Whole Foods' Scott Simons: Why we're remodeling instead of building

Well, the information was fast and furious yesterday as Whole Foods announced its plan to abandon building a new facility in Lakewood and instead remodel the old Minyard's building at Gaston and Abrams. We had lots of comments, passionate and thoughtful, about what this decision means for the neighborhood, why it came when it did and, of course, a little finger-pointing/wagging about who should be blamed/praised and why.

Just a little background for those of you too pre-occupied with your real lives yesterday to read every word of the voluminous posts: Here's a quick update and simple "click here" guide to who was saying what. Among the many people weighing in on the decision were Scott Simons, WF's marketing point guy out of Austin; Jeff Siegel, our contributing editor; and some comments from Jeff and city councilwoman Angela Hunt, who met with WF a couple of days before the decision was announced.

And this morning, we received another email from Simons, who offered an even-more-detailed explanation for what happened and why. Here's what he had to say ...

Jeff,

I just read your update on the site and appreciate your take on it. You may publish this email on your site if you wish, because I feel that a lot of speculation on this decision is being made and I want to be clear on why we’re choosing to renovate.

As you and I discussed on the phone late yesterday afternoon, this decision came about due to a number of factors, and the Planned Development District challenge was only one of them.

Did the PD issue with the city planning offices contribute to the decision? Absolutely. Do we feel that the City of Dallas was trying to put roadblocks up on the project? Absolutely not. The city has their due process for every issue that comes up, and sometimes those processes take a while. That’s just the way it is. We don’t feel that anyone was maliciously trying to put up roadblocks; not in the least.

Our decision to renovate rather than rebuild is a business decision based on a number of factors:

1. We’ve been paying rent on the existing property for quite a while. That rent we’ve been paying is overhead that we have been absorbing. Even though it certainly didn’t show up in a physical way to the neighbors, we’ve been investing in that property for some time.

2. We spent a great deal of time attempting to unravel a very complex set of construction circumstances, including two different legal properties on the city block where the store sits and two different landlords who had their own requirements for their own properties.

3. It took more than a few months for our legal council, engineering firms, design firms and other vendors to help us come to a conclusion on what type of building we could possibly build for this site that would make the neighbors happy, allow us to run a profitable store, and make the City happy. This was all before we could even begin the design process of the building itself.

4. We had to undertake a thorough research of the neighborhood to make sure what we designed would be positive and offer things the neighbors would enjoy, such as outdoor dining, green spaces and a rooftop deck, not to mention what would go inside the store.

5. And then the initial architectural design process. Another couple of months, minimum.

6. We have a great track record of building new stores that respond to the neighborhood in a thoughtful way and are truly sensitive, both environmentally and structurally. We’ve built amazing and thoughtful stores in Austin, Manhattan, London and even Sugar Land. We thought our reputation for delivering beautiful stores preceded us. We now see that the neighborhood may have had some challenging development issues in the past that possibly made folks untrusting of any company, no matter the circumstances or history of doing business in the area. We believed that we had a great reputation in East Dallas because we’d been in business for so long there, and that our community giving and business practices spoke for themselves. We thought our design would be received very positively across the board and we would be able to move very quickly with construction of the proposed new building.

7. We’ve received a lot of emails and phone calls from neighbors, independently, asking us to get the store open as soon as possible. And I mean a lot! From what we’ve heard, they do not want to see that building sitting empty for another six months to a year.

8. During our neighborhood meetings, one thing that we’ve heard very clearly is that the neighbors would like to see us take the most environmentally sound path when it comes to this new store. Remodeling the structure and reusing what is already there is much more environmentally sound than a tear-down and rebuild. It is a better fit with our Core Values as a company and our green business practices.

9. It is no secret that the process for a zoning hearing was expected to take longer than anyone had hoped. All of our experience pointed to the process being from 6 more months to up to one year, simply based on our experience in navigating these types of things. And it is normal. However, after this much time and expense, we simply cannot afford to wait another year, and what we’ve heard from many of the neighbors is that they don’t want us to wait another year either.

So, at the end of the day, we’re talking about a business decision. And as a for-profit, publicly-traded company, we are bound to make business decisions that benefit all of our stakeholders: our team members, our stockholders, our customers and our neighbors.

I hope that this sheds a little more light on our decision, and I’m sorry if our original correspondence wasn’t as clear. We had tried to make our explanation as simple as possible, and in truth, our decision was not a simple decision…it was a very complex decision that needs a more complex explanation.

I saw one comment on your site from Kelly, a reader/neighbor talking about how we can take an existing structure and make it look much better, and not to give up hope that we can do something good with the building that exists. Kelly was right on the money. We are committed to doing what we can, within the city’s guidelines, to make the new Lakewood store beautify the neighborhood and be something the neighbors will be proud of.

Just because we’re remodeling doesn’t mean we’re giving up on making the neighbors proud of their new Whole Foods Market store!

Thank you,
Scott Simons | Marketing Team
Whole Foods Market Southwest

Comments

[JKR]

Let's hope we can all smoke the peace pipe as we have after other neighborhood battles (not that this was a battle - it was more of an un-spent salvo).

The old store provides an opportunity for a sidewalk bistro along Abrams. That would be a great place to hang out and pedestrian-friendly to Lakewood Country Club Estates. But I'm still not giving up on an aerie overlooking Lakewood and the view to Downtown.

We welcome you, Whole Foods!

[Robert]

So, it turns out Plan B was really Plan A. Within WF corporate I am sure it made no sense to spend $112/SF to build a new building on a piece of ground that they control for less than 21 years, which at the end of the lease they can get booted. Especially if renovation costs are a third or less ($35/SF).

And keep in mind, that in the next few years, 2 if not 3 of the four corners at Abrams and Mockingbird will be in play for re-development and a new grocery store. The folks at WF probably are keeping their eye on that location for themselves as well. So I see the renovation of the Minyards building as a short-term play for them.

In today's retailing market a small free-standing grocery store doesn't fit the WF model. For them to be competitive as a free-standing store they need to be 60,000 SF, anything smaller and they prefer to be a shadow-anchor in a shopping center. They are a short term player at the Abrams/Gaston location, and will vacate that building before the lease is up.

Lakewood residents need to look ahead, past WF as a tenant for the Abrams/Gaston location. The small site really makes no sense for a grocery store use, but should be utilized to expand the convenience retailing that Lakewood needs and would support.

[ryan]

Ahhh Im with JKR. I cant wait to dine outdoors at the bistro in the evening!!! The air heavy with exhaust, the moon....wait its blacked out by grackles coming in, and the sounds of family and community waltzing around Gaston and Abrams.....No wait thats the grackles too.
Simply divine!!!!

[JKR]

ryan we can wave to our friends driving by while we look cool with a wheat grass shot. The grackles never seemed to deter the swells at Genaro's and later the craic at The Tipp under those Live Oaks at Skillman and Live Oak.

[Norman Alston]

Yesterday I posted that the decision to remodel was a welcome one to me. I have looked forward to having a grocery store in the neighborhood again. I have also previously commented that I thought the demolition of a usable building was somewhat inconsistent with the WF's stated corporate philosophy. I am happy to move forward under these new circumstances.

It is in this light that I find Mr. Simons' comment number 6 above disappointing and out of place in an otherwise straight forward, useful explanation. It clearly conveys disappointment that their initial design concept was not universally welcomed and states clearly that he believes that some of our neighbors are distrustful. It complains in no uncertain terms that we in East Dallas must not be aware of their reputation for good design. Perhaps most galling is the comment: "We believed that we had a great reputation in East Dallas because we’d been in business for so long there, and that our community giving and business practices spoke for themselves." I can only read this as his assertion that we in East Dallas are unappreciative or even unaware of the good things his corporation has tried to do over the years. East Dallas has clearly supported his company's store for a long time and is undeserving of such thinly veiled criticism.

Speaking now for myself, it is specifically because of their reputation for progressive design and thinking that I expected a different approach from them. Mr. Simons comments make no mention of the fact that they brought to the neighborhood a preliminary design that was at odds with the clear, documented urban design standards that were developed by members of the neighborhood and contained within PD 281. They brought to our neighborhood instead a developed design that could not be built within the existing zoning but were not looking for ways to work through this problem, only to get it approved. They seem to have learned absolutely nothing from the Emerald Isle project, which only a few short months ago did precisely the same thing and went down hard at the hands of adjacent neighborhoods.

It appears that little has changed beyond the plan. Pretty emotional stuff for a "business decision"

[ericthegardener]

Mr. Alston, your thoughtful comments are appreciated!

