WHOLE FOODS TO CONTINUE AGGRESSIVE GROWTH PLAN

DAVID GHITELMAN

AUSTIN, Texas -- Whole Foods Market here said last week it will continue its ambitious pace of expansion over the next 18 months.

The country's largest chain of natural-food supermarkets has already opened 10 units this year. It said it will open four additional stores before the end of 1999, 10 stores in the first half of 2000 and five to 10 stores in the second half of next year. In 1998, the company opened or acquired 15 stores.

Whole Foods' announcement comes just one week after its principal competitor, Wild Oats Markets, Boulder, Colo., reported it had purchased Henry's Marketplace, an 11-store chain in San Diego. Wild Oats also said it plans to open six additional stores by the end of the year and 13 new stores as well as three relocations in 2000.

Wild Oats operates 78 stores in 20 states and Canada, Whole Foods operates 96 stores in 20 states and the District of Columbia, and industry observers have commented on the increasingly intense rivalry between the chains.

"There is a lot of ego on both sides," Gary Giblen, analyst with Banc of America Securities, New York, told SN.

Whole Foods also said sales for the 12-week quarter ended July 4 rose 14% to $377.6 million, a company record. Comparable-store sales increased 8.5%.

John Mackey, Whole Foods chairman and chief executive officer, said in a conference call with investment analysts that some of this growth is a result of store acquisitions by the company in the last quarter, but most of it is a result of improved management.

"We're getting better," he said. "We're not raising prices, we're managing categories better, and we're buying better."

Whole Foods started as a single, 11,000-square-foot health-food store here in 1980. Just two years ago, it was only opening eight new units a year. Currently, the company has 31 stores in development, with store size for these new units averaging 35,000 square feet.

Sandy Raju, an analyst with Merrill Lynch, New York, told SN Whole Foods should be able to expand successfully at this pace.

"The company has a great concept," she added. "It has managed to sustain high-single-digit increases in comparable-store sales. They have all the right ingredients. It's just a question of how they put them together."

Most of the new stores, Raju also said, will probably be new stores, not acquisitions. "There are not that many large natural-food operators" left for Whole Foods to acquire, she said.

Whole Foods itself is not a likely candidate for a takeover, she added. "Natural-food and gourmet stores are expensive to build and expensive to run," she said.

The company's stores would be particularly difficult for a large chain to manage successfully, according to Raju, because "Whole Foods gives its store owners and regional managers a lot of autonomy." Other topics covered in the conference call included:

A rethinking of the company's Web site. Mackey said Whole Foods plans to announce a "considerably more aggressive" Internet marketing strategy in mid-September. He said the company's present e-commerce sales are "insignificant."

The acquisition of the four-unit, Boston-area Nature's Heartland chain in March. The company said about 2% of its sales increase was due to this acquisition. It expected Nature's Heartland to be fully integrated into Whole Foods by spring 2001.

The declining sales of Whole Foods' mail-order vitamins. "If you look at the nutritional-supplement business, you'll see everyone has been hit pretty hard," said Mackey. He added the company's revamped Web site might help spur vitamin sales.

The ability of the company to expand in a time of tight labor markets. "It's hard to get and retain good people," said Mackey. "But we have been named by Fortune magazine as one of the 100 best companies to work for. The tight labor market is nothing we haven't been able to deal with so far, and labor costs are under control."