Whole Foods to open chain for Millennials

Hadley Malcolm | USA TODAY

Show Caption Hide Caption Whole foods plans lower cost chain for Millennials Whole Foods (WFM) plans a new, lower cost chain of grocery stores. Company CEO John Mackey says they will open a sister chain of smaller stores aimed at younger shoppers.

Whole Foods (WFM) is trying to change its reputation as a grocery with fresh food at high prices by opening a separate chain of lower-priced stores aimed at Millennials.

The new stores will cater to a younger generation of shoppers who are still interested in organic and natural foods but want a different shopping experience, executives said.

The company made the announcement Wednesday as part of its second-quarter earnings release. Whole Foods shares fell after the earnings announcement missed analyst expectations and continued to trend down Thursday, slumping nearly 10% to $43.07.

Whole Foods, known for its organic, natural food selection, clean stores and large displays of bright, fresh produce, has been losing traction recently as organic and fresh foods have become more popular at mainstream grocery chains.

The company also early on earned the nickname "Whole Paycheck" for how expensive it can be to shop there. The new format will help broaden Whole Foods' appeal and diversify its brand, pulling younger shoppers in particular who are attracted to Whole Foods' social and ethical ethos but turned off by the price of the high-end food, says Neil Saunders, CEO of retail consultancy Conlumino.

"(Whole Foods) still has a problem on price," he says, and "(Millennials) just don't have the disposable income to make that their destination of choice for grocery shopping."

Executives said the new chain will expand the company's reach and isn't expected to pull sales away from Whole Foods stores. Co-CEO Walter Robb said the stores will have "modern, streamlined design, innovative technology and a curated selection." And while they'll be aimed at Millennials, Robb said the stores will appeal "to anyone looking for high-quality fresh food at great prices."

Whole Foods is already negotiating leases for the new format, and the stores will start opening next year. But executives declined to give details about where and how many, saying more information would come by Labor Day.

"This marketplace continues to grow and explode, and I think we think by creating a second growth vehicle for our company, we can broaden the accessibility to fresh, healthy foods," Robb said on a call with news media.

The new chain follows other retail giants like Walmart and Target, which have been opening smaller, convenience-focused stores in urban markets that have fewer products and are heavily focused on fresh food and snacks. The new Whole Foods stores will likely compete in the same space, Saunders says, though will stand out because the brand has already built a reputation for high-quality food. Still, Millennials want convenience.

"They're much more into piecemeal shopping and buying on the go," Saunders says.

Whole Foods has more than 400 stores in the U.S., Canada and the United Kingdom, and has plans to open at least 100 more.

The company reported sales at stores open at least a year increased 3.6%, below analyst expectations for an increase of 5.3%. Total sales increased 10% to $3.65 billion. But analysts targeted sales of $3.71 billion.

Shoppers weighed in on the announcement on Twitter: