Whole Foods Market's Management Presents at Wells Fargo Securities Retail and Restaurants Summit Conference (Transcript)

Oct. 2.13 | About: Whole Foods (WFM)

Whole Foods Market, Inc. (NASDAQ:WFM)

Wells Fargo Securities Retail and Restaurants Summit Conference

October 2, 2013 9:40 am ET

Executives

Walter Robb - Co-CEO

Analyst

Kate Wendt - Wells Fargo

Kate Wendt - Wells Fargo

Hi, everyone. I'm Kate Wendt. I'm Wells Fargo's Healthy Lifestyles and Grocery analyst. And I'm honored to have Walter Robb, the Co-CEO of Whole Foods Market here with us this morning.

Despite being in business for over 30 years, we think that Whole Foods remains one of the most cutting edge grocers out there. I know that's not an oxymoron. Between their extremely high quality produce meat, seafood and poultry, unparalled degree of localization of their stores and exceptional customer service, what we think really creates a truly differentiated and exciting customer shopping experience unlike anything that we're seeing today in grocery.

The company has also recently undertaken a really important strategic initiative to offer all this at increasingly affordable price. Certainly, this is a sector that's been getting a lot of interest on Wall Street recently; there's been a lot more companies that have been coming out in the public arena. So what Walter is going to do today to start out is kind of talk about what Whole Foods has been doing recently to ensure that they stay ahead of game from an innovation standpoint and continue to differentiate the stores to stay ahead of the competition. Then we're going to do a fireside chat format and open it out to Q&A. Walter?

Walter Robb

Okay. Good morning, everybody. Great to have this chance to be with you and also share a little bit, I'm -- I think we're doing some robust retailing ever right now, and I think the marketplace is spurring us on to do that. We have opened 32 stores in the past 12 months and we've opened 12 in the last quarter, which questions about our ability to grow and grow faster. I think we're beginning to answer those questions. We have accelerating our square footage growth 8% to 9% this next year, which gets to be a bigger number on a bigger number. We've got 33 to 38 stores this next year.

So most recent is in Addison, Texas. You can see that this is our eighth store in the Dallas Metro and part of this growth is continuing to take these metros where we're not really fully baked out and be able to continue to add new stores. This is a relocation of one of our original stores and we're continuing to refresh our store base as we grow over the next couple of years. And the innovations both in terms of the services and also the products that are inside the store again suggesting our culture just has this ability to innovate.

This is just kind of a cool idea coffee on tap; it's a good thing here at this time in the morning because when you do the cold brew coffee like this, it makes it -- it just makes it kind of beer and it actually concentrates the flavor kind of a neat idea for people to gather and have a cup of coffee that way so.

Again just a different idea so that you can see that we're doing because we really putting a premium on each new store because we don't do cookie cutter. Every single store is developed for that individual community around a set of sort of parameters. It's free and we're encouraging these new ideas to happen in each and every store.

So this one with a pizza oven being a little higher at 800 degrees, you get that really nice crust and an excellent flavor. North Atlantic here in Boston we have just completed the Johnnie's Foodmaster deal about a year ago and we opened -- we've remodeled six stores in nine weeks. So again, here are some examples of first one in Weymouth. We went -- we'll go through them in sort of in sequence, but you can just see some of the new ideas that we're bringing out of these stores. To have done it so quickly, I was so proud of our Regional President here Laura Derba and her team to be able to do this in such a quick fashion.

I think there are other opportunities for us out there on the landscape and our ability to take them, take stores that have been there to repurpose them with our culture and our values is pretty exciting as part of growth opportunities.

So here when you place a special order of course you get an additional box with some additional things that we have worked out with manufacturers, kind of a nice idea indicating we appreciate your business. And on the Melrose again just not going to comment all the ideas but you get sort of the idea that we're continually recreating both in terms of product, in terms of service, in terms of innovations within the store experience.

So here's an interesting example where we got the butchers all trained in cooking and we've able to give them some additional sauces in the back and so this is an exercise in up selling and retail where we try to encourage people to not only sell the fish but also sell the meal.

On to Charleston, Charlestown historical here and again desert, sauces, grilled meats, steamed buns, and when I was in college I lived on dal for a little bit and here’s the sort of – making me come back. This is a really cool store. If you can make it out to Lynnfield see we really think this is one that's just opened in the last month and some terrific ideas including Montreal salt bagels. You all know Montreal salt bagels these are smaller, they're sweeter, different and the New York people might take an exception to this, but they are really pretty good.

