May 4, 2016
Executives
A.C. Gallo - President & Chief Operating Officer John P.
Mackey - Co-Chief Executive Officer & Director Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President Jason J. Buechel - Chief Information Officer & Executive VP David Lannon - Executive Vice President, Operations Walter Robb - Co-Chief Executive Officer & Director Ken Meyer - Executive Vice President, Operations
Analysts
Vincent J. Sinisi - Morgan Stanley & Co.
LLC Kenneth B. Goldman - JPMorgan Securities LLC Rupesh Parikh - Oppenheimer & Co., Inc.
(Broker) Phil Terpolilli - Wedbush Securities, Inc. William Kirk - RBC Capital Markets LLC Joe Edelstein - Stephens, Inc.
Zachary Fadem - Wells Fargo Securities LLC Stephen Grambling - Goldman Sachs & Co. Mark Gregory Wiltamuth - Jefferies LLC Robert F.
Ohmes - Bank of America Merrill Lynch David G. Magee - SunTrust Robinson Humphrey, Inc.
Joseph Isaac Feldman - Telsey Advisory Group LLC Kelly Ann Bania - BMO Capital Markets (United States)
Unknown Speaker
[Abrupt start] continual enhancements that will provide our customers a more seamless experience over time. Instacart has recently expanded to Orange County, Baltimore, Charlotte, and San Antonio, with additional markets coming soon.
Collectively, Whole Foods and Instacart deliver fresh groceries to more households in the United States than anyone else. We are continuing to hit major milestones in replacing our legacy systems with new technology platforms.
We have completed the pilot phase for our new point-of-sale system and are now accelerating the rollout. We are on track to be in all of our U.S.
stores before the end of the calendar year. This new, unified system will provide many benefits including operational efficiencies and consolidated item data to support personalized offers, category management and supplier collaboration.
Our new labor-scheduling program is now in place across all of our U.S. customer service teams, and we plan to introduce the program to two additional store teams in Q3.
With this new program, we are saving administrative time and gaining insight on how to spend labor dollars more efficiently to better serve our customers. The benefits of this new tool will be more fully realized next fiscal year and beyond as we implement it company-wide and incorporate best practices into our labor budgeting process.
With 19 leases now signed, we are very excited to be just three weeks away from opening our first 365 store by Whole Foods Market. Created to complement our Whole Foods Market stores, our new 365 format will offer our same industry-leading standards and dedication to food transparency, delivered in a new way.
The streamlined format is designed around affordability and convenience and will be supported by enhanced digital experiences. Opening May 25th in the Silver Lake neighborhood of Los Angeles, the 28,000 square foot store will be quickly followed by stores in Lake Oswego, Oregon and Bellevue, Washington.
We believe there is customer demand for both formats, and as a second growth vehicle, 365 allows us to attack the value-quality proposition in a new way, while maintaining the integrity the Whole Foods Market brand represents in the marketplace. We are excited to get our first three stores open and to learn and evolve from there.
We are continuing to invest in our team members' development and growth, including creating thousands of new jobs this year. Our 86,000 team members are the essential ingredient in creating our best-in-class customer experience, and we were very pleased to have once again earned a spot on FORTUNE magazine's annual list of the 100 Best Companies to Work For.
We are proud to be one of only 11 companies who have made the list every year since its inception 19 years ago. Turning now to our updated outlook, we expect to be at or below the low end of our prior sales and earnings per share ranges.
While we beat our bottom line expectations in the first half of the year, primarily through better and projected leverage in salaries and benefits, our comp trends have yet to stabilize. We're hopeful that comps will improve over the course of the year as our sales building initiatives gain traction and our comparisons get easier.
Beginning in week 11 of Q3, we will anniversary the sharp drop in our comps last year after a weights and measures audit generated negative national media attention. We expect the offsetting impact from our value strategy to continue, however, as we ramp up our price investments and promotions over the remainder of the year.
Given our lower sales projections, we now expect SG&A leverage to be more in line with the 19 basis points we have produced year to date. This reflects the positive impact of our cost savings initiatives, net of higher depreciation and other cost, including the additional marketing and technology investments we have approved for later in the year.
Please refer to our press release for more details. In closing, we continue to make measurable progress in our nine-point strategic plan to evolve our business, and hope our remarks today highlight the fundamental transformation that is taking place within our company.
We believe we're taking the right steps to grow and improve the company and produce strong results and returns for our shareholders over the long-term We will now take questions. Our call will end at 4:45 Central Time today to allow more time for questions.
Please limit yourself to one question at a time, so that everyone has an opportunity to participate. Thank you.
Operator
We'll go first to Vincent Sinisi with Morgan Stanley. Please go ahead.
Vincent J. Sinisi - Morgan Stanley & Co. LLC
Hey. Good afternoon, guys.
Thanks very much for taking my question. Just wanted to ask if you could give us a bit more color, in terms of the pricing initiative that you're having.
What are customers seemingly, at least, responding most to, whether it's by category, whether it's by medium, et cetera? And then also maybe, on top of that, from a category management standpoint, any updates there that you can share?
A.C. Gallo - President & Chief Operating Officer
Hi, Vincent. This is A.C.
Vincent J. Sinisi - Morgan Stanley & Co. LLC
Hey, A.C.
A.C. Gallo - President & Chief Operating Officer
In the pricing, like we've mentioned on our last call. A lot of our investments this year have been in the perimeter, in our perishable departments, and what we've been seeing is – and we've ramped that up, we started to really ramp that up through the year, and in Q2, we made more investments, and we did some large national promotions in Produce.
We had a big citrus promotion earlier in the year, we had a really big – we had an organic strawberry promotion, which was the biggest promotion we've ever done. And for the first time, we've had marketing to go with it, we did national marketing around that.
And we saw a phenomenal uplift in that. And I'd say that generally, in the areas where we've done the investments, we've been seeing a good uptick in the units.
They haven't been as much as to offset the actual investments themselves, but we think that over the long-term, as customers get more used to these promos, we're doing in the investments, that we'll start to capture a larger percentage of their shopping.
John P. Mackey - Co-Chief Executive Officer & Director
The big difference is that also, with these perishable promotions is, we're promoting across all 450 stores, as opposed to the regions during the promos regionally. So we're getting a much bigger lift, and a much bigger imprint, on social media with this promotional activity.
A.C. Gallo - President & Chief Operating Officer
Right. We think this is a lot more visible than what we've done before.
You also asked a question about category management, where we stand with that. We're doing a lot of the pick-and-shovel work right now, determining the categories, the rolling intent work for each category, hiring category leaders, really doing all that work.
And we see that we're going to probably be laying the foundation through the rest of this fiscal year. And we're going to be then running a pilot at the beginning of next fiscal year in the fall.
And then, once we move beyond that pilot, then we'll start to actually rollout category management later next year.
Vincent J. Sinisi - Morgan Stanley & Co. LLC
Very helpful. Thanks very much.
Good luck.
Operator
Thank you. We'll go next to Ken Goldman with JPMorgan.
Please go ahead.
Kenneth B. Goldman - JPMorgan Securities LLC
Hi. Thanks for taking the question.
You noted in the press release that the average price per item was down. I think it was 80 basis points for the quarter.
I just wanted to dig into this number a bit if I could, and forgive me if you've answered this already, but trying to really get a sense of how much in your view was driven by some deflationary pass-through versus, I guess, what you might consider price investments above and beyond deflation? And again, I know these are hard numbers to quantify, but any sense of that would be helpful?
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
This is Glenda. What we were trying to say was that while average price per item was still up in the quarter, the increase was the lowest increase that we had seen in five years.
And it was 80 basis points lower increase than what we saw in Q1. So does that help clarify?
But no, we don't have any specific way other than that, pointing that out of how much of that was inflation versus change in our actual lower prices.
Kenneth B. Goldman - JPMorgan Securities LLC
Okay. I'll pass it on.
Thank you.
Operator
Thank you. We'll go next to Rupesh Parikh with Oppenheimer.
Please go ahead.
Rupesh Parikh - Oppenheimer & Co., Inc. (Broker)
Thank you for taking my question. And I appreciate the commentary on digital coupons in your prepared comments.
So just overall if you look at the digital coupon initiatives, how have they performed versus your expectations? And at this point, is there any way to look at it to see whether they're driving better traffic, basket size, or even more units in a transaction?
Jason J. Buechel - Chief Information Officer & Executive VP
Yeah. This is Jason.
We're still in the early innings of this program, but I think as a whole, we're very excited about the results. As you saw, we've significantly increased the number of users for our app, so in addition to both using the coupons, we have a more engaged customer is now leveraging our app for the other utilities that we're providing.
Our intention at this point is to continue to add features to our app, inclusive of the digital coupons leading up to our affinity rollout, which we will be piloting our next city up in Dallas, and then doing our national rollout following that test.
David Lannon - Executive Vice President, Operations
This is David. I'll also say that our supplier is really excited about the digital coupons.
One of the very first times at Whole Foods that our suppliers will be able to get back data analytics on the performance of their promotionals at Whole Foods. So again, we're in the early innings, but very exciting.
Rupesh Parikh - Oppenheimer & Co., Inc. (Broker)
Okay. Great.
Thank you.
Operator
Thank you. We'll go next to Philip Terpolilli with Wedbush.
Please go ahead.
Phil Terpolilli - Wedbush Securities, Inc.
Yes. Thank you.
Good afternoon. I appreciate you taking the question.
I just wanted to focus on procurements. I think you mentioned a couple things earlier, talking about category managements and sort of a timeline for the next maybe 12 months to 24 months.
I'm just kind of curious maybe the feedback you're getting from some of your suppliers coming out of Expo West and sort of going into the balance of the year. How we think some of the things that you're doing right now could help the model overall?
Thanks.
A.C. Gallo - President & Chief Operating Officer
Hi. It's A.C.
again. Suppliers, we're very excited.
We talked with about 1,000 of them at Expo West, a lot of them have been waiting for us to do something like this. We've been a very inefficient customer to deal with for a lot of suppliers, because they have to go to 11 different regions often and talk to the buyers in each region.
So the idea that they can – they are going to be able to come to just to the global office and talk to the team here, work out their promotions, work out new items things like that, is something that they were very excited about and glad to hear. We know in talking with the suppliers, we formed the supplier advisory groups and we've had some meetings with them.
We know that there's a lot of opportunities for us on the cost savings side, for increased promotions aspect. There's a lot of opportunities there for us to reap once we can get really rolling with category management.
So we're just seeing – we see a lot of opportunities.
Phil Terpolilli - Wedbush Securities, Inc.
Great. Thank you.
Operator
Thank you. We'll go next to Bill Kirk of RBC Capital Markets.
Please go ahead.
William Kirk - RBC Capital Markets LLC
Thank you. So it looks like there were three more lease locations that initially had been signed for regular stores that are now changed to 365.
Can you talk about that decision making process? And then I guess what would need to be done to pull it off?
A.C. Gallo - President & Chief Operating Officer
Yeah. Well, we did announce three conversions to Whole Foods from stores and development in Akron, Toledo and Bloomington, Indiana.
And in looking at those markets and the size of the stores, we felt that they were better suited to be a 365 location, particularly as we looked at the size of stores. We feel that Whole Foods Market stores going forward should be 45,000 plus square feet, and the stores that we converted were approximately 30,000 square feet.
So more value markets and the right size for 365. So that's why we change those to 365.
David Lannon - Executive Vice President, Operations
This is David. We hadn't started the design process on any of those stores, so there's no added expense to change the concept.
In fact, the Silver Lake store, which was the very first store, was initially a Whole Foods Market, but we hadn't had the concept decided before we signed that lease so again, just changed the design to be more appropriate to 28,000 square feet.
William Kirk - RBC Capital Markets LLC
Okay. Thank you.
Operator
Thank you. We'll go next to Joe Edelstein with Stephens.
Please go ahead.
Joe Edelstein - Stephens, Inc.
Hi. Good afternoon, everyone.
Hello? Can you hear me?
David Lannon - Executive Vice President, Operations
Good afternoon. Yes, we're here.
Joe Edelstein - Stephens, Inc.
Yes. Thank you.
I was hoping you could speak more to the cadence in the sales trends during the quarter. We've heard others say it's been choppy month-to- month, even week-to-week.
So really, if it has bounced around quite a lot, I'm just curious to maybe even drill down even into some of the three week trends that you've seen so far into the quarter. Just how true of a trend line is that, if it has been quite volatile?
So any comments there would be helpful. Thank you.
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
Yeah. The improvement that we've seen in the three weeks is in the items per basket, which, it would be nice if that trend would continue.
But it is three weeks, it's a very short amount of time. And I would hesitate to draw any conclusions at all from that, because certainly, things do move around quite a bit from week-to-week and with any short period of time.
A.C. Gallo - President & Chief Operating Officer
We do think a couple of good things are going to happen later on in this quarter. So, as every month passes, the cannibalization impacts in Chicago from our 10 new Dominick stores we opened last fiscal year moderates, as we anniversary it.
And we're starting to see some positive results there, and that's going to continue the rest of fiscal year. So that's going to be a wind to our backs instead of – it's been a headwind for the last – over the last year.
Secondly, as we get into the very end of this quarter, we will anniversary the weight-to-measures audit that happened to us in New York City that went national, and definitely took a tremendous amount of sales from Whole Foods Market. So, when that happens in week 11 of this quarter, we will begin to compare against that, and that's going to be a very positive – that's going to have a very positive effect on our comps.
John P. Mackey - Co-Chief Executive Officer & Director
I just want to note that's all settled now, too. It's one that's been settled for a number of months.
So, it's just looking in the rear-view mirror. And also I think, just as we pick-up through – into the fourth quarter, the comparisons in general just get easier.
The backdrop is a bit choppy, in terms of the macroeconomic environment, but I think we're not calling the bottom, but I think there's lots of things that are very encouraging here, in terms of a turning point, but too early to call that.
Joe Edelstein - Stephens, Inc.
Appreciate the comments, and good luck.
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
Thank you.
John P. Mackey - Co-Chief Executive Officer & Director
Thank you.
Operator
Thank you. We'll go next to Zack Fadem with Wells Fargo.
Please go ahead.
Zachary Fadem - Wells Fargo Securities LLC
Hi. Good afternoon.
In terms of your price investments, I know you've lowered prices on quite a few items this year, and there's more to come. I'm curious how you think about the consumer response for price investments versus digital coupons and promo activity.
Where do you think that you're getting more bang for your buck so far? And how do you plan to balance the two going forward?
John P. Mackey - Co-Chief Executive Officer & Director
It's been very interesting. Doing the price investments, the different – we see different customers react to different things.
The digital coupons have been very, very popular, like with our affinity customers in Philadelphia, and the price/item investments we've done. We're studying the effects, but we're definitely seeing, in some markets, much more of a response to them than others.
We're seeing, in certain departments, we're seeing a lot more response to them than others. So it's still really early in our price investments.
We purposefully designed this to roll out kind of slow and steady, so we could learn from it and see what people really respond to. And I think the really exciting thing, though, that we've been doing is that we're really ramping up our marketing behind them.
With the digital coupons, with our national flyer now, it's digital, we're going to experiment with sending it out to – in some markets, we're going to be mailing it to people's homes. So that I think is really the next big step for us, because I think I said earlier, just lowering some prices here and there and doing some promotions, if people don't really know about them, we're not going to get the full effect.
And so, I'm really excited that we've got now – we're going to have the marketing muscle behind a lot of what we're doing. We're putting that in place, so as we do more investments going forward, we've got – people are going to know about them.
David Lannon - Executive Vice President, Operations
And this is David. I'd also say, bragging about our team members, we're the best merchandisers in any supermarket in the United States.
So our team members know that when we're doing promotions, now that we're inviting more customers in through advertising and digital as well as radio and other mediums, that they know if they really go for it on the merchandising that the customers are going to come in. We're adding more customers all the time.
So it's kind of a virtuous circle between our team members and our customers.
Walter Robb - Co-Chief Executive Officer & Director
If I could – this is Walter, if I could just add one comment. I think the idea is here, we're doing multiple things to serve the customer who now today's customer is coming to the store, but also searching online and doing lots of preparation for food shopping or even food shopping online.
So I think the fact we're reaching out both through the store, through the price changes there which we recognize have a longer lag time, so to speak, to return, because it takes a trip to convert that to business. But then also offering the digital offers, offering the customer both of those choices, I think we're kind of working the mix of short-term, medium-term and long-term in terms of offering our customers a better value.
Zachary Fadem - Wells Fargo Securities LLC
Thanks a lot, guys. Really appreciate that.
Operator
Thank you. We'll go next to Stephen Grambling with Goldman Sachs.
Please go ahead.
Stephen Grambling - Goldman Sachs & Co.
Hey. Good afternoon.
Thanks for taking the questions. I guess first, can you just elaborate on what exactly is fundamentally changing in the cost structure?
And how much of these changes would stay lower if comps were to recover?
John P. Mackey - Co-Chief Executive Officer & Director
Well, we're still on the path that we laid out before, which is the $300 million over the two years. And those, I think, we talked about primarily in the salaries and benefits area, also in restructuring the organization.
So we're on track with that. You can see that reflected in the results here.
I'm not sure what more specifics you're looking for with that, Stephen? I mean we're looking at every aspect of the business, and we're redesigning our back rooms in cases.
We're putting in standard operating procedures across the company. We are pioneering one central kitchen in our stores, which is leading the labor efficiencies.
We're doing all kinds of stuff. Ken and David might have some additional color.
David Lannon - Executive Vice President, Operations
Yeah, I would just point out our leader in distribution, Bart Beilman who's leading our SOP process that we're seeing huge results in our test regions in the mid-Atlantic and also here in Austin, where we're seeing a much higher percentage of our inventory moving to the sales floor and out of our back rooms. We want to talk about it more on the next call, but we really feel that this is going to be a large reduction in excess inventory sitting in the back of our house, in addition to a decrease in shrink, and also overall improvement in team member morale, because the back rooms are in much better shape.
So early days, but very exciting. And Ken and I are planning on rolling this out as fast as we can across all the stores.
Ken Meyer - Executive Vice President, Operations
And John mentioned – this is Ken here. John mentioned the central kitchen that we just launched in our Wall store.
And the power of that is it's simplifying the workflow in our stores so that we're not – we don't have the redundancies of production that we once had. That one person, the most expert person is producing the product that's then distributed to all the other teams in the stores.
We think that that's revolutionary in the way in which we'll operate our stores. We'll have a higher-quality product.
We'll have experts producing it, and we'll take a lot of capital out of the stores that we once had to produce product in multiple places in our stores.
John P. Mackey - Co-Chief Executive Officer & Director
And news flash, the food tastes great.
Walter Robb - Co-Chief Executive Officer & Director
Yeah, this is Walter. Just to kind of put a big frame on that.
I think if we look at our business, we say we were the ones that put a lot of energy and time into the customer experience, into the retail experience, into the store experience. And we had such a pretty strong regional structure and I think were, as a result of this crossroads and transformation we're going through, we're looking at all the systems that supports the processes on how we do work and how we're structured, everything from soup to nuts, really, looking at everything in terms of how we can simplify, eliminate redundancies, do work differently, find more savings through just streamlining the organization.
And that has just led to some – it leads to the land of opportunity for Whole Foods. And I think that perhaps other supermarkets have been there and done that.
And I think we're just arriving and realizing there's lots there, even as we continue to work hard on stepping up the experience that we're delivering to our customers. So I think that's one big way to think about it.
Stephen Grambling - Goldman Sachs & Co.
That's helpful color. And then I guess as a follow-up to your last comment on, you're kind of doing a lot of the things that the other supermarkets had done, and you also had mentioned price investments, a loyalty program as it relates to the other initiatives.
And those also sound pretty similar to what conventional competitors are doing. So maybe you can provide color on some of the other things or aspects that you're trying to implement that will actually differentiate Whole Foods from the group, rather than moving more closely to them?
Thanks.
David Lannon - Executive Vice President, Operations
Well, we only ever made the case – we are talking about price relevancy, we're talking about doing the things that we need to do to be relevant in the marketplace that we're now competing in today. We've all seen the changes.
That's not our – if you look at our nine-point plan, and now as we continue to talk about it today, we're putting a lot of emphasis on continuing to provide new experiences, different experiences. We're opening up all the digital platforms, to be able to reach our customers in new ways and different ways than we've been able to do previously.
So really, this is about much more than just price investments. I recognize many others have done those as well, and that's a part of being in the grocery retail business.
You're constantly chewing up, not just on these conference calls, but you're chewing up every day in the marketplace, as markets change. But hopefully what you're hearing out of this group is a much broader thought process around how we think we can set ourselves apart, continue to differentiate, and gain some momentum, and that's – A.C.
mentioned the promotions, but the marketing around that, which also talks about the quality of the product, the opening up some of these platforms to offer new content and new options for customers. For example, they can shop for food now through wholefoodsmarket.com, that's a new thing we haven't been able to do before.
So in all these ways, I think we're trying to – and the 365 John mentioned is of course another growth opportunity for the company, and serving the customers in new ways. So I think you take the whole big picture and you say, there's a lot going on here to regain momentum.
Ken Meyer - Executive Vice President, Operations
I also want to – this is Ken. I also want to share the fact that our commitment around culinary is really what separates us compared to the competition, and so we have the leadership now in the company to bring that focus and that commitment to really developing new programs.
We have the friends of Whole Foods Market, which are bringing really great restaurant concepts into our stores. And having these partnerships that create a unique experience from a culinary standpoint.
That really is, by far, above anything that we're competing against right now. So we really feel like the renewed focus on culinary in our stores is a big, big differentiator for us as a company.
