The Store That Ate New York

The Feb. 4 fête to trumpet the opening of the $1.7 billion Time Warner Center was an absurd if distinctly New York baptism.

Cindy Crawford, Wolf Blitzer, Kevin Bacon, Calvin Klein and Salman Rushdie were among the 5,000 well-coiffed guests nibbling canapés furnished by the building’s resident über-chefs-Thomas Keller, Gray Kunz, Jean-Georges Vongerichten and Charlie Trotter-as Jewel, Marc Anthony and Cirque du Soleil cooed and contorted themselves onstage inside a biosphere-styled glass atrium.

But downstairs, in the lower floors of the building beneath the “Foodie Court,” a significant-if less glamorous-development in New York food culture was taking shape: the opening of the Time Warner’s anchor tenant, the 59,000-square-foot Whole Foods Market, which occupies much of the building’s underground expanse.

As stockholders watched carefully to see whether Whole Foods would succeed in its flashiest bid yet-to take over the New York market-the registers were ringing. In the store’s first week, analysts estimate the Columbus Circle flagship recorded $1.2 million in sales.

Indeed, Whole Foods’ aggressive moves into New York offer a window into the future of food in this city-and its beating heart is not in remote hometowns in Russia or Italy or France or Greece, but in a corporate headquarters in Austin, Tex.

Will immigrant purveyors and their children and grandchildren selling specialty ingredients in cramped quarters continue to be the chief negotiators of New York’s ever more discerning palate? Or will that relationship move to the sanitized, earth-toned aisles of the Texas-based natural-foods archetype that caters to the flotsam of Middle America?

“It’s becoming like suburbia,” said Joshua Russ Tupper, manager of the famed Russ and Daughters at 179 East Houston Street. His is the fourth generation to run the store, with its palazzo-tiled floors, bright 50′s-style pendant lamps and coolers full of proper Beluga caviar, exotic cheeses, chopped liver and dried fruit.

“New York is a place of specialty shops,” he said. “If you want cheese, you go to Murrays and talk to them and you’re surrounded by cheese. The guys who work for me are a bunch of Dominican guys speaking Yiddish. You get the old Jews coming in and talking Yiddish with them. It’s an experience you don’t find any place else.”

And it appears to be fast receding.

“It’s disgusting, but it’s inevitable. Seeing all these other big businesses-it’s not great, but I don’t see how to stop it,” Mr. Tupper said. “There’s only so much Russ and Daughters can do. It’s capitalism.”

Though the company doesn’t release specific sales figures for individual stores, Whole Foods executives did say that the Chelsea store has been the highest-grossing Whole Foods in the country, and the Columbus Circle flagship was among the five top-grossing stores when it opened at the beginning of February.

“We always wanted to be in Manhattan,” said Christina Minardi, Whole Foods’ vice president of operations for the Northeast region. “It’s amazing, when we opened up Chelsea, how many requests we got from customers who said, ‘Oh, I want a store in my part of Manhattan. Why can’t you open up here? Why can’t you open up there?’”

The Time Warner Whole Foods flagship is now the largest grocery store in Manhattan, and it’s the latest opening of a chain that has 155 stores in North America and Britain. Moreover, Whole Foods’ march into Manhattan is just beginning. In addition to its 38,000-square-foot Chelsea store on the ground floor of the Chelsea Mercantile Building at 252 Seventh Avenue at 25th Street, open since 2000, the company will launch a 57,000-square-foot tri-level store at Union Square at the end of the year, and by 2005 Whole Foods will debut in Brooklyn with a 50,000-square-foot market in Park Slope on Third Avenue (with 200 parking spots!). Company executives say they envision up to six Whole Foods in Manhattan, where such venerated neighborhood food stores as Fairway, Zabar’s, Balducci’s and Citarella are institutions-and the objects of fierce cocktail-party prattle over which store stocks the best deli meats-but whose future is now inexorably overshadowed by an international chain that has reached the tipping point in brand awareness.

“Absolutely, their presence puts Zabar’s and Fairway under extraordinary pressure,” said Alan Victor, an executive vice president of Lansco Corporation, a commercial-real-estate brokerage firm that specializes in retail properties, who has advised firms from Dunkin’ Donuts to Ralph Lauren on retail space.

And the little stores, the big open-air markets, the places with all the personality that Americans love to see in Manhattan movies? The Ludlow Street chocolate guy? The Essex Street pickle guy? H and H Bagels?

National consumer chains are no longer out of place in New York. In areas such as Chelsea, where Whole Foods debuted in New York in 2000, big-box chains like Best Buy sit check by jowl with national eateries like Olive Garden and Outback Steakhouse. Whole Foods, with its earth-friendly aesthetic, spacious layout and copious selection of gourmet foods, has tapped into a nascent consumer desire in the city that has fueled parallel growth in national brands from Soho to Columbus Avenue.

“Whole Foods fills a void in the market. They offer the convenience of a supermarket with the quality of a smaller market,” said Carole Buyers, an analyst who tracks the natural-foods industry for R.B.C. Capital Markets. “Whole Foods increases the competition, and they will change the whole supermarket environment. Their stores are bigger than anything else out there in the city.”

“Certainly, as the city is becoming more quality-oriented-for food and housing and every other product-the market is shifting into the higher level, like the Time Warner Center itself,” said Jack Bloom, an adjunct professor of entrepreneurship and innovation management at N.Y.U.’s Stern School of Business. “I definitely think the higher-quality chains like Whole Foods are taking away market share from the Gristede’s and Fairways of the world. It’s the general trend-unless you can come out with something that is dramatically cheaper, like a Wal-Mart-type product, and appeal to a middle market.”