So and what's really cold here on this particular store is we actually put 25,000 square foot garden on the roof and the produce is actually coming and being used in for prepared foods and also we're selling it in the [produce] department. It doesn't get more local than that and kind of an interesting and exciting, we are partnering with a company that actually operates the garden, but kind of a cool idea.

And on the Summerville, again sort of idea, the quality of the product and bakery and just giving you some idea, some of the different things that we're doing right now and constantly pushing the idea of new products and new product innovations to offer to our customers. Pudding is making a comeback.

Now, Styrofoam again customers are continually concerned about the environment. This is the first one that doesn't actually have any Styrofoam on it at all and it's a number one recyclable. So we're continuing to push the envelope on those sorts of things to give you an idea.

On the Minnesota, this is one of the metros. This is another example when you look at Whole Foods potential growth. This is a metro; where we had two stores for about 10 years. Now at the present time we have 6 and we have 2 more under construction. So it's a fully, it will be a metro that continues to grow for us and potential, I think the purpose of this slide is to show you that we are -- we are -- well there is some talk about the competition that we're facing. We're also bringing our game to many of the other competitors as well. In this particular case we opened 100 yards from trader goes across the street. Here and this is kind of a cool product in terms of the, this bakery and the frozen can create a lot of pops. So the single serve desert idea.

On Oxnard California, which is a farming community and surprised how well the store is doing. It's end up serving 20 miles all around the store and all directions. It's significantly above our projections and we took an old air stream for example and created sort of pub out of it put it in the store and it's been a tremendous hit. It turns out this idea of gathering spots or creating community in the store has been incredibly successful for us over the last couple of years, some of you may have seen some of the pubs that we created and this is just another example of that in action. Here's what it looks like in a little more in detail.

Obviously fresh seafood continues to be one of our calling cards on both of the coast particularly here in California. We do have facilities in both places that we can pull from and increasingly be able to get the local fish from both coast that way.

Finally in Savannah Georgia, I think one of the other things of our Whole Foods in terms of what I'm really excited about is our ability to tap into the communities where we're opening in. There is a real demand for us to come to these communities and I think increasingly reflecting that particular community in the opening.

Here is just a slide that shows you the spirit of the team member individuality and creativity we do, build a culture that's fostering that and supporting that and empowering that it's a good example there. And again just the innovation product and experiences, new ideas in each and every store that we're opening and as I said, this is a pretty cool idea because we took an old container and created a mobile kitchen, which we can roll around to anyplace in the community where we open and we can keep it outside the store after we open. So it drops down completely, self-contain, but it drops down those tables become the place you can eat your food or have your beer while everything's prepared in the mobile kitchen and so again, this idea of beginning to connect even further with the community.

This one is fun. It's selling vinyl records again and we got in Time Magazine for doing this, pizza is sure making a comeback and I think we all know that but coconuts and finally our new store in Brooklyn which opens at Third and Third on in December 17th we got everybody and their mother wants to come to the opening. This is what the store looks like. It is in an old area that's kind of being reclaimed. We've been working on the store for a long time; it also has a large greenhouse on top of the store. And this is what it looks like right now. These are little dated, but we're making tremendous progress. We're very exciting opening this. So again we have 33 to 38 stores for this next year accelerating in the square footage growth and I think in conclusion that we're really truly doing some best retailing that we've ever done in terms of the level of innovation and the level of change both in terms of our culture and in terms of the store openings that we're doing so I want to share that with you to start off this morning. Thanks.

Question-and-Answer Session

Kate Wendt - Wells Fargo

I want to kind of start out and talk about I think one of the key reasons that people don't shop at stores currently, is they're not -- is usually around price and I think what you're doing around trying to improve the value proposition and certainly a really important strategic initiative. How are you approaching trying to educate consumers about the value in your stores? What inning do you think you're at in that perspective? And then how do you get people who may be don't shop your stores frequently or at all to know about what you're doing?