John P. Mackey - Co-Chief Executive Officer & Director
Yeah, John here. So, how are we differentiated?
I mean A, we're going to create a whole new brand, 365, stores that you'll have to go see, and we've got 19 of those signed up, and many more in negotiation right now. We think that's going to be a huge opportunity for us that's going to help set us apart.
And then, all of our stores continue to innovate. When you go into our new stores, go into the downtown LA, take a trip to Southern California in three weeks.
We're opening a new brand, go see our downtown LA store while you're at it. We're opening great new stores, we're doing tremendous sales, tremendous volumes, we'll continue to innovate from an operations standpoint.
Everybody's continuing to try to copy us, because the innovations are still occurring at Whole Foods Market. That's how we are differentiating.
Now if you mean – sure, we're copying some of the things that some of our competitors do, we're learning from everybody. And competitors are doing some things better than Whole Foods, we certainly want to learn from that and make our company better.
But we are not standing still. In fact, I would argue that we're probably undergoing far more an evolution in our company than ever before.
And the final and probably the most important point, nobody, nobody comes close to matching our quality standards. We're the only supermarket in America that's 100% cage-free eggs, that has an animal welfare system that's top-rated in Greenpeace for seafood sustainability.
We're doing over $3 billion a year in prepared foods and bakery, we're a large restaurant operator. Our stores are very different than our competitors, and we're not standing still.
We're continuing to grow, evolve and differentiate ourselves.
A.C. Gallo - President & Chief Operating Officer
And that's why 800 people were standing in line this morning for our Westford store opening and our 40th store in our North Atlantic region this morning.
John P. Mackey - Co-Chief Executive Officer & Director
Yeah, congratulations to Laura and team out there. That's good.
Stephen Grambling - Goldman Sachs & Co.
That's great. Thanks so much.
Best of luck the rest of the year.
Operator
Thank you. We'll go next to Mark Wiltamuth with Jefferies.
Please go ahead.
Mark Gregory Wiltamuth - Jefferies LLC
Hi. It's Mark Wiltamuth.
Our surveys are starting to show some Trader Joe's discounting out there. Are you seeing that?
And are you reacting to it? Or, what are your thoughts on what you're seeing in the market right now?
A.C. Gallo - President & Chief Operating Officer
We noticed last – I think starting in November that Trader Joe's had lowered prices in certain items, in certain markets. And we monitor Trader Joe's and other competitors very closely, and we make sure we have certain price bandwidth that we make sure that we follow with them.
And so in key items that we saw Trader Joe's change pricing on, we changed pricing as well on certain items to make sure we maintained our proper bandwidth to them. So – but I don't think it's – I don't think that was highly unusual.
I think that Trader Joe's and all our other competitors regularly raise and lower prices depending on, sometimes it's just based on – and generally it's based on markets like a couple years ago, last year, olive oil crop in Italy was terrible and Trader Joe's raised their olive oil prices. And this year, olive oil crop is much better in Europe and everybody's lowering, they lower their olive oil prices.
So, I mean, that's – it's just kind of the way it works. I don't think it was anything unusual or stand-apart from what normally happens.
Mark Gregory Wiltamuth - Jefferies LLC
Okay. And then on the – following-up on the cannibalization question, how is the sequential progress on cannibalization from first quarter into the second quarter?
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
Well, the cannibalization impact does ease over the course of the year as we anniversary the openings in Florida and Chicago, which were our two hardest-hit markets. So it was a little better in Q2 than in Q1, and will get even better in Q3, and then even better in Q4.
Mark Gregory Wiltamuth - Jefferies LLC
Okay. Thank you very much.
A.C. Gallo - President & Chief Operating Officer
Thank you.
Operator
Thank you. We'll go next to Robby Ohmes with Bank of America Merrill Lynch.
Please go ahead.
Robert F. Ohmes - Bank of America Merrill Lynch
Oh, thanks for taking my question. Just on 365, I was hoping, could you remind us, 19 stores you're going to be opening, assuming these go well and it sounds like they could, can you remind us the expectation, if this goes really well, the kind of profit contribution 365 could have?
Are these expected to be higher-margin stores than the core Whole Foods stores? Just maybe a little bit of a – and maybe some of the metrics you'll be looking at when you decide how many to open over the next few years?
Thanks.
John P. Mackey - Co-Chief Executive Officer & Director
I mean, we have to open them up and see. It's, you know, you can – sure, we project things out, but you need data, you need actual results to be able to answer that question a lot better.
