Amazon is putting the brakes on Whole Foods’ bargain offshoot 365 stores, in an effort to consolidate its grocery retail businesses. With e-commerce grocery sales carried out through AmazonFresh and Amazon Prime Now, physical locations were intended to supplement the digital offerings. Without a clear audience in mind, however, scaling prospects for 365 were unclear.
In an email earlier this month, CEO John Mackey reportedly told employees that the company won’t open any new 365-format stores, though the dozen existing 365 stores will remain open. Mackey suggested the company made the decision because declining prices at Whole Foods overall make the distinction between the two brands less relevant. Industry watchers suggest 365 never really took off, and the decision to wind down the brand is part of an effort to re-focus Amazon’s grocery business.
“ was about coming up with a more value-oriented format pre-Amazon acquisition,” said Bob Goldin, senior partner at food consultancy Pentallect. Under Amazon, Whole Foods has been working to lower prices and increase the sales of the 365 brand across the company.
Whole Foods did not respond to requests for comment. Blain Bradley, a former regional marketer for three New York Whole Foods locations, said the 365 store concept didn’t catch on because it diluted the overall brand proposition.
“Consumers didn’t want Whole Foods to become a big-box store, and there was too much of a loss of culture in the 365 brand,” said Bradley, who was part of a team that helped launch the company’s Brooklyn 365 store in January 2018. “With 365, [Whole Foods was] trying to market it as a millennial-friendly store. A good portion of their shoppers in the standard storefronts already were millennials more concerned with buying local products, no matter the cost.”
Whole Foods’ core locations already had a large assortment of 365-brand products, along with local, niche brands customers wanted, he added. It’s a nod to Amazon’s larger strategy to continue to grow grocery sales, one in which 365 doesn’t quite fit.
“They need to have a unified grocery strategy — neither Whole Foods nor Amazon has been winning grocery,” said Forrester retail analyst Sucharita Kodali. “It doesn’t look like 365 was this great winner that was going to become this new challenger brand, and Amazon Go seems to have traction.”
Meanwhile, doling out discounts to a wider group of Prime members shopping at Whole Foods’ locations gives Amazon a wider reach than those who would choose to shop at 365-brand stores.
“We put so much energy into the opening for Fort Greene [Brooklyn 365 store], but we didn’t address the real issue that nothing about the brand is budget-friendly, and Amazon sees more value in rolling out social media and Prime-based loyalty perks in the 400-plus stores in the country than the handful of 365 stores,” Bradley said.
Whole Foods’ 365 stores were launched in 2016, over a year before Whole Foods’ acquisition by Amazon. The rationale was to appeal to price-conscious customers who cared about quality and transparency. But with 365, Whole Foods was treading an uncomfortable middle ground between value grocery chains like Aldi, Kroger and Trader Joe’s and upmarket niche food stores. In addition, the store layouts lacked the distinct, localized flavor many standard Whole Foods stores have, making them less appealing to many customers.
“I don’t think that the store layouts and designs [of 365 stores] had the same feel and culture that the standard stores do,” said Bradley. “You didn’t get your full-service butcher or fishmonger, but that was understood from the beginning. It was really unclear who the target consumer would be.”
Taking on big-box chains has also proven to be a bigger challenge than anticipated; although 365-brand items are cheaper than other brands at Whole Foods, their product pricing still doesn’t favorably compare to offerings from more affordable store chains.
“Trader Joe’s and Aldi are extremely formidable with winning formulas; Trader Joe’s is basically 80 percent Trader Joe’s private label items,” said Goldin. “I wouldn’t want to compete against them.”