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Whole Foods facing investor skepticism that 365 can rescue

[NEW YORK] With Whole Foods Market Inc poised to give the first progress report on its new grocery chain called 365, the company faces a skeptical audience.

Shares of the Austin, Texas-based retailer have tumbled 16 per cent this year, dragged down by the worst sales slump since the recession. The lower-cost 365 stores, which began opening this year, are meant to help reinvigorate the company. But shareholders are still waiting for signs that Whole Foods can woo budget-conscious shoppers.

"If they can make it a viable chain, that obviously opens up opportunities," said Jennifer Bartashus, an analyst at Bloomberg Intelligence. "With the core chain struggling, it's put more expectations on 365." After four straight quarters of same-store sales declines - and a fifth one projected for the latest period - Whole Foods is at a crossroads. The company's original growth strategy, fueled by pioneering the organic-food industry, has struggled because too many competitors have pushed into the category. But creating a cheaper chain aimed at millennials carries risks as well.

The 365 effort is a bet that Whole Foods can appeal directly to a set of penny-pinching customers who have mostly shunned the chain. The new stores are cheaper to build and staff than traditional Whole Foods locations, and they give the company a new way to cope with an increasingly competitive grocery industry.

So far, Whole Foods executives haven't said much about how 365 is doing. The original 365 location debuted in Los Angeles's hip Silver Lake neighborhood about five months ago, and two other stores opened outside Seattle and Portland, Oregon.

The locations, which took the 365 name from Whole Foods' longstanding private-label brand, are about half the size of a typical store. They also offer fewer items, with an emphasis on prepared foods. There's no deli or cheese counter, and they use a standardized store design to keep construction costs down.