One of the frst Texas locations for 365 by Whole Foods Market will be in the Austin suburb of Cedar Park. The store will open in a 370,000-square-foot retail project known as The Parke. The grand opening is scheduled for the second quarter of 2017. (At left) 365 by Whole Foods Market is expected to compete with chains like Trader Joe's, which operates 11 Texas locations including this one in San Antonio. (At right) The frst 365 location opens May 25 in the Los Angeles neighborhood of Silver Lake.

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