Walter Robb

Yeah. So, let's start with the first part. Where are we with respect to that? I think we're early innings in terms of -- I think we've always had good value. I think we've done a poor job communicating what the values that we do have. So the 365 line for example which is over 1200 skews is an excellent value, excellent standards, and I think we've done a poor job necessarily explaining that to folks. But we've talked last year about directionally this we're going to continue to make these investments to make sure that people can see that we are affordable. I do agree with you; it's very important because for us it's always the dance between value and quality. We have the highest quality standards in the supermarket industry. It's not even close, honestly. In many cases, it's just not the same food and yet to be relevant to people we got to continue to really talk about the value and the value of our quality.

So I would say we're in early innings and I say we are determined and strategically and surgically continue to make these investments to continue to be affordable and accessible to people at the same time keeping the range of choices for our customers because that's really the key. The key effort here is to continue to present a range of choices in each and every department because we found that customers often put their choices together in different fashions, right, they'll take a value choice in this department, they'll take a higher price point choice than the other. So the effort is really to continue to make the range of choices available to each and every department so. You've had a lot of questions, I'm not sure I answer them all but.

Kate Wendt - Wells Fargo

No, that's great. Do you think to I mean you said early innings -- as you get further along down with process could each incremental new private label products introduced or price reduction you take actually more impactable because people are seeing it throughout more of the store, how do you kind of think about that in terms of the trajectory of benefiting sales from that standpoint?

Walter Robb

Well, I mean I think we've made over the last couple of years -- I think we've made tremendous progress in terms of people's perception even though it's always a lively topic out there in the chatter. But we've made a lot of progress. And I think that we're going to even this last quarter, for example on Q3 we made another tranche of investments that are comparison wise which landed and I think always there may be a short-term effect of those investments in terms of both in terms of the top-line sales and also in terms of the momentum. But I think it's hard for me to say exactly when the kick in comes. I think because the market is dynamic and it's continually shifting what we are doing is, we're indexing ourselves every month against all of our major competitors across the country. We have better data now, not only what people are saying but what they're actually doing and what we have seen is the customers response time to the changes is much quicker than it used to be 12 months, 24 months, 36 months ago. I think these customers -- customers are more aware and sophisticated about those sort of things and they have noticed when the investments are made and they do respond and you see the unit growth start to go up.

So it's kind of a dance between the unit growth, the investments, the top-line sales that we're kind of watching that and learning about that as we go. But I do think we're early innings. I think we're determined to head this direction, at the same time keep our soul around being a quality food retailer. That's what we do better than anybody else, and that's what we're going to do in the marketplace. Our challenge is to continue to be relevant with respect to price and accessibility so that we continue broaden our customer base and grow our sales. But right now I feel pretty confident in our ability to do that.

Kate Wendt - Wells Fargo

That's great. And you mentioned 365, that's been a really successful product offering for you. Can you talk about how much you've increased the skew count over the past couple of years, where your focuses have been and may be what opportunities you have to expand that from here?

Walter Robb

Sure. I think we're somewhere around 10% or 11%. 365 particularly or the private label in total?

Kate Wendt - Wells Fargo

Either or?

Walter Robb

Okay.

Kate Wendt - Wells Fargo

365 may be. I mean may be I don't know if grouping in the Allegro and other staff as well, either way?

Walter Robb

Yeah. But of course 365, we have the 365 and the 365O. So we have both families there and they cover the organic and the just the regular standard product. But overall probably we're somewhere around 11% of sales right now, which is a, I think we're sort of 6% or 7% just a few years ago. So we have, we pushed it up a little bit. Although we're slowing the growth of that right now just because we are going back and retooling some of the products to make sure they're better package, better quality and we're also -- we're also being really selective in terms to make sure we balance between the branded product and the private label product.

So while there is tremendous opportunity to continue to grow in a number of categories. We're recently well represented across to continue them right now. And so I think we're going to be more selective going forward with respect to that. The customer's right now is a tremendous demand for local product and for branded companies. There's a lot of exciting stories out there about these young companies. I've never seen in all my 30 somewhat years, have I seen such a revolution in people creating new food products right now. You probably noticed and the customers have tremendous interest and demand of that.

I think we're arguably doing the local food as well as any supermarket company out there because our structure is set up to allow us to purchase and we have forgers. We have people in every region that are looking and building these relationships. We have a local loan program. We have $10 million out so far, loan to our producers and I think we're creating this bevy of products which customers really like. So when you look at the private label thing, you look at in the context of having a compelling product offer that's got a variety to it and a richness to it that brings people in.

