Whole Foods Prepares a British Beachhead

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He expects this to be quickly overcome as more farmers and dairies convert to organic.

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Still, with merchandise accounting for about 70% of grocers' costs, having strong and reliable relationships with local suppliers is a "major issue," says Whitefield. Rivals such as Tesco and Waitrose probably buy more in one week than the Whole Foods Kensington superstore will buy in a year, he notes.

Lannon responds that Whole Foods' aim isn't to compete with mass-market competitors like Tesco, which have "tacked on" organic ranges to their regular product lines. Rather, Whole Foods aims to make its mark by selling exclusively organic and natural products. It will also have an in-house bakery, chocolatier, and restaurant. Offering that level of service may be the best approach, given that the retailer's high prices have earned it the unflattering nickname "Whole Paycheck" in the U.S.

Indeed, Whole Foods clearly has no intention of going the low-cost route. Lannon says the company aims to be competitive in commodities like milk and eggs and "fair" on all other prices. But if Tesco, which is well-known for its bare-knuckled pricing tactics, starts a price war on its organic ranges, Lannon says Whole Foods won't engage.

Formula for Success?

Small wonder. The Kensington store, located on the ground floor of a former department store, is reportedly costing $7 million to build and won't likely turn profitable for three to five years, figures Management Horizons' Whitefield. Media attention surrounding the opening is helping boost interest from potential customers, but the true test will come months later, when the hoopla has died down. Whole Foods denies reports that it plans to open up to 70 stores in Britain. Rather, Lannon says, it aims to roll out a total of 15 to 20 new stores each year, some of which will be in Britain.

Certainly, if anyone's in a position to temporarily absorb a loss, it's Whole Foods, which now has 187 stores scattered across the U.S. Even with tempering growth, the company is forecasting $12 billion in sales in fiscal 2010. Lannon is convinced the Whole Foods formula will work as well in Britain as it has in the U.S., thanks to the public's overwhelming demand for organic food. The doubters someday could be eating their own words.

Norton is a BusinessWeek.com correspondent in London.