[mark]

It's a sad and embarrassing day for Lakewood. But I'm sure if we put enough effort into it, we can chase them away completely. Other blogs are laughing at us,-see Frontburner.

[ericthegardener]

If the benchmark for quality writing were Frontburner I'd be plenty happy to be on the opposite end of that scale.

[R. Stewart]

This solely addresses the question whether or not Whole Foods decided to renovate based on financial reasons or community pressure/input/etc.:

The collective action of the Whole Foods Executives interpreted in a rational economic framework speaks louder than their recent words. I support their decision to renovate even though I think our community would benefit two fold from a new store. I do believe Whole Foods decision was fundamentally influenced by the actions (or inaction) of our community whether we (or they) want to admit it or not. So, we all screwed up: those who knew better but chose to sit on the sidelines (me) and those whose clumsy steps created a dust storm of uncertainty for Whole Foods ultimately clouding their decision and straying from the best course of action. Whole Foods was doing our community a favor and was willing to take the costlier approach and endure a lengthy process to both provide the maximum economic and social good. Obviously they are not operating within that singular motivation, and as a growth-oriented company they knew first that it is in their own long term interest to efficiently grow their company through establishing consistent product distribution and service delivery systems executed through a consistent, controlled built environment represented best by their new store platforms.

It would be difficult to argue against the contention that Whole Foods is currently one of the most respected companies on Wall Street and Main Street. As such, you could assume the company probably is not lacking in industry best talent and executive leadership. If the previous statements were only partially accurate, it makes it utterly difficult to comprehend the current standing wisdom that after having traversed for months through the challenges of this project, Whole Foods now only discovers that the new building they planned was determined to be more expensive and take longer to complete compared to the alternative. The decision, in reality, and as the Whole Foods Executives know, is more complex than the conventional wisdom upon which such misleading rationality is peddled. The ‘useful idiots’ embedded in our community were anticipated by Whole Foods, who became the beneficiaries of this flawed and overly simplified conventional wisdom which supported their graceful change in strategy.

Economics requires a basic assumption that entities act rationally. As such, a risk-reward based assessment is much more useful in predicting or determining a course of action that such an entity may choose when operating in under market conditions. In that regard, assuming Whole Foods would have only rationally concluded not to build an entirely new ground-up store in Lakewood, would have determined this only under circumstances when the calculable downside-risk associated with engaging the ‘neighborhood’ (realistically, especially if they preferred to build a new building, this could only have been decided within the past few weeks during the community and municipal meetings) would outweigh the calculable operational/functional/brand continuity benefits that a new store affords.

Capital investment decisions such as land and building costs for high-margin growth-oriented retailers are not made in a vacuum or solely determined on the amount of the initial investment; in fact, because of the relative scale of the investment, arguably it isn’t even the primary determining input in the decision to build new or renovate. This is evident if you study the exorbitant land costs retailers have been willingly to incur in the short-term, such as a retail bank branches like Wachovia and Chase and even more so during the last decade with Walgreens and CVS. Publicly-traded companies need to establish durable income streams over the long term which usually must be built on a foundation of capital investments made over the life of the company usually when cash is most abundant (during its growth stage). Whole Foods knew the costs of a new building to a degree sufficient for a sophisticated pro forma and cash flow model. The building was based on programmatic plans backed with actual historical cost data from previous projects. Headquarters are in Austin and therefore they are no doubt aware of the difficulties with gaining municipal approvals for large retail projects in urban districts. This reasoning supports the fact that Whole Foods’ original decision to build new was their preference because over the long term it provided superior returns for the company and their shareholders. Therefore, the only thing that would change their path could have only been the uncertainty caused by the actions of our community.

To summarize and repeat my thesis, the collective action of the Whole Foods Executives interpreted in a rational economic framework speaks louder than their recent words. I support their decision to renovate even though I think our community would benefit two fold from a new store. I do believe Whole Foods decision was fundamentally influenced by the actions (or inaction) of our community whether we (or they) want to admit it or not.

[Judy Howard]

I grew up on Coronado behind the Lakewood Country Club. I now live within walking distance of the former Lakewood Minyard's store.

While shopping last week at Whole Foods on Greenville, a female patron revealed to me that WF planned to put the Minyard's sight back on the market and wait for the Albertson's on Abrams and Mockingbird to become available as their new sight. Any truth to this?