Kate Wendt - Wells Fargo

My next question what you already kind of touched upon, which is about local. I mean I think that seems like it's becoming more of an important attribute in some way to some people than organic or natural. And I don't know if it's possible to kind of talk about what percent of your product in your stores is local or just may be a little more detail on how you do that differently than the competition and may be how you're set up differently to allow that that may be others are unable to do?

Walter Robb

Well the thing that underlies it really it's the customers interest in knowing where their foods coming from and whose doing it. So that's actually a better way to think about it. Locals a word that's getting a little overused and it's a word that's in danger of eventually like being natural doesn't really mean so much. Some folks are saying local to anything within the same state. People, customers don't think about it that way.

So retailers are playing a little fast and loose with it. For us we try to show you exactly where it's produced and where it's produced and so this is a question of what the standard is when you're talking about local. But I think for us the transparency to the producer, the idea of celebrating the stories. For many cases you can go in scan the QR code and go to the website to see the full story of the producer. Ultimately what I think is going to happen in the retail experiences, it's all going to be on the phone and you're going to be able to -- or the glasses or the watch -- whatever it is. And you're going to be able to see you know kind of 360 the story about this product that you're purchasing.

And we're -- this is nothing short of a revolution in terms of the local food thing. I mean this is really serious, the amount of entrepreneurship, the amount of capital that's flowing in. I was given a talk on Monday night in San Francisco to a group of young entrepreneurs. I can tell you the energy level in this space is really impressive. And so I think part of the retailer's job is to continue to define and give those folks an opportunity to come to market and I think we're arguably doing that better than any supermarket company right now, because our organization is regionalized, because it's set up in a way to allow, we set ourselves up to allow them to move with the market. I think we're bringing them in faster. I think we're starting more companies out and we think giving our customers a nice selection of those products so.

Kate Wendt - Wells Fargo

Another pretty important initiative that you just recently announced that we haven't seen any other grocery dealers that commitment to providing GMO transparency by 2018. And I wonder if you kind of talk about how the process is coming along with your vendors and what that might mean for the supply chain overtime and then what you might think it would mean once you have the transparency in terms of, a potential sales service on the road for Whole Foods given that you can provide a type of transparency that may be other chains can't?

Walter Robb

I think we thought we needed to do this because it appears that no standard is forthcoming from the governmental entities and this is the case where our customers really pushed us to take even more of a leadership position we had up to this point. We have always supported labeling since the early 90's. But this was a step we took last spring. I would say we would have everything in our stores labeled by 2018 full transparency across all the products.

You know packaged packs I saw recently indicates the a third of grocery sales will be non-GMO by 2018. And this is one of the fastest growing areas in our store looking at the data. And that is if customers are concerned increasingly, whatever your view on the technologies and their role in society and what do in agriculture, I think there is a view that customers have a right to know what they're putting in their bodies. So that's the place we chose to land, which is to say we're about transparency in giving our customers choices and this effort is an attempt to make that real. And so where we are as we announced it with our suppliers. We had about 500 of them there when we announced it.

Where -- many of our suppliers are 80%, 90% there already. But for those who are not we're trying to give them the support because in some cases they got to go back and rework their supply chain. They need time to do that. In many of supply chain there are not GMO technologies currently operating. In many parts of the supply chain it's indirect like with the animals and the animal, the protein production.

So there is a lot of -- this is a big commitment to do this. This is why we need the time to do it. And I think what it means is ultimately we're creating a new differentiated supply chain using the power, our power in the marketplace to move people hopefully over a period of time voluntarily to that place where customers have that information. So that's the process we're in it, but it's up on our website. There's a dot you can find. You can get all the latest information about where we are with respect to this process. We've been posting that up every three months to let people know exactly where we're and how we're working on that so.

Kate Wendt - Wells Fargo

That's great. Well shifting from a products to IT, I think a lot of people aren't aware that your stores are not on common POS system?

Walter Robb

I think this is was coming, can I -- I just want to say something else about the GMO standard, which is that, by the way there is an important initiative on the Washington State Ballet 522 this fall, which is going to give you some sort of a -- tell you kind of where this issue is in people's minds. There are currently initiatives in 22 states on balance in some form or another of this particular effort. So I think that's -- that will be kind of one for you to watch and see which way the wind is blowing with respect to customers saying this matters to us.