I suspect when we come to our fourth quarter earnings call in November, we'll have some hard data on the first three openings. And we'll be able to give you some much more concrete information as opposed to just sort of speculation.
We're expecting them to have very good returns on invested capital and to be very profitable for us. So, yeah, we think they're going to be accretive, and – but we've got to get them up to speed.
Robert F. Ohmes - Bank of America Merrill Lynch
And, John, can you remind us, do they leverage off being close to other Whole Foods stores because you're not clustering the concept based on the stores you've announced so far? And does that make it harder for that chain to be profitable?
John P. Mackey - Co-Chief Executive Officer & Director
No, no, because all the stores are being, from an operational – although the product selection, the pricing, the overall programming is all occurring from our global offices, the actual operations of the store is going to be in the regions, so they get all the advantages of scale that we have in our regions and scales in purchasing while we've been able to program the pricing, the products, the strategy, the decor, the design, all of that from Austin. So we think we're getting the best of both worlds there.
Robert F. Ohmes - Bank of America Merrill Lynch
Great. Thanks.
Look forward to seeing the store.
John P. Mackey - Co-Chief Executive Officer & Director
So do we.
Operator
Thank you. We'll go next to David Magee with SunTrust.
Please go ahead.
David G. Magee - SunTrust Robinson Humphrey, Inc.
Hi. Good afternoon, everybody.
My question also has to do with 365. I'm curious how you'll market that concept?
Maybe you're doing it already or once it opens up. And are you seeing anything now whether it's social media buzz or otherwise that gives you confidence that the demand is out there?
Thank you.
David Lannon - Executive Vice President, Operations
David and Ken, we'll both answer that. We can tell you that everybody is very curious about this, so it's definitely not going to be a secret.
Jeff Turnas, our President of 365, did deskside interviews with all sorts of folks in New York last week. There was probably close to 100 to 150 stories written about us last week showing what we're going to be doing in the first couple stores, showing the way they're going to look, and so a lot of stuff.
We're also going to be doing some traditional stuff, advertising in the LA Times, as well as lots of social media, working with BuzzFeed, a few other groups.
Ken Meyer - Executive Vice President, Operations
And just last week, we had a launch event in New York where we invited all of the press to – and our partners, we had over 200 people there to sort of introduce the concept. And like David said, using BuzzFeed is going to be one of our big vehicles to get out into the social media.
We are now having a two hour dance party in the morning before we open if you want to show – if any of the investors want to show up.
David Lannon - Executive Vice President, Operations
Definitely a good thing to start the day with. It's a day breaker.
Ken Meyer - Executive Vice President, Operations
Day breaker.
David Lannon - Executive Vice President, Operations
Investor shuffle.
Glenda Jane Flanagan - Chief Financial Officer & Executive Vice President
Ah, I love it.
David G. Magee - SunTrust Robinson Humphrey, Inc.
Thank you, and good luck.
Ken Meyer - Executive Vice President, Operations
Thank you.
Operator
Thank you. We'll go next to Joseph Feldman with Telsey Advisory.
Please go ahead.
Joseph Isaac Feldman - Telsey Advisory Group LLC
Hi, guys. Good afternoon, and thanks for taking the question.
I wanted to ask, as you guys look at your most loyal customers, like those core shoppers that they're in there every week, they're your regular guys. Have you seen any change in their behavior lately?
Or is it really those kind of, the casual fringe customer that you've seen a little bit of a drop off with?
Walter Robb - Co-Chief Executive Officer & Director
Hey, this is Walter. Yeah, there were – we've got a pretty good read on that, and I would say very pleased that the core shoppers continues to stay with us, and is staying pretty consistent frequency and also basket.
Where the erosion has happened, it simply has, and the comeback will happen, is also what we more broadly call the occasional shoppers who come in at different frequencies and for different amounts. And that's where I think folks may be perhaps where we've seen a little bit more inconsistency.
So that's the answer.
Joseph Isaac Feldman - Telsey Advisory Group LLC
Got you. Thank you.
And then just one quick follow-up. As far as marketing goes, how have you guys been measuring the marketing efficacy or the return on the marketing?
Is there any thought to go back to like, I think it was last year, you guys did the national branding and that seem to really have an impact to drive some sales for a little while. So just curious about how you're viewing that?
Walter Robb - Co-Chief Executive Officer & Director
We've got something up our sleeves, but nothing to announce today other than we're working on something, and we're excited about it. I think we get (28:21) the 365 stores launched, get some data on that.
