• by Sarah Mahoney  @mahoney_sarah, March 5, 2024

Whole Foods Market is at it again, hoping a new format can help it gain market share in the grocery universe. The Austin, Texas-based company plans to open Whole Foods Market Daily Shop, a smaller version of its usual stores, starting with New York’s Upper East Side. It will open additional locations in New York and then move on to other markets.

The stores will be relatively tiny, between 7,000 and 14,000 square feet, compared to the typical 40,000 average square feet. That smaller size paves the way for deeper penetration into dense, metropolitan areas.

“We’re tailoring every square foot to the unique, fast-paced needs of urban lifestyles,” says Christina Minardi, executive vice president of growth and development at Whole Foods Market and Amazon, in the announcement. Offers will include Whole Foods Market favorites, like grab-and-go meals, in ways that foster “deeper customer connections.”

Amazon, which has dominated many categories, continues to be a cipher in the grocery business. In 2017, its $13.7 billion acquisition of Whole Foods Market terrified many competitors. Yet Whole Foods is still just a bit player, with Numerator reporting it has just a 1.6% share of the U.S. grocery market, down from 1.7% in 2022. By comparison, Walmart dominates with a 23.6% share, followed by Kroger at 10.1% and Costco at 9.2%.

And while format experimentation is always a given at Amazon, grocery stores are especially so. In 2019, Amazon shut down Whole Foods 365 stores, which had been positioned as more affordable, turning many into traditional Whole Foods stores. Amazon has also been shutting down some Amazon Fresh stores and Amazon Go locations. Those, too, had been positioned as small, convenient, and urban.

Amazon does not break out its sales by category or report Whole Foods sales separately.

In Amazon’s most recent earnings conference call, Amazon chief executive officer Andy Jassy addressed ways the company is looking to unify its approach to grocery, including its .com business, Amazon Fresh and Whole Foods.

“We've been testing a V2 of our Fresh format in a few locations near Chicago and Southern California,” he told investors during the webcast. “It's very early, just a few months in, but the results thus far are very promising on almost every dimension.”

He said Amazon continues to be “very pleased” with sales in nonperishable categories, such as canned goods, pet food and health and beauty products.

And while he says Whole Foods continues to grow “at a good clip,” he reiterated the need for Amazon to make much bigger moves into grocery.