But I want to make the point about standards because this is an example, both at Whole Foods, I think willing to take tough decisions. We are the first one in the soup market industry to do this GMO transparency. We're having to pave the -- we're having to create -- till the soil, create the ground to do this and yet I believe it's the responsible thing to do as a leader in the food industry to take this position and we have done it. We haven't had any other grocery that's followed us thus far, some have made noises, but I think if the customer starts to say this is really where we want to go I think you will see some other action in the industry.

But just this last Friday we announced another decision, which more low-key, but it's on our website again in the press room, which is we got our produce suppliers together, and we said by next September 60% of our produces or target we're going to eliminate organophosphates, and we are launching a new produce sustainability index for our customers. And so this is very important because right now, which you have is organic and you have conventional produce. And pretty much everything is in the conventional produce with any sort of standard. And again, whatever your view of pesticides or the enduring nature of the pesticides or the concern about this, this index looks at soil health, water use, community, situations, and it's a scientific -- third-party signs-based index. But it will give producers an ability to market their product at a particular level, and also it does phase out the organophosphates, which is the most, I think problematic of the pesticides currently regulated pesticides currently in use.

And again, this is our -- this is our newest standard and it's our newest attempt to again to lead the food industry with respect to the standards of the food that we eat. This is the role I think that we play. I think this is the role that gains the customers' trust about Whole Foods in the supply world. And it becomes our job now to make sure that we can wrap the value around that or wrap the choices around that to continue to be people that Whole Foods is accessible and affordable. But that's an example of where we have to constantly walk the dance between. We do the quality, we set the quality standard and we got to keep balancing it with the value to make sure people see not only the quality of our value but the value of our quality.

Kate Wendt - Wells Fargo

Well, certainly I think for some of your competitors that offer more conventional produce that will be interesting to be able to provide a little more transparency on that.

Walter Robb

Well, there is no -- there's no differentiation currently in conventional produce, and there's a lot of fast lose going on in conventional produce but I think this is going to give us a standard there again when people say, well, it's the same product. Well, no, it's not the same product. So that's the answer there.

Kate Wendt - Wells Fargo

Interesting. Moving back to IT, your favorite topic, can you talk about maybe the progress that you're making towards a common system on a POS, some retailers in the past not always rolled that out very smoothly --

Walter Robb

Yeah.

Kate Wendt - Wells Fargo

So how you might manage that transition, and then what benefits it could bring for you to be on a common platform?

Walter Robb

Yeah. Love this question. I know I'll appreciate your enthusiasm. I took on the technology team as my direct report about 18 months ago. I made a change in leadership, brought in a terrific new CIO who is 36 years old, which I thought was pretty young, but apparently the -- some of the entrepreneurs think that's pretty old, but he's fantastic. And we have -- we're on the soup on fire in this area with respect to our business because I think, and this is case not being early adopters in technology actually has worked to our advantage because a lot of the genuine stuff is being passed over with respect to retail.

I would argue to you now that technology is intrinsic to retail. Essentially the experience of retail is the culmination of retail and technology. As you're watching this thing evolve before your eyes, the rate of change is faster in the next five years than it's been in the last 100 years. And so the first step for us was to get a common POS platform, which we've selected Retalix. We're now in the process of putting that platform in place, which allows us to do once it's in and we're sort of -- it's sort of 18 to 24-month process to roll this through. It's just software in a hardware, but to get this platform in place puts -- gets us in a position to have a 360 view with our customer meaning that whether we plug in e-commerce or social or we plug in mobile applications or we plug click and collect or whatever we do it will all work off this (inaudible) this platform has the ability to allow us to. I think the future of retail is giving the customer a integrated seamless experience against your standards of customer experience, right. So ultimately, you have to set yourself up to be able to serve your customer wherever they are, however they want us interact with you, you have to be able to serve them there. This system allow us, puts us in the position to be able to do that.

Kate Wendt - Wells Fargo

That's great.

Walter Robb

And I do think ultimately integrated retailers win in this thing. I don't think -- I think there's limitations to the e-commerce thing only, I think there's limitation to the bricks and mortar only. I think the retailers that have successfully combined their ability to do both are going to be the ones that are going to be winners in this.

