Over here and over-looked?

Whole Foods has opened, finally – four years after buying Fresh & Wild. It is joined by fellow US invader Abercrombie & Fitch (A&F), which opened a store in Saville Row, while Gap is reportedly launching Banana Republic over here and there are the perennial rumours that one of the big US DIY or electricals players is eyeing the European market. But how will these US entrants fare?

Whole Foods’ store looks superb; the range, presentation, everything about it is a step ahead of the rest. A&F offers another superb store, but where Whole Foods is recognisably the same format as in the US, A&F has created a one-off capital city designer store.

Gap does little to adapt its merchandise to local markets and a format like Banana Republic, which targets women over 25, definitely needs to be rethought for non-US markets. It is worth remembering the debacle of Eddie Bauer, a cosy, comfortable outdoor brand with a great reputation for value for money. It bombed in the UK; it looked old and boring.

The Americans have a poor record outside their home market. Wal-Mart wisely did not interfere too much with Asda, though its emphasis on price rather than providing the means for customers to trade-up has been one reason for weaker performance over the past couple of years. But Wal-Mart’s failure in Germany was a direct result of a refusal to accept the need to adapt to local conditions. In the context of Wal-Mart, the cost of the German venture was not great, but if it cannot do better than that, it’s scope for international expansion is limited.

So where does that leave Whole Foods? The initial reaction to the store is overwhelming. It is a foodies’ paradise. The depth of range, the variety, the quality and the retail theatre outstrip anything achieved by UK food retailers. But after that initial reaction, doubts start to creep in. It is far from clear that Whole Foods has adapted its offer to the UK and it is perhaps significant that Fresh & Wild has been consistently loss-making since Whole Foods bought it in January 2004.

Yes, it should do well in Kensington with its very affluent customer base and lots of ex-pats. But even in Kensington we have doubts. Whole Foods stands out in the US food sector in much the same way Abercrombie & Fitch does. It is different, much more exciting and innovative. In the UK it is up against much stronger competition. Whole Foods is not really that much better than M&S or Waitrose.

It is also very expensive. In the US it is dubbed “whole pay-cheque” – not without good reason. And, this is not just a high-priced operation, it is very expensive to run. It must achieve very high footfall and very high levels of turnover if it is to avoid prohibitively high wastage levels.

In fact, everything conspires to push the gross margin (revenue left after the cost of the goods sold has been subtracted) up. The emphasis is very much on organic, natural, fair trade products, which certainly has a considerable following in the US. While important in the UK, it is more of a “nice to have” than a real motivator in choice of food outlet and the UK supermarkets already stock organic and fair trade goods.

So has Whole Foods looked closely at the UK market or has it just decided to open a US-style store? The spat with Waitrose over the definition of “local” produce argues against. One other slightly odd feature of the store is that while there are a large number of own-brands, they all carry the Fresh & Wild name, there are no Whole Foods-branded products.

So, I must come off the fence. Do I think Whole Foods will succeed? The odds are against it. Whole Foods is an unknown brand in the UK and is not significantly better than Marks & Spencer or Waitrose. The business looks superb, but it is a very high cost operation. In Kensington it should generate a good lunchtime trade and that may be enough to support it. Future openings will, apparently, be smaller.

So if Whole Foods is to succeed in the UK it really comes down to whether the company is able to learn from its experience in Kensington and adapt to the UK market.

Unfortunately, the experience of other US retailers in the UK does not give much cause for optimism.v

Richard Perks is director of retail research at Mintel