“Fairway’s mode of operation will have to change. There will have to be no more shouting food Nazis,” said Gary Giblen, the research director at C.L. King and Associates, a firm that tracks mid-cap companies. “Whole Foods tends to become a social center, just like a Barnes and Noble.”

Of course, many-like Fairway’s co-owner Howard Glickberg-don’t see any reason for worrying.

“Whole Foods is a nice, overpriced store. They do a good job. I don’t think they will impact us; we haven’t felt too much of an effect,” said Mr. Glickberg. “They are so overpriced, they’ll get touristy type of people. If someone goes in there and checks everyday prices, they are way out of line. They have their customer base, and we have ours. Price is our biggest advantage-we carry a full line of everything.”

Fairway itself may just be the only competition for the Texas juggernaut. Last year, the 55-year-old Upper West Side institution opened a 55,000-square-foot store in Plainview, Long Island, and the company is eyeing additional stores in the New York region. And to match Whole Foods’ organic produce, Fairway expanded its Upper West Side store in 1999 with a separate natural-foods section. According to Mr. Glickberg, the company posted double-digit growth in organic foods last year.

Dane Neller, the chief executive of Dean and Deluca, also said that his company caters to a different clientele. He didn’t see Whole Foods posing a threat to Deluca’s well-heeled customer base.

“We’re in a different sector,” Mr. Neller said. “We’re more about premium product; they’re about premium health and organic foods. Whole Foods is good for the market. It makes people appreciate a finer quality. It upscales people’s palate.” Last year, the privately held Dean and Deluca opened its second Manhattan flagship store with a 3,800-square-foot market on a prim block at 85th Street and Madison Avenue, and the company also has a café in Time Warner Center, in-where else?-a Borders bookstore.

In December, in a move that will further increase competition among the gourmet grocery businesses in the city, Bear Stearns acquired the Sutton Place Group, the company that owns the Balducci’s and Hay Day Country Farm Market chains, in a $50 million deal. Bear Stearns now plans to grow the chain to 50 stores in five years, building on the storied Balducci’s name that dates to 1916.

But it’s Manhattan’s small, independent purveyors that may see the biggest threat from Whole Food’s growing presence in the city.

“It’s not great for us to have a large corporation able to get things cheaper and sell things cheaper and that is growing this fast,” said Russ and Daughters’ Mr. Tupper.

Even as New York’s neighborhood specialty-food businesses now face a market with a rapidly expanding national brand, full-service supermarkets-companies including Food Emporium and Gristede’s-have also been affected by the upward trend of New Yorkers’ culinary predilections. In recent years, New Yorkers have embraced Brillat-Savarin’s famed dictate equating food with status with an ever-intensifying penchant for gourmet products. (Why have a loaf of Arnold’s when there’s sourdough from Sullivan St. Bakery on display?) To counter Whole Foods’ growth, the mid-priced grocery chains have increased their inventory of natural and imported foods in an effort to improve their image.

“In the last year, we’ve stocked more organic foods than we did during the previous four years,” said John Catsimatidis, the chief executive of Red Apple Group, which owns Gristede’s, a 116-year-old chain with 43 stores in Manhattan and $300 million in annual revenue. “We haven’t forgotten that the primary business of a grocery store is to deliver food at the lowest possible price.” If Gristede’s intends to compete on price, the company has also adopted larger-format stores to increase its efficiency. Since the late 1990′s, the company closed a dozen of its smaller 4,000-square-foot stores.

“In the past year, revenue growth was up 15 to 20 percent. Our average square footage is 11,000 square feet. The old 4,000- to 5,000-square-foot stores don’t work anymore,” Mr. Catsimatidis said.

But of course the food is never the whole story. The brilliance of Whole Foods lies in its marketing. Much like S.U.V.’s that have catered to those who want to feel they embrace the rugged outdoors in their Hummer H2 even as they shuttle the kids to soccer practice, Whole Foods-by building spacious stores with attractive designs that evoke an eco-conscience sensibility-has lured a new generation of consumers who view shopping, even for the basics, as a reflection of their values.

In 2002, Sex and the City ‘s Kyle MacLachlan and his fashion-publicist wife, Desiree Gruber, bought a new $1.35 million condo at the Chelsea Mercantile building, basically so they could live atop the natural-foods megastore.

“Of course it’s a full-service building, and I can walk to work, but that grocery store-that threw us over the top!” Ms. Gruber told The Observer at the time. “It’s amazing …. It’s like therapy! You feel like you’re really taking care of yourself. It doesn’t compare to going to the corner deli.”

The Whole Foods model is as much about the store’s appearance as it is about the quality of the food. The 42 registers shuffle sated shoppers out of the store in rapid succession and keep the aisles from overcrowding. New Yorkers’ are going for it: suburban convenience (exemplified by the efficient checkout system), coupled with the store’s inventory of gourmet-prepared food, which is displayed with a perfectionism fit for a photo shoot-one that would pass even Ruth Reichl’s discerning eye. The company derives 65 percent of its revenue from prepared foods-everything from the deluxe salad bar with Moroccan lentils to chipotle lime tofu.

“They have a flair for merchandising their product. They’re not only appealing to the natural-foods consumer, but also those who want a nice atmosphere to shop in,” said Mark Hamstra, an editor at Supermarket News , an industry trade publication.

“The packaging and image of the store never ends, even down to the staff. It really looks like every cashier is on loan from Amnesty International,” said David Brooks, the New York Times columnist who documented the rise of the cultivated consumption class in Bobos in Paradise .

As Ms. Buyers put it: “It’s more of an entertainment experience than a shopping experience.”