Whole Foods Market Explores Building Off-Site Kitchens to Supply Food Bars

Whole Foods Market is exploring building commercial kitchens that would make prepared meals for the grocer’s food bars and refrigerated cases, people familiar with the matter said.

The move is a shift for the Amazon AMZN -1.23%decrease; red down pointing Inc.-owned supermarket operator, which has outsourced much of its food production to other companies after years ago closing its own kitchens to cut costs.

Operating its own kitchens could help Whole Foods better control the quality of its multibillion-dollar prepared-foods business, and the grocer is also considering buying existing kitchens, some of the people said.

Jeff Turnas, senior vice president of global culinary at Whole Foods, said the company is constantly evaluating ways to produce food, including operating its own facilities, working with third parties and using in-store kitchens. The company has bakehouses in Colorado and Florida.

Whole Foods’s prepared foods, such as pizza and soups, traditionally have been a draw for shoppers, and the Austin, Texas-based company has a team that formulates recipes for ready-to-eat and prepackaged meals. It sells some region-specific items, and its prepared foods follow the company’s quality standards that prohibit ingredients such as high-fructose corn syrup.

Partly by using suppliers, Whole Foods has expanded its prepared-foods business in recent years, launching catering services, expanding its bakeries’ cake lineups and selling meals online. The company also runs in-store eateries such as coffee bars and wine bars.

The Covid-19 pandemic prompted Whole Foods to rethink what it sells, Mr. Turnas said. Supermarket chains have been adding more prepackaged-meal options for shoppers, and Mr. Turnas said Whole Foods plans to expand its offerings of sushi, sheet cakes and juice bars in the coming months

Whole Foods executives have signaled plans in recent months to improve the shopping experience for its customers. The company is expanding in-store demo and sampling programs, according to a memo sent in February to grocery brands. Executives recently told suppliers at a virtual summit that they want to bring back excitement to stores as the company plans to open about 50 locations.

Whole Foods said in early 2017 it was closing three commercial kitchens, part of a broader effort to streamline operations and cut costs before Amazon acquired the company later that year. One of the kitchens had previously received a warning from the U.S. Food and Drug Administration for potential contamination and microorganism growth.

After the FDA warning, Whole Foods closed the kitchen temporarily for a deep clean and discontinued the processing of meat, poultry and raw seafood in that facility.

The company said in 2017 that the decision to shut down the kitchens wasn’t related to food-safety issues. Since the closures, the grocer has used outside suppliers to make most of its prepared foods, a practice common in the grocery industry.

Kroger Co., Albertsons Cos. and other U.S. supermarkets have been investing in prepared-food offerings as a way to draw shoppers to stores, where they can buy a meal for the night while filling carts with groceries for the week. Industry executives said that convenience-seeking shoppers have gravitated toward prepared meals and that grocers view buffets, boxed meals and in-store restaurants as avenues to boost customer loyalty.

During the pandemic, Whole Foods and other food retailers closed self-serve food bars and eateries because of concerns about potential crowding and contamination, instead selling boxed meals or having store employees serve food. Supermarket operators have since reopened their buffets, and sales have rebounded as workers have returned to offices, industry executives said, though staffing kitchens remains tough.

Since the start of the year, sales of prepared meals at grocery stores are more than 30% higher than 2019’s level, according to data from Circana Group LP, a market-research firm formed via the combination of Information Resources Inc. and NPD Group.

Kroger, the biggest U.S. supermarket operator, in 2018 bought meal-kit company Home Chef. Sales for Home Chef have surpassed $1 billion, and it is building a new facility this year. In December, Kroger also started delivering store-made sushi to people’s homes.

California-based supermarket operator Erewhon about a year ago started collaborating with celebrities to sell smoothies, a business that the company said brings in new customers. Its prepared-food business has grown about 25% from the previous year, Chief