Any new Whole Foods Markets in New York City are going to be a Whole Lot Smaller.
The company that made a big mark on Manhattan four years ago with a sprawling 60,000-square-foot Columbus Circle store has dramatically slashed its ideal store size for new locations to 25,000 to 35,000 square feet, according to Northwest Atlantic Partners’ executive vice president Chase Welles, the grocer’s New York-based broker.
Note: Correction appended.
The $8 billion Austin, Texas-based supermarket chain, which has been struggling, is also negotiating with developers to find a partner that would handle construction on its site along Brooklyn’s Gowanus Canal at Third Avenue and 3rd Street. After shelling out $4.9 million for the 2.1-acre parcel in 2005, Whole Foods has been bedeviled by toxins at the site as well as public spats over a landmarked structure there.
Welles said the environmental cleanup is now complete, but the wet ground there makes construction overly complex. The grocer’s goal for the long-delayed project is now to pay market rent on a retail store, most likely as part of a larger retail development.
“We are looking for a development partner … someone who will build on the site so we can end up with a Whole Foods there and not end up building it ourselves,” Welles said.
“It’s not in Whole Foods’ core competency to be a real estate developer,” Welles added, noting that the company was in talks with several well-known developers.
Whole Foods — which has seen both its earnings and its stock price take a hit as the economy has faltered — is one of several national and local natural and high-end grocers trying to forge ahead in New York as the economy collapses. Both Trader Joe’s and local player Brooklyn Khim’s Millennium Market recently opened stores or committed to local deals — though that was before the economy dramatically worsened.
Like Whole Foods, some grocers are reacting by slowing new store openings and scaling down prototypes. Others, including Khim’s, are focusing on a back-to-basics approach of clean stores with fresh products.
All are counting on continued demand among New Yorkers for healthy foods and increasing numbers of consumers shunning restaurants to save money.
“We think people are going to cook more, and it’s good for the market,” said Khim’s Millennium owner Charlie Khim, who with his brother runs half a dozen natural foods stores in and around Williamsburg and Bushwick, and just inked another deal.
However, with food prices skyrocketing, and 165,000 people projected to join the ranks of New York’s unemployed in the next two years, strapped consumers may end up skimping on organic foods, which can cost twice as much as non-organic products.
Whole Foods already felt the pinch of consumer cutbacks earlier this year as the economy began to weaken. It has been trying to shed its “Whole Paycheck” reputation with more bargains and consumer education efforts, but so far, investors and consumers are skeptical. The firm’s shares are down 70 percent since last year, while same-store sales have dwindled.
“I’ve been trying to keep up with the organic foods, but it’s difficult and pricey, and my checkbook can’t do it too often,” complained one blogger recently on a parents’ forum, summing up the barriers these retailers face.
Despite the risks, building owners are still interested in renting to natural and organic markets, but are seeking established operators with good credit.
Khim’s Millennium quickly completed a deal this fall at 460 Driggs Avenue in Williamsburg when the economy was already in turmoil, and plans to open next month. According to Winick Realty Group director Amanda Scoblick, who represented both sides in the transaction, the landlord was receptive because he shopped at Khim’s other locations. Khim signed a 15-year lease for 5,000 square feet.
“This operator has a lot of experience and a long track record of nice build-outs,” said Scoblick. “They know the market, and the landlord is comfortable they are not taking a gamble.”
Both Whole Foods and Trader Joe’s have logged success recently in New York. The privately held Trader Joe’s, which reportedly posted $6.5 billion in revenue last year, has pulled in crowds of shoppers to its Brooklyn location since it opened several weeks ago at Court Street and Atlantic Avenue. And Whole Foods’ Tribeca store, which debuted in July, logged the best opening day of any of the company’s stores in New York City.
Those banner openings, however, represent deals planned long before the economic slowdown. This year, Whole Foods reacted to slowing sales and profits by scaling back its expansion.
It is now scheduled to open just 15 new locations nationally in 2009, down from the 25 to 30 stores it had been planning to open. The company could scale back further due to the economic meltdown.
Whole Foods has several local leases signed or in the works, including one at 808 Columbus Avenue; Welles insisted Whole Foods wants to proceed with these deals.
“[They] haven’t backed out of any,” he said.
In an August conference call with investors, Whole Foods CEO John Mackey acknowledged his company had a game plan for greater economic weakness, but declined to elaborate. In a fourth-quarter conference call slated for Nov. 5, he will likely be grilled on these details.
In the meantime, Whole Foods is grappling with the issue at the center of natural/organic markets’ ability to survive in an extended economic downturn: convincing consumers that organic and budget eating can go together.
“Know just how to get the most bang for your buck
without sacrificing the benefits of natural and organic foods” by turning to the experts at Whole Foods, the company writes in a relentlessly cheerful new flyer emphasizing bargains.