WHOLE FOODS WILL WIDEN USE OF LOW PRICES

ELLIOT ZWIEBACH

AUSTIN, Texas -- Whole Foods Market here plans to use the low-price strategy that has proved so successful in Boulder, Colo., in other established natural-food markets.

John Mackey, chairman and chief executive officer, said the company will employ a similar pricing strategy in stores in Santa Fe, N.M., and Denver, "and other areas with well-developed, sophisticated natural-foods shoppers who are used to paying higher prices and who therefore recognize value.

"However, it wouldn't pay to give margin away in a new market where consumers would not recognize the good values."

Mackey said the store Whole Foods opened in late February in Boulder "is seeing record sales, and it's already very profitable." Mackey didn't describe the level of price-cutting at the store, but market reports have estimated prices at 20% below Whole Foods' other stores.

Mackey made his remarks during a conference call with securities analysts to discuss financial results for the third quarter and nine months ended July 5.

The company said net income increased 34% to $11.1 million for the 12-week quarter and 64% to $35.3 million for the 40 weeks.

Sales were up 21% to $331 million for the quarter and 26% to $1.1 billion for the year to date, while same-store sales rose 9.5% for the quarter and 11.8% for the nine-month period.

Mackey said Whole Foods is achieving those same-store sales results "against much harder comparisons than a year ago," and he said he doubted that "any other food retailer is doing those kinds of comps."

He said sales comparisons for the first four weeks of the fourth quarter were running above 9%, and he said he expects fourth-quarter comps to come in at 8% to 10%.

Peter Roy, president, said Whole Foods plans to acquire a 381,000-square-foot warehouse in Thornton, Colo., that it will use to consolidate its Amrion distribution and Allegro coffee manufacturing functions into one location. He said the company expects to complete the deal within 60 days.

Earlier this year Whole Foods said it had purchased land in Westminster, Colo., to build a new distribution facility. However, the company decided that acquiring an existing warehouse "was less risky and more timely," Roy said. He said Whole Foods will begin distributing products from the new facility by the end of the year.

He said the value of the land purchased in Westminster has already increased "by 20% to 30% above what we paid, and it's for sale now and we expect to make a profit on it." Mackey also discussed the chain's loyalty-card program, which awards consumers one point for every $1 spent, "and once they've attained 600 points, they earn a 10% discount in their one favored department for the balance of the year.

"We've tracked 1,500 customers over 66 weeks and found we're getting a 7% increase in spending," Mackey said.

He said the program has increased the average basket size by 100%, "and 50% higher still with customers who've earned the 10% discount.

"We think this program is far superior to what most food retailers offer, which give consumers discounts that they would have gotten anyway before the card existed. But we actually give our best customers additional rewards."

In response to a question, he said the 10% discount in one favored department translates to a 2% discount overall.

The program was introduced at four Whole Foods stores in Philadelphia in 1997 and expanded to 17 Mid-Atlantic locations last January; Mackey said it will be rolled out to five Midwest stores in the fall, with additional chainwide expansion over the next few years. The company opened three new stores and a replacement unit during the third quarter. Mackey said the company plans one more opening this year -- in Coral Springs, Fla. Plans for 1999 include stores in Santa Fe, N.M.; Dallas; Atlanta; Jenkintown, Pa.; Chicago; Woodland Hills, Calif.; Edgewater, N.J.; Seattle; and Providence, R.I., plus one replacement store in Aventura, Fla.

He said the company plans to open stores in 2000 in Philadelphia; Arlington, Texas; Ridgewood, N.J.; Denver; and Detroit, and replacement stores in Fort Lauderdale, Fla.; Houston; Cambridge, Mass.; and Deerfield, Ill.