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MarketWatch reports that "an analysis of the locations selected for the first 365 by Whole Foods Market Inc. stores shows overlap with not just other grocers, but with Whole Foods Market Inc. itself, raising concerns about cannibalization and competition, according to Oppenheimer."

The story quotes Oppenheimer as saying that "in our investor conversations, sentiment remains quite negative toward the potential success of this concept ... Cannibalization and the risks associated with creating a new concept from scratch with limited testing remain our primary concerns, along with strong incumbent chains including Sprouts Farmers Market and Trader Joe’s in the value space."

Oppenheimer says that "the biggest overlap was with Trader Joe’s, the chain known for its value-conscious private label produce and Hawaiian-shirt-wearing staffers. Ten of the first 13 365 locations are within five miles of a Trader Joe’s. Six 365 stores are just a mile from Trader Joe’s. Seven 365 by Whole Foods Market stores are within five miles of Sprouts Farmers Market, and six are within five miles of a Kroger..."

While the Oppenheimer folks concede that the 365 concept could make Whole Foods more competitive in certain markets and circumstances, “in an ideal scenario we would want the chain to test the concept before going full steam ahead with the launch. We suspect the management team is taking a more aggressive approach given a rapidly changing environment and the desire to retain its market leadership.”
KC's View:
It is fairly obvious that Whole Foods is taking this approach with 365 because of the competitive environment; I have to wonder to what degree it is doing so also because of concerns about its stock price and image in the investor community.

I know from some Whole Foods folks that there is not unanimity within the organization about 365; there is a sense in some quarters that many of the moves that Whole Foods has been making lately take it away from the things that make it different, as opposed to building on the things that make it successful.

We're not going to know how 365 works until they actually begin opening them. But if the early criticisms are accurate, this could get ugly quickly, because it rarely makes sense to play the other guy's game.