Kate Wendt - Wells Fargo

Well, one other essential advantage of that platform I guess would be you have a lot of loyal customers that are being rewarded by the delay in your source that perhaps not through other metrics in terms of you have a lot of traditional loyalty card program understanding you don't want to do it like the rest of your conventional competitors. How are you thinking about that in terms of way to maybe do it not about price and make it about events or otherwise to recognize your customers?

Walter Robb

Well I think the notion of loyalty or affinity has, if you look it up, has evolved to where what it's going to be is ultimately a company's ability to interact personally on a individualized basis using the data with each and every customer. So it's your organization's capability to gather that data, work with it, and then deliver a truly individualized proposition. And that's what you see happening in some sectors now although it's siloed I think ultimately your ability to do that in an integrated framework is what's going to be mark of success.

So the very notion of what make -- decide that you'll give the customer will give you the data they'll expect something back. They'll expect something back that's sort of personalized to them and that's the direction I think we need to go. And so that's -- there was a second part of question, what was that?

Kate Wendt - Wells Fargo

What sort of benefits you would think about providing? Could you do cooking classes, could you events like, I mean there -- it seems there's just a lot of ways you could engage your shopper in those that encourage loyalty and encourage more frequent visits?

Walter Robb

Yeah. Again I would argue that I think loyalty with customers comes first and foremost from their alignment with the brand or with the company and what the company stands for. So I think a lot of our loyalty from our passionate customers comes what they believe and what we stand for and things we continue to stand for in the marketplace and they support that. I think that is an aspirational sort of loyalty that I think works in favor. And again we have to continue to earn that by behaving with integrity and making the decisions. What you have to do I think there is an appreciation there for what we stand for in the marketplace.

But beyond that of course, yes, the marketplace is very robust. I mean, it's fair to me that the experience of shopping in a supermarket is going to continue to evolve. We've already talked about it. It goes online or we're currently doing a number of experiments, pilots right now. Click and collect pilots that are in place right now, we did a -- we're going a same day delivery pilot with Google in the Bay Area right now. These are all the ways in which the, if you will, we're going to extend the experience the customer has with Whole Foods and their ability to interact with us.

So those pilots are happening right now and we have of course the holiday season coming up. When we did -- we did our $15 million of e-commerce this last holiday. We've got a nice target for ourselves of 2x that for this holiday season. We've ramped up the tool we have to be able to do that and we think we're learning a lot about that whole aspect of things.

So but I think ultimately it's just experience of -- oh, that's not me, is that me, okay. That we've decided the customer will have an extended experience in some way. So imagine you were at home and your shopping list was up on the cloud and then you wanted to be able to send that and have it picked up at the store so that when you came to the store you can focus more on the experience with us. You could meet with the butcher or plan a party where those sorts of things we're going to again we continue evolve experience of coming to Whole Foods that I think will continue to build loyalty because of the quality of the experience you saw some of the innovations.

I would argue again I don't think anyone's innovating faster than we are at the retail level in terms of the quality of the product, the nature of the experiences, I think we're doing that, we're doing that really well right now. So if we can extend that into other areas and give you an experience that starts perhaps at home and even when you get back home there's some additional information for cooking or recipes or whatever that's the sort of idea I think that would continue to earn people's trust and loyalty.

Kate Wendt - Wells Fargo

Could you talk a little bit about the click and collect test, what markets you're running it in right now and you've been -- how you think about maybe your broader e-commerce effort and you mentioned catering or whether it's an whole body you have obviously a really broad assortment that you can draw from that is not represented in each store, how you think about it different categories as well?

Walter Robb

Right. I think about -- I think about finding ways to the click and collect of course for those of you unfamiliar with this is that the customers on their computer they can access the skew count and then they can place their order and pick it up at the store. So this is where we got two pilots running right now and this is a -- this is one that probably well-developed in the UK in our particular space but it is less developed in this country, this is still unfolding with lots of different experiments. But I think that's a very good way to leverage your physical stores because in many cases people come and what we're seeing in the pilots is they come to get their order and then they go shop to get some additional things on top of that. So the basket is nice in that. It's early and the data is I think it's too early but I think there's lot of potential there with that sort of experiment so.

Kate Wendt - Wells Fargo

That's great. Talk a little bit about new stores. I think one of the important changes you've made is just how you're approaching new store development, different sized stores for different markets; you've also tested different stores in different types of markets that you never thought you'd go to before. Can you talk a little bit about how that process has evolved about in terms of how you're thinking about where you're targeting your stores, some of the tests that you're doing in different that are maybe not your traditional demographic and how those stores are performing?

