AUSTIN, Texas -- Whole Foods Market here plans to fuel its ambitious expansion goal -- to have 100 stores and $1.5 billion in sales by the year 2000 -- through new stores and acquisitions, president Peter Roy said.
The 46-store natural-foods retailer currently is seeking additional funds to finance the growth plan, Whole Foods officials told 250 shareholders and employees at the company's annual meeting here last week.
Whole Foods hopes to raise $25 million to $40 million through a private placement, according to Glenda Flanagan,
chief financial officer. It already has drawn on $55 million of its $75 million line of credit, she said.
John Mackey, chairman and chief executive officer, stressed that now is the time for Whole Foods to expand, before others can get a foothold in its retail niche and market areas.
"It's important to establish dominance," Mackey said. "If we do, it's unlikely that competitors like Fresh Fields and Wild Oats can succeed."
In recent years, he noted, other natural-foods chains have expanded and traditional supermarkets have entered the segment, such as H.E. Butt's Central Market in Austin and King Kullen's Wild by Nature in East Setauket, N.Y.
"We don't mind competition as long as we have overwhelming firepower," Mackey said.
Half of Whole Foods' growth has been through the acquisition of existing stores, according to Roy. The company considered buying Boulder, Colo.-based Wild Oats Markets, one of its largest competitors, but the price was too high, he said. Wild Oats, a 22-store chain, has since acquired Alfalfa's Market, Boulder, Colo.
Whole Foods will focus on expanding into major markets where it can get the highest return on its investment. They include San Francisco, Chicago, Philadelphia and New York City. Though it has no definite plans, Whole Foods also is eyeing the Northwest, but it won't go into that market until it can find a desirable location, Roy said.
In 1997, Whole Foods plans to open a store in Manhattan near the 59th Street Bridge. Other stores are under development in Madison, Wis.; Vienna, Va.; Evanston, Ill.; and West Los Angeles, Cupertino, San Rafael, Mission Viejo, Hillcrest and Newport Beach, Calif. They are slated to open this year or next year.
Whole Foods has expanded rapidly since going public four years ago. Since 1991, it has gone from 10 stores to 46, which operate under the names Whole Foods Market, Bread & Circus, Mrs. Gooch's, Wellspring Grocery, Unicorn and Oak Street Market.
Rapid growth, however, has been costly for the company, dragging down earnings. Most new stores lose money during their first year in business and don't meet their profit potential until their fourth year, Mackey said.
The company also has had problems in southern California, where lagging sales and profits forced it to reorganize its Mrs. Gooch's division in January. Sales growth and earnings at the nine Mrs. Gooch's stores were the lowest companywide, and their overhead was 75% higher than in Whole Foods' other divisions. The company cut half of Mrs. Gooch's administrative positions, slicing overhead by $1.5 million.
Although Whole Foods' revenues grew from $401.7 million to $496.4 million between 1994 and 1995, a 24% increase, earnings dropped from $8.6 million to $8.2 million in that time.
Whole Foods executives believe their strategy of opening bigger stores -- 30,000 to 40,000 square feet vs. the average 22,000-square-foot units -- and expanding into new markets is paying off. Mackey said he expects the company's new stores to generate annual sales of $15 million or more each.
Although some of the company's new stores have reduced sales at existing stores, Mackey called it "smart cannibalization.
"We cannibalize before our competition can do it and increase our market share in the entire area," he said.
New stores opened this year are exceeding expectations, including units in Arlington, Va., and the Georgetown section of Washington. "These stores have been two of the best, if not the best, stores we've ever opened," Mackey said. With 10 Fresh Fields stores nearby, it was the first time Whole Foods entered a market where there was established competition. Other stores were opened this year in Durham, N.C.; the Lakeview section of Chicago; and Sherman Oaks, Calif.
