Whole Foods halts growth of its cheaper '365' stores as the CEO cites pricing problems

Jessica Tyler/Business Insider

Whole Foods is halting growth of its cheaper chain of stores.

• Amazon-owned Whole Foods is halting growth of its smaller, cheaper chain of stores called 365 by Whole Foods Market.
• In an internal email, Whole Foods CEO John Mackey cited a diminishing price gap between the newer chain and Whole Foods' traditional stores as the reason for the change.
• All 12 of the 365 stores that the company has already built will remain open, Mackey said in the email, which was reviewed by Business Insider.

Amazon-owned Whole Foods is reportedly scrapping the chain of stores it launched in 2016 that was meant to be smaller and cheaper than its traditional grocery stores.

The company is halting expansion of the chain, called 365 by Whole Foods Market, less than three years after opening the first of 12 locations, according to an internal email reviewed by Business Insider.

The email, first reported by Yahoo Finance, cited a diminishing price gap between the two Whole Foods chains as the reason for the change.

"As we have been consistently lowering prices in our core Whole Foods Market stores over the past year, the price distinction between the two brands has become less relevant," Whole Foods CEO John Mackey wrote in the email on Wednesday. "As the company continues to focus on lowering prices over time, we believe that the price gap will further diminish."

The 365 stores are smaller, pared-down versions of regular Whole Foods stores, with a no-frills design and a focus on prepared foods. They are cheaper to build and operate than regular Whole Foods stores.

All 12 of the stores that the company has already built will remain open, Mackey said.

Whole Foods opened the first 365 store in May 2016, before the grocery chain was acquired by Amazon in a $13.7 billion deal that closed in August 2017.

Since Amazon took over Whole Foods, the company has been lowering prices and introduced several discounts for members of Amazon Prime.

Here's Mackey's email on the change:

When we launched our Whole Foods Market 365 stores, the intention was to create a more value-focused and streamlined shopping experience that maintained the integrity of Whole Foods' quality in a convenient format that's less expensive to build and operate. We have been successful in achieving these goals. However, as we have been consistently lowering prices in our core Whole Foods Market stores over the past year, the price distinction between the two brands has become less relevant. As the company continues to focus on lowering prices over time, we believe that the price gap will further diminish. As a result, we have decided that it's in the best long-term interest of the company to concentrate our efforts on growing the core Whole Foods Market brand moving forward.

All 12 of our 365 stores will remain open and integrate into our current regional structure. There will be no changes for 365 store Team Members, and we are working closely with all global 365 Team Members to place them in new roles within the company. There will be no Team Members displaced as a result of this decision.

Under Jeff Turnas' leadership, the 365 store brand has developed innovations and efficiencies across purchasing and operations that have, and will continue to, make Whole Foods better. Auto replenishment, digital shelf tags, labor scheduling and "Friends" partnerships with outside companies are just a handful of examples of best practices that have come from the 365 team. Jeff will spend the coming weeks ensuring all 365 operations are smoothly transitioned to the respective regions and continue his work leading special projects, including new store format development, until he transitions into a new role within the company.

While we won't be growing the 365 store format, we will continue to innovate and experiment with new store concepts and designs that will allow us to offer customers unique and differentiated experiences that play to the strengths of the company. The creativity, innovation and entrepreneurial vision that 365 embodies will live on in new ways in the future of Whole Foods Market.