Get our national affinity program launched. We want to get some pieces in place, and as we get those in place, then I think we will launch a more broad-based marketing strategy.
So we'll have probably, again, we'll have something to talk about in Q4 about that. Probably, I think, the investments we're making in, as A.C.
detailed earlier. I think obviously, the ultimate measure of those are the sales, is traffic and sales.
And we're seeing the first chapter of that, which is kind of the units begin to move a little bit, which then leads from there. On the digital side obviously, you can measure things differently.
One of the real advantages of affinity for us, and we enjoy that in Philadelphia and soon to be in Dallas. Is that we actually create personalized offers and connections with customers.
So we can actually through the tokenized data, we can actually follow what the customers is actually doing over time. And then we can also look at the segments and how we can respond to groups of customers as well.
So we're putting in place some really good tools to be able to measure the investments. They are a lot easier to measure there than they are, say, on the promos that we're doing on the perishables right now, because that kind of all comes back just to comps and sales and units, and that sort of thing.
So that's where we are with those two.
David Lannon - Executive Vice President, Operations
Also, David, affinity will be in place from day one at 365 as well.
Walter Robb - Co-Chief Executive Officer & Director
Good point, David. Yeah, good point.
Operator
Thank you. And our final question comes from Kelly Bania with BMO Capital.
Please go ahead.
Kelly Ann Bania - BMO Capital Markets (United States)
Hi. Good evening, thanks for fitting me in.
I just wanted to go back to the price investments. I think if I heard you correctly, it sounds like you're getting a good uptick in the units but not quite enough to offset the magnitude of the price investment.
And I'm just wondering if you are looking at other ways, maybe just not promotions, but more of an EDLP effort as you kind of broaden some of the price investments to other categories? Or how do you think you're going to get that elasticity I guess?
John P. Mackey - Co-Chief Executive Officer & Director
Well, our price investments are really a combination of promotions and EDLPs. We evaluate each category, each department in the store, and kind of have that two-pronged strategy.
We have – last year we probably did a little more on the EDLP. This year, we're kind of doing a combination.
We focused for instance in the produce department where we've taken certain categories and we've moved the regular pricing. We move the regular pricing down in a few categories.
At the same time, we've done some really strong promotions, because you really – you got to kind of do both in order to – the promotions might bring people in, but then once they're in the store they want to see – the regular prices they look at are really important if they're going to buy beyond the promotion. So it's very important to do both.
But I think, ultimately, you know it's really through the category management program that we're going to be able to determine what is actually the right mix between in each department for adjusting everyday pricing, for doing more promotion. We're going to be able to really look and see how not only – and we're going to be able to do a lot of testing with that to really understand what is the most effective for our customers.
Because as Walter was saying earlier and answering the question about our kind of more core shoppers than more our occasional shoppers, different strategies work for these different customers. So what we're in the process of doing is really refining our ability and giving ourselves the tools we need to understand how we both price and market to the different customers we have which will respond to different promotions and prices.
Kelly Ann Bania - BMO Capital Markets (United States)
That's helpful. And just in terms of the comparisons if I could just ask one more quick one, they get a lot easier as we move forward here.
But last year one of the big initiatives was also some of the remodels. I know some of them were minor, some of them were more major.
But how should we think about cycling maybe some of the remodels and the impact from those?
David Lannon - Executive Vice President, Operations
Yeah, this is David. With 450 stores in our base, we're constantly remodeling and refreshing our stores.
So we did the core refresh in a lot of our stores last year, but we're continuing to do that work as well as remodels. I would say in general though, we're trying to focus on smaller size remodels that have a bigger sales impact and doing a lot of focus on prepared foods, bakery, and also conversion from full-service venues to self-service venues.
So customers are responding well to that, and we're able to get labor reductions at the same time. So that's kind of where we're focusing our capital spending, not on new stores.
John P. Mackey - Co-Chief Executive Officer & Director
Okay. I want to thank everybody for listening in today.
And we look forward to updating you on our progress on our Q3 earnings call in late July. If you get a chance and you're in L.A., check out our Silver Lake store which opens in three weeks.
Maybe go to our downtown L.A. store, you can see the contrast right there between what Whole Foods Market is evolving to and what the new 365 format will be.
Okay, everybody. We'll talk to you soon.
Take care. Bye.
Operator
This does conclude today's conference. We appreciate your participation.
You may disconnect at any time, and have a great day.