After a Slow Start, Organic Grocer Whole Foods Finding Traction in London

LONDON — Pop starlet Natalie Appleton. Comedian Ruby Wax. TV broadcaster Mariella Frostrup. In London, these are famous faces, and they've all been spotted shopping recently at the Whole Foods Market on the upscale Kensington High Street.

It's a small sign that six months after opening its first store in Europe, the Austin-based natural foods grocery chain is making progress toward winning over British consumers.

After a summer in which the central London store sometimes seemed deserted, some analysts say the store is doing better.

"The store certainly seems to be steadily gathering momentum," said Bryan Roberts, a retail analyst at the Planet Retail consulting firm here.

"I was initially concerned after a few weeks that the site would turn out to be something of a white elephant, as the supermarket was virtually empty during the week," he said. "But recent visits have confirmed that the store is gaining traction in terms of shopper numbers, and business surely will be brisk in the weeks before Christmas."

A lot is riding on the success of the store, Whole Foods' first outside the United States and a testing ground for future expansion in the United Kingdom and Europe.

The initiative comes at a crucial time for the company, which also bought out its biggest U.S. competitor this year as it seeks to maintain a healthy rate of revenue growth. Its shares are trading at about $42, about $3 below where they were in January.

Whole Foods officials say the store is performing as expected, although they acknowledge periods of slow traffic. And there are clear signs that overseas expansion already is in the works.

On a recent conference call with analysts, CEO John Mackey said the company hoped to announce a second U.K. store in the second half of 2008.

There have been whispers that the chain is looking in the affluent Canary Wharf business district on the Thames River. Whole Foods officials said the area has been looked at, but that no leases have been signed.

In another sign that expansion plans are on track, a new vice president of real estate based in London, Nina Shores, begins work in January.

"Basically, London is doing very well for us," Mackey said on the call with analysts. "It is an expensive store; we did put a lot of capital into it. We are looking for it to be a very long-term payoff; we signed a really long-term lease there."

"The store is performing; the sales are high, quite high," he added.

Whole Foods' London store — 80,000 square feet of space in a renovated 19th century department store — opened June 6 to a blaze of publicity and heavy crowds.

British reviewers called it the most gorgeous grocery store they'd ever seen, and praised the wide selection of products, including 20 types of tomatoes, 40 varieties of sausages, and more than 1,000 different wines.

Whole Foods went to great lengths to identify local suppliers and tailor the store to British tastes, with features such as an organic pub, a Mediterranean food bar and a spot where customers can mix their own muesli.

The company indicated it could open as many as 40 stores in Britain and eventually in continental Europe, where the appetite for organic products is strong.

But within a few weeks of the opening, the Mail on Sunday was asking if Whole Foods already had gone stale. "The crowds have disappeared," wrote the newspaper.

Rick Bonin, vice president of Whole Foods' United Kingdom operation, said the the store could be luring more customers early in the week.

"My frustration is that we could be doing better drawing the run-in-and-run-out crowds on Mondays, Tuesdays and Wednesdays," he said.

Bonin wouldn't discuss sales figures, but said the store is "right about where we thought it would be."

He said specialty products such as beer, wine and cheese have sold well, while fresh seafood has been tougher to market. He said an emphasis on home deliveries has paid off, with more than 200 being made every week.

Without elaborating, Bonin said that the store plans to rework its design in January in order to better attract mothers with small children, who are most likely to pop in early in the week. The store is also moving merchandise so that items such as milk are closer to the entrance.

There are almost daily events, everything from beer tastings to book signings to gingerbread-house-decorating classes for children.

On a recent Sunday, the in-house bakery was jammed with people ogling a vast array of tarts, brownies, and white meringues the size of small Frisbees.

"There's no question it's a pretty store," said shopper Nasir Feysal. "I like to come in and just look around at everything. Sometimes I buy something, and sometimes I don't."

Allyson Stewart-Allen, who heads International Marketing Partners, a cross-cultural consulting firm in London, said she believes Whole Foods is gaining traction among "British consumers who expect better."

"It's doing well simply because the in-store format is just so much better than the format in British grocery stores," she said. "It continues to look better than I thought it would look, and the people I know who go there are pleased."

Stewart-Allen said the self-service areas also are popular. "There are areas where you can do things like grind your own peanut butter, and the people really seem to like this," she said.

Despite talk of improving customer numbers, some analysts are skeptical.

Richard Perks, a retail analyst at Mintel, a consulting firm in London, said that the store was virtually empty during one midweek afternoon.

"Reading the tea leaves, I'd say that what evidence there is suggests that the store is not finding it easy," he said.

Roberts said the retailer should step up its advertising to atrtract shoppers who live outside the neighborhood. In the United States, Whole Foods does little advertising, although it has used it more often in some very competitive markets.

"Whole Foods has placed a few ads for marketing staff in recent weeks, so hopefully the store's visibility and popularity will increase with a bit of marketing spend behind it," Roberts said.