WEBVTT - Bloomberg's Giammona on Whole Foods Expansion Problems (Audio)

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<v Speaker 1>Now let's head right over to the First Word Breaking

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<v Speaker 1>Good afternoon, Charlie MANUS averages are quiet today, with the

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<v Speaker 1>a little changed. DALLA leaders included IBM, American Express and

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<v Speaker 1>news the Super Mario mobile game is coming to the iPhone.

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<v Speaker 1>Whole Foods fell as much as seven point two percent

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<v Speaker 1>after spouts, Farmers Market cut its use, and HD supply

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<v Speaker 1>fell twelve percent after its results after the Bell Tonight

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<v Speaker 1>look for earning story HeLa Packard Enterprise and Variant Systems

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<v Speaker 1>live from the first Breaking news desk on Bill Maloney. Charlotte,

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<v Speaker 1>all right, thank you very much, Bill Maloney, and to

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<v Speaker 1>hear live breaking news over your Bloomberg type squaw guess

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<v Speaker 1>you guess Q you a w K on your terminal.

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<v Speaker 1>I'm Charlie Pelof. That's the bloom Bird business splash you're

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<v Speaker 1>listening to. Taking Stock with Kathleen on Bloomberg Radio. Cutthroat competition,

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<v Speaker 1>falling food prices. All of these are hitting some of

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<v Speaker 1>the biggest names in the grocery business, including today Whole

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<v Speaker 1>Foods markets questions about its expansion plan and also the

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<v Speaker 1>share price down a dollar sixty nine cents, the share

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<v Speaker 1>to nine dollars and one cent after Sprouts Farmers Market,

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<v Speaker 1>competing specialty foods retailer, reduced its same store sales guidance,

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<v Speaker 1>making investors wondering about what's going on. A Whole food

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<v Speaker 1>joining us now to dive into this is our Bloomberg

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<v Speaker 1>News reporter Craig Jemona Craig, Welcome to the show. Thanks

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<v Speaker 1>thanks for having me. So, first of all, put this

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<v Speaker 1>in context at a time when Whole Foods has announced

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<v Speaker 1>expansion plans. You want a terrific story starting in Chicago.

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<v Speaker 1>Just just set the stage with that, what's happening there

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<v Speaker 1>and why. It just personifies illustrates what's going on in

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<v Speaker 1>the terms of the Whole Foods challenge. So there's been

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<v Speaker 1>questions for a while about whether or not Whole Foods

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<v Speaker 1>can never get to twelve stores. That was the number

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<v Speaker 1>that John Mackie, the founder, put out there a couple

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<v Speaker 1>of years back, and there's just a lot of people

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<v Speaker 1>that have thought for a while that that's an aggressive

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<v Speaker 1>target because is there really room for that many high

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<v Speaker 1>end stores. So, you know, we used an analyst note

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<v Speaker 1>talking about a store outside of Chicago that was next

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<v Speaker 1>to a dress barn and a shoe carnival, and just

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<v Speaker 1>questioning whether this was sort of emblematic of is this

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<v Speaker 1>the right place for a Whole Foods. You know, they

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<v Speaker 1>do well in Brooklyn. The end of the store here

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<v Speaker 1>near our office in Midtown East in New York City

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<v Speaker 1>is always packed. All the ones in New York City,

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<v Speaker 1>from what I can tell, are packed. But as they

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<v Speaker 1>expanded to other parts of the country, they've sort of

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<v Speaker 1>run into trouble. Now they run into trouble because there

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<v Speaker 1>are copycats or because their prices are demonstrably higher than

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<v Speaker 1>the competition. Both both, you know, the copycats have I

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<v Speaker 1>think put a spotlight on the fact that their prices

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<v Speaker 1>are higher. So for years, Whole Foods created the organic

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<v Speaker 1>food market in this country. They built it up and

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<v Speaker 1>for years the margins were soaring. Obviously, Walmart and Kroger

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<v Speaker 1>saw this and said, well, we can sell organic food too,

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<v Speaker 1>and we can do it cheaper. So now people are saying,

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<v Speaker 1>you know what, I'm not gonna pay twenty send premium

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<v Speaker 1>that Whole Foods. I'm gonna go to Kroger by private

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<v Speaker 1>label stuff. Maybe I'll go to the Farmers Market a

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<v Speaker 1>little bit. There's just other places to get organic food now,

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<v Speaker 1>and it's really hurt Whole Foods. So what do you

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<v Speaker 1>do if your Whole Foods? Because I couldn't read a

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<v Speaker 1>few more everybody's follow the lead and and um my

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<v Speaker 1>neighborhood Westside Market. You know, you look at the last

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<v Speaker 1>year the number of stores like that of all kinds

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<v Speaker 1>who carry grass fed beef, who carry not just cage

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<v Speaker 1>free eggs, but you know, free rowing, pasture raised, it's

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<v Speaker 1>all kinds of product. It's a really upward sloping right.

