Burgess COMMENTARY

Peter Burgess

How Whole Foods is weathering its most pivotal moment in history

365 Reuters Whole Foods is undergoing the biggest change in the company's history.

In May, Whole Foods opened the first location of its new chain, 365 by Whole Foods Market, intended to target millennials by changing much of what defines the Whole Foods brand. Instead of Whole Foods' traditional upscale look, 365 is no-frills and high-tech, allowing the new chain to sell products at less expensive prices.

It's a bold departure for Whole Foods, demonstrating the willingness of co-CEOs John Mackey and Walter Robb to evolve the brand to keep up with changing American tastes.

John Mackey Whole Foods co-CEO and cofounder, John Mackey AP

This willingness to embrace change is even more remarkable with the understanding of just how many changes Mackey and Robb have seen over their years of work at Whole Foods.

Mackey opened the first Whole Foods Market in 1980 in Austin, Texas, along with three other local grocery entrepreneurs. At the time, he was just 27 years old.

In the following 36 years, Mackey helped grow Whole Foods from a single location with just 19 employees to a chain with 450 locations locations and 86,000 employees. Robb joined Whole Foods in 1991 and was appointed co-CEO in 2010.

Whole foods Walter Robb Walter Robb Rebecca Cook/Reuters

While once Whole Foods was on the cutting edge of organic and natural products, today discount retailers such as Kroger, Walmart, and Target are cutting into the business by offering lower prices and better deals.

'You're looking at a tectonic shift in the marketplace where all the growth in food has moved in the direction [of natural and organic products], so you have massive competitive changes,' Robb told the Wall Street Journal in February. 'You have a big generational change. You have huge change in technology. Everybody's into this space because they realize this is what customers want.'

Whole Foods AP

Whole Food's same-store sales, or sales at stores open at least a year, fell 3% in the last quarter, marking the third straight quarter of decline after 23 consecutive quarters of positive results.

However, some of Whole Foods' biggest efforts to keep up with the competition are just now hitting the marketplace.

The most notable is the debut of 365 by Whole Foods Market, designed to meet shoppers' need with lower prices, smaller, more convenient stores, and a more efficient business model. The first of the stores opened in Los Angeles in May, with plans to open 10 more locations in the next year.

365 365 locations have a much more minimalist look than traditional Whole Foods stores Reuters

'Food shopping is evolving around convenience and price,' Jeff Turnas, president of 365 by Whole Foods Market, told Business Insider in April. 'There are a lot more options for people these days - whether it's groceries or restaurants or convenience stores - and 365 is our way of evolving.'

Changes include a design similar to that of a warehouse, iPad kiosks, digital scales to weigh food, and a heavily emphasized rewards program.

Analysts predict that prices will be as inexpensive as budget chain king Trader Joe's.

365 The Los Angeles 365 store has a machine where shoppers can customize their own tea Reuters

However, Whole Foods has plans to separate the chain from the budget grocery competition by making 365 a place for millennial customers to 'hang out.' The Los Angeles location, for example, hosts a vegan fast-casual restaurant By Chloe and a craft-brew bar operated by Allegro Coffee Company.

Whole Foods is also making changes that will impact not only consumers in cities with plans to open a 365 location, but customers across the US.

In late 2015, the company pledged to lower costs and cut 1,500 jobs to invest more money in new technology.

The company has also entered a number of partnerships with innovative startups in recent months.

Imperfect Produce Some of Imperfect Produce's 'ugly' offerings Imperfect Produce

In March, the company began sourcing 'ugly' food through a partnership with Imperfect Produce, in an attempt to cut food waste as well as reduce produce prices for shoppers. The company signed a five-year partnership with delivery startup Instacart in February.

Whole Foods promises that, under Mackey and Robb's leadership, these changes won't be stopping any time soon.

'Everybody's continuing to try to copy us, because the innovations are still occurring at Whole Foods Market,' Mackey said in an earning's call in May. 'That's how we are differentiating.'

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