Whole Foods Market opened its first organic and natural goods superstore outside North America, in central London yesterday (6 June). Appealing to high-end shoppers, the US niche retailer has indicated that it has big plans for the market but, writes Katy Humphries, the UK could prove a tough nut to crack.

The opening of the first Whole Foods Market organic and natural foods superstore in London is more than simply the latest incursion into the UK by an expanding overseas retailer.

Texas-based Whole Foods, the largest natural and organic retailer in the world, may be following in the footsteps of Wal-Mart and Starbucks but analysts believe this store opening has wider implications than simply marking a further stage in its own expansion.

Gavin Rothwell, analyst at the grocery research specialists IGD, predicts that the launch will have a significant impact on the UK's grocery sector. "Whole Foods will tap into, and accelerate, the long-running consumer trends of health, wellbeing and ethical consumerism," he says.

Analysts have predicted that the London store could become a tourist destination that generates revenues of between GBP40m (US$79.7m) and GBP60m a year.

"What they offer is breadth and depth of range," says Bryan Roberts, an analyst at Planet Retail. "People will travel into London to visit this store."

Billed as a complete "shopping experience", the 80,000 sq ft store on three floors offers more than quality organic food products. Along with facials and massage chairs, yoga, restaurants and an organic pub, the company will be selling clothing, towels and linen made from organic fabrics.

Whole Foods Market

The store, located in the affluent Kensington district in the heart of London, will be the first in a chain of outlets in the UK and Europe. Speaking at the launch party on Tuesday, Whole Foods co-president Walter Robb indicated the scale of the firm's ambitions for European markets.

"We're obviously not here to do one store. We have plans for the UK and the continent," he said. "We're saying by 2010 we expect we can have 300 stores in the US, and the UK and Europe are around the same size market. Maybe we could have something similar here."

In the more immediate future, Whole Foods has signalled that it hopes to follow up its UK debut by opening between 20 and 30 more stores throughout the country, with others earmarked for continental Europe. Currently, Whole Foods operates 189 stores in the US and Canada, as well as five Fresh & Wild shops in the UK.

However, many industry observers are sceptical about the chain's chances for success, pointing to the differences between the UK and US grocery retail scenes.

"Whole Foods is going to find it hard to bring a unique offering to the UK. Kensington is an amazing site, but over time I think they are going to struggle to expand," says Hoare Gorette analyst Frederick Vandaele. "Whole Foods has had a few very successful years in the US because it occupies a niche position in the high-end market. In the UK, that position is already taken with retailers like Waitrose, Marks & Spencer and Sainsbury's offering quality and organic foods."

According to market analysts Datamonitor, the UK organic sector is expected to reach a value of GBP2.7bn by 2010. But increasing organic demand is not a trend that has escaped the attention of mainstream UK retailers. The major supermarket operators, Tesco, Sainsbury's, Wal-Mart's Asda and, to a lesser extent, Morrisons, as well as premium chains Marks & Spencer and Waitrose, already boast extensive and expanding ranges of organic foods. In order to woo current organic consumers, Whole Foods will have to persuade people to switch their store loyalties.

While ethical consumerism is undoubtedly on the rise, a report by the Co-operative Bank found that organic and fairtrade products only constitute 5% of the average shopping basket. Other research has shown that 60% of consumers buy at least one organic item per week.

So, Whole Foods' exclusive focus on organic goods may not provide a competitive advantage. Indeed, with the majority of UK organic-food consumers adopting a mix-and-match approach to shopping, with organic baby food and fresh produce sitting comfortably alongside conventional kitchen roll and dry goods, the fact that Whole Foods Market only offers organic products may even deter some shoppers.

Industry analysts have also predicted that, as in the US, conventional retailers will continue to step up their natural and organic presence. Looking to the US, Whole Foods has had a tough time of late, with increased competition from conventional supermarkets and Wal-Mart impacting on its sales. In May, the company posted a disappointing second quarter with same-store sales growth decelerating and the cost of new store openings eating into margins.

"For quite some time Whole Foods enjoyed a fairly unique position in the US market," says Vandaele. "In the US you had normal supermarkets and Wal-Mart. Whole Foods saw this opportunity, capitalised on it and had a few very good years. But as conventional supermarkets, and even Wal-Mart, began to move into the organic sector Whole Foods sales growth has fallen off."

Indeed, Whole Foods is using this very argument to defend its proposed takeover of rival natural and organic retailer Wild Oats, which is being challenged by the Federal Trade Commission (FTC) on competition grounds.

The FTC is defining the competitive arena narrowly as specialist organic and natural retailers, whereas Whole Foods suggests that its competition comes now as much from the expanded organic and natural ranges of much larger and more powerful retail chains. The fact that Whole Foods would appear to have a compelling case may be good news in its battle with the FTC but underlines that, in the long run, competition from larger mainstream retailers is only going to become tougher.

Whole Foods' expansion plans in the UK may also be hampered by the UK's restrictive town planning system, the unavailability of retail land and high property prices. This will be exacerbated by the fact that some of the large food retailers have built up "land banks" of potential sites.

"If they hope to expand, they are going to struggle to find large retail properties to develop. The competition for property in the UK is intense," says Vandaele.

In order to offset these start-up costs, Whole Foods will be hoping its UK venture will capture the imagination of enough consumers to generate strong sales growth.

Only time will tell whether Whole Foods can overcome these hurdles and successfully penetrate the UK's grocery market. It is clear that the venture has the potential to transform the landscape of the UK grocery retail scene but until this pioneering retailer gathers a head of steam this transformational potential must be viewed as just that.