- Real Estate
- Food & Drink
By Jodi Schwan
It’s not that Sioux Falls hasn’t been on the radar for organic grocer Whole Foods, but the market hasn’t been a priority.
It might start to be a lower priority, given the chain’s recent announcement of nine store closures and rumors the business is for sale.
“A lot of people are freaked out about Whole Foods announcing closures, but they haven’t closed any stores since the recession,” said Garrick Brown, national director of retail research for Cushman & Wakefield.
“The reality, simply put, is the organic space has gotten really, really tight because of Sprouts and others jumping in.”
The growing chain Sprouts Farmers Market might be a fit for Sioux Falls. It markets itself as a neighborhood grocery store with thousands of natural and organic products that makes healthy living affordable and accessible.
There are 250 locations nationwide and plans to open 35 more this year.
Earlier this year, reports surfaced that Albertsons Cos. was holding preliminary talks to merge with Sprouts.
Whole Foods, at the highest price point for organic food, is competing against lower-cost alternatives and mainstream grocers that have expanded their organic options, Brown said.
“Whole Foods will be fine as an elite grocer, but they’re at a point in growth where they dominate the market, and there’s not room to grow outside that,” he said.
“Whole Foods 365 is smaller, with more in-house brands, and it got played up because they were aiming at millennials and going into up-and-coming urban areas. Their challenge now is the rumor they’re on the market, and everyone has speculated (on buyers) from Kroger to Amazon.”
Whole Foods 365 has a handful of stores in development, including one in Woodbury, Minn.
Whole Foods’ issues with profitability will limit expansion, agreed Matt Ramsey, lead broker based in the Midwest for JLL.
“They’re going to have to get that figured out because they don’t want to open a bunch more stores and have the same issues,” he said. “And you’ve got rumors of Amazon doing a grocery concept, and Walmart adding a lot of organic groceries. It will be very hard for Whole Foods to be dominant in Middle America. Habits are hard to change if you’ve been going to the same grocery store for 10 years.”
Trader Joe’s, which also has looked at the Sioux Falls market, benefits from offering lower prices than Whole Foods, Brown said.
He expects the chain to open between 20 and 40 stores this year.
The other chain to watch is German supermarket Lidl, which is starting U.S. expansion with 20 stores on the East Coast this year. Within its first year, the chain – described as a cross between Kroger and Trader Joe’s – plans to open 100 U.S. stores.
It’s a competitor to Aldi, which has opened two stores in Sioux Falls and likely will do a third.
“We are excited to open our first stores in the United States in a few short weeks,” Lidl president and CEO Brendan Proctor said in a statement. “When customers shop at Lidl, they will experience less complexity, lower prices, better choices and greater confidence.”
A crowded organic market and emphasis on lower prices could lead some growing grocers to look at Sioux Falls.