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<v Speaker 1>There were years where that Whole Foods was the only

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<v Speaker 1>place to get that kind of thing. Now it's ubiquitous

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<v Speaker 1>and so people and it's cheaper at other places. So

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<v Speaker 1>the thing that the big thing they're doing is this

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<v Speaker 1>new chain called three sixty five by Whole Foods. It's

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<v Speaker 1>kind of targeted at millennials. The stories are cheaper to build,

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<v Speaker 1>their smaller, cheaper to operate. They've been gushing about the

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<v Speaker 1>economics of that store model. Is only two open so far,

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<v Speaker 1>one in l A, one in Oregon. Another one is coming,

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<v Speaker 1>i believe next week in Washington State and in Bellevue

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<v Speaker 1>and your Seattle so that's the thing they've hit on

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<v Speaker 1>that they think it's working. So far, haven't said much

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<v Speaker 1>about the results. Were expecting that November when they were report.

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<v Speaker 1>But maybe they can get to twelve hundred by doing

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<v Speaker 1>six d three sixty five and six hundred flagships. But

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<v Speaker 1>the question is they've said to this point twelve hundred

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<v Speaker 1>stores plus three sixty five, so a lot of questions

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<v Speaker 1>about whether they can get to that total. I was

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<v Speaker 1>also looking at the stock of United Natural food shares

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<v Speaker 1>down about four and a quarter percent, because they are

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<v Speaker 1>the biggest supplier right the Whole Foods Right there there

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<v Speaker 1>are the large The Whole Foods is the largest customer.

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<v Speaker 1>I think I could be you know, wrong here on

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<v Speaker 1>a little bit, but I believe the revenue for United

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<v Speaker 1>Natural comes from Whole Foods. It's a gigantic customers. So

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<v Speaker 1>any day that you see Whole Foods up or down,

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<v Speaker 1>United Natural tends to move with them. Sprouts is the

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<v Speaker 1>same way. You know. Sprouts is two stores, so a

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<v Speaker 1>little smaller than Whole Foods, but it's an organic natural retailer.

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<v Speaker 1>They cut their forecast this morning. That just leads people

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<v Speaker 1>to again, people are very sensitive about Whole foods right now.

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<v Speaker 1>So any any little blip, any negative news I think

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<v Speaker 1>pushes the stock down. Can you talk to us a

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<v Speaker 1>little bit about Starbucks? First of all, I was like, whoa,

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<v Speaker 1>they're gonna Stevia, you know, alongside the splendor to there

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<v Speaker 1>you know, there their coffee customers. And then we've got

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<v Speaker 1>the ceo endorsing Miss Hillary Clinton for president. That's right there.

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<v Speaker 1>He was at an event this morning of breakfast in

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<v Speaker 1>New York City, rolling out a series of videos that

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<v Speaker 1>they're calling up standards. You know, he hired a former

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<v Speaker 1>editor from the Washington Post to create this sort of

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<v Speaker 1>almost like a news operation for him in Starbucks. So

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<v Speaker 1>they're saying, you know, he basically said, it's been very

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<v Speaker 1>divisive election season and we need change. We can't do this.

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<v Speaker 1>He called Donald Trump a divisive candidate. So it's always

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<v Speaker 1>a little surprising for the CEO of a big company

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<v Speaker 1>like that to wait into politics. Really haven't seen that

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<v Speaker 1>much of it, but he he did come out and

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<v Speaker 1>said he supported Hillary Clinton. He also sort of headed

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<v Speaker 1>a bit on whether he would ever run. A lot

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<v Speaker 1>of people think of him as a potential candidate. He's

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<v Speaker 1>ruled that out prior, but today he said, never say never.

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<v Speaker 1>Now is not the right time. But I'm a young man,

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<v Speaker 1>so you know, he's sixty three years old. But some

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<v Speaker 1>people think that Schultz is setting himself up for a

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<v Speaker 1>run at some point. Any chance that we're going to

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<v Speaker 1>see Starbucks move into other retail establishments. I mean, there

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<v Speaker 1>are a lot of malls which are going through a

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<v Speaker 1>big transition. He talked about that. He talks about the pressure.

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<v Speaker 1>You know, there's just less people out brick and mortar retailing.

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<v Speaker 1>You know, you don't go out on Saturday and shop

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<v Speaker 1>the malls pick up your Starbucks. They've invested heavily in

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<v Speaker 1>e commerce. You know, he likes to call it a

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<v Speaker 1>tech company inside of a coffee company. So he was

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<v Speaker 1>asked that question this morning and kind of said that

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<v Speaker 1>the e commerce is how they're going to pick up

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<v Speaker 1>for that. So you're still you know, you're out and about.

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<v Speaker 1>Maybe you're not visiting traditional retailers. But I guess his

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<v Speaker 1>hope is that people don't ultimately just sit on the

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<v Speaker 1>couch and you know, shop online all day every day.

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<v Speaker 1>That would, you know, sort of remove some of the

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<v Speaker 1>coffee customers. Thank you very much for joining us. Craig Giamona.

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<v Speaker 1>He is consumer reporter for Bloomberg News. You can follow

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<v Speaker 1>him on Twitter at stick a writer. That's s t

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<v Speaker 1>I k A w R I t e R. This

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