South-Western College Publishing - Economics  
Whole Foods makes any condo nicer...
Subject Whole Foods has found an answer to the scarcity of urban groceries.
Topic Monopolistic Competition; Product Markets
Key Words

Whole Foods, Safeway, grocery stores, condominiums, demand, supply

News Story

Texas-based grocery chain Whole Foods believes it has the answer to the scarcity of urban grocery stores: locate stores in new skyscraper condo complexes. Miami's new 74-story Met 3 Tower features a Whole Foods store on the ground floor. Even though the building is 3 years away from completion, a third of its condo units are already sold--and in a city with 50,000 condo units under construction, that says a lot about the appeal of a condo complex with its own on-site grocery store.

Developers around the country argue that the inclusion of a Whole Foods store in their development helps sell condominium units. With wine-tastings, cooking stations, and prepared foods to taste, a trip to a Whole Foods store is more of an adventure than a simple grocery store errand is. A Whole Foods store was located in a Sarasota, Florida, condo complex, and all 95 units presold for anywhere from $280,000 to $1.7 million.

Whole Foods plans to increase its square footage nationwide by 57% by 2008. Of the 59 new stores being planned, 12 are in mixed-use developments in big cities. Whole Foods executives argue that, while they prefer to be stand-alone stores with their own parking just like other grocery stores, sometimes the landscape doesn't allow that. And if it wants to attract a wider clientele, especially in urban areas where available space is scarce, some modifications are indeed necessary.

In fact, Whole Foods isn't the only grocery store locating within high-rise complexes. Safeway, Inc., has located stores under residences in a number of cities nationwide for the same reasons. But Safeway just doesn't offer the same ambience that Whole Foods does.

Questions
1.

Using a graph of supply and demand, show the impact on demand for condominium units when a Whole Foods store locates within the complex.

2. What happens to the price a developer can charge for a condominium with an arrangement with a grocer like Whole Foods in place? Why? Use economic arguments to make your point.
3. Based on the success of Whole Foods, what would you anticipate will happen in the market for grocery store units? Why?
Source Ryan Chittum. "Metropolitan Magnet." The Wall Street Journal, 11 May 2005. B1+.

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