Walter Robb

Yeah. Well I think what's exciting is that we have 1,000 store goal out for the United States. I think we're demonstrating over the last couple of years that we can grow faster and that we can accelerate our square footage growth and that we can open in a variety of the markets. About a third of the new stores are in new markets, so two-thirds are in and just to make the case that again our growth opportunity is not just these newer markets it's also our existing markets where we're just not fully penetrated and we still have tremendous growth opportunity. Minneapolis or Dallas are two examples I showed you this morning.

So I think that our model coming out of the recession was the right store at the right size in the right community in the right amount of capital. And we have worked a lot over the last couple of years at really being better stewards of capital. I think our return on capital is somewhere around the 6% or 7% in 2008, I think we're up around 14% or 15% now as we really work to get the right amount of capital in each thing.

So the growth thing is this sort of idea I think that we have the sense that we can do a lot markets, there's there a lot more opportunity for us. As we sat down and looked at the map of the United States and said where could we go, we see a lot of opportunity. I think more so now truthfully than I've ever seen in this business. And I started in 1978 when we were kind of fringe, and I look now and I see the demand for Whole Foods or fresh healthy foods is greater than ever. This market is growing. And so even if there's competitors, and by the way, most of these competitors have been around for a long time, they're not new competitors. The market is growing, the demand is moving this way, and I think we're leaders in that space. And so I think we'll continue to be leaders in this space.

So I think the real estate out there is just there's a lot of opportunities. It's more about can you selective and disciplined in which ones you choose and can you grow at a rate that doesn’t blow your culture, right. So hence for us, that's the sequential growth of 32 this year, 33 or 38 next year and then north of 40 the year after that and continue to accelerate but at a pace that we can sustain.

So I think it's been just being disciplined about where we go, disciplined about the spend, getting the size right so that we've got the business model sort of in a good place and making sure we can do that pace that keeps the culture strong.

Kate Wendt - Wells Fargo

You set your 1,000 store target a while ago and I think before you found success in a lot of these tertiary markets, do you think if you find success, continue to find success that you could potentially move beyond 1,000 store goal if you look out longer term?

Walter Robb

I do, but and we might even have number in mind but we're prepared to share it today.

Kate Wendt - Wells Fargo

Get there first.

Walter Robb

So what's that?

Kate Wendt - Wells Fargo

Get there first. Yes.

Walter Robb

Well, no, just I think that -- I think the opportunity is really big. And by the way, that number is just for us in the US and there's -- we're in Canada and the UK; we've been in Canada for over 10 years, the UK seven or eight. So when you look at our company's potential, the growth potential, there's a whole world out there. There's also a lot of landmines in road path but at some there is a -- there's an opportunity for Whole Foods in different countries as well.

Kate Wendt - Wells Fargo

Great. Well, why don't we open it up to see if there any questions from the audience?

Unidentified Analyst

There seems to be I guess there seems to be considerable turmoil in the mall space and you alluded to new opportunities or the real estate backdrop --

Walter Robb

Yes.

Unidentified Analyst

I'm just kind of wondering how Columbus Circle, if that's a model from all or in other words, how do you -- I assume your overall experiences a differential in terms of profitability. I'm wondering how a mall would stack up using Columbus Circle as an example?

Walter Robb

Well, I would take Columbus Circle all day long, and if you can give me those things. So that store is just -- that store put Whole Foods on the map, no question about it. We found another level when we got that store. So we have a lot more expensive New York City by the way. So we've got a bunch of things in process right now; because Manhattan is a tremendous market for us.

But I think your question is you're right, there is a sort of an implosion in the mall space and we've done several deals with Sears, for example, we've picked off some of their space. We've had people who are creative. Our mall developers come to us and say we have some spot on the outside. I think there's going to be a lot of space come to market. For us we have to be careful about, we don't like to get on the interior that stuff and get locked in. We like to be out kind of on our own, on the edge, and in those places where it makes sense then we should do it. We have one in Hawaii, we've done one in New Port Beach. We did one with on the edge of a mall; it's been very successful. So I think it's -- I think you're seeing the disintermediation on retail and so you're seeing generally more. There's not that many strong companies that have strong balance sheets that are in position to take that sort of space. We like looking at those opportunities.

When you go to Europe for example all the supermarkets are in malls and it's very interesting compared to United States, they're all inside malls. And they don't think anything about it. But I don't think our customers are. I think they have to make that transition sort of somewhat gradually. So it's just another example of the opportunity that is out there real estate wise. Only recently, have I seen developers start to build new space again and it's very fairly limited, selective. So I think some of these mall space is going to be repurposed and we'll have to see how that unfolds but.

Kate Wendt - Wells Fargo

Any others from the audience?

Unidentified Analyst

Have you guys been able to maintain 7%, 8% --?

Walter Robb

Just bring the mic here.

Unidentified Analyst

Have you guys been able to maintain 7%, 8%, comps since inception. Near longer-term I mean, any thoughts about how will you be able to maintain that comps sort of growth and as your store open up at those higher new volumes but you seem pretty confident in the last five, six years maintaining that?

Walter Robb

Actually, I looked up that number the other day since we went public it's 8.3% I actually [crafted] down and charted it. So I don't know if there is another public retailer that has that sort of a track record. But look I think there could be adjustments in the short-term and I have done as different things are happening. But I think I'm trying to lay out to you a company that I think is excited about the craft of retailing that we're doing as ever. I think I will hopefully convince you that we have a view to our pathway to an integrated world, the digital world that our culture is strong and capable of innovating. And so I'm pretty confident about our ability to continue to grow and grow successfully.

Kate Wendt - Wells Fargo

One follow-up to our discussion about IT initiatives earlier, how do you think about the expense side of that in terms of hiring, you need to make in the organization, cost of software or hardware those type of things. I mean, in terms of that -- that's the thing you can and cap for the ongoing course of business or how do we think about that?

Walter Robb

Yes, we'll give you more guidance on the. We've already baked our tax spend for the next year into the guidance that we've given you. So yes, we're stepping it up and yes, we took it from some other places to be able to do it, but certainly any company is going to have to put more resources in that direction.

I think the advantage for us are being middle adopters or little later adopters, so if we are a lot more clear that where we want to spend it and I think where we can get the return. And I think its fair questions for you to ask all companies about how they're measuring their return in the tax spend. But you got to give yourself some capabilities both in technology and also data. Your data science, your data abilities retailers are going to have to be able to invest in those and we'll have to be able to -- it's interesting for me when I looked at Amazon, the multiple that Street gives them and yet they don't make any money. They're spending tremendous amount of money but you got -- they get a break on their earnings. But if we try to show up here and tell you that story, it wouldn't be any good.

So we're -- but obviously we're going to have to spend -- we're spending the additional money now. We normally use a rule of 50% of growth rate for G&A as kind of a rule of thumb for ourselves and we're above that on the tax spend it's baked into the guidance that we've given you already.

Kate Wendt - Wells Fargo

Where are you -- what other areas you're able to fund that with as you look in the organization?

Walter Robb

Well, I don't think -- I'm not going to give you that level of detail. But within our overall G&A budget we just -- we looked at some others and just be a little more careful and try to create the money for that so.

Kate Wendt - Wells Fargo

Any others from out there?

Walter Robb

No, bathroom breaks. So no lunch break.

Kate Wendt - Wells Fargo

Well, I'll follow-up with a last one on shrink. You've made a lot of nice progress this year; can you kind of talk about what even just small changes you've made at the store level that have helped enable that in terms of a driver of margin and what opportunities you think they are going forward?

Walter Robb

Yes, we have talked about that as we continue to make the price investments. It's been surprising to us and that we've been able to use the shrink controls a way of balancing that and continue to produce reasonable gross margins. But I think it's just been a matter of focusing. I think we have always gone to market with on our merchandising strengths, right, lots of products. And as we began to drill into that we realize perhaps it was a better balance in terms of the product and not spoiling our product. So it's just been a focus throughout the organization, in terms of saying let's get this, we know how the machines to capture and record it and track it and compare it year-over-year like any other metric in retail and that's essentially been the reason for this success.

We always have to make sure that we balance that with the experience the customer has. We don't want to tighten it down so much that we --we still we've made excellent progress in that area last year. So it's really helped this to produce the results that we have.

Kate Wendt - Wells Fargo

That's great. Well I think that's all the time that we have. Thank you everyone for joining us and for Walter for coming today.

Walter Robb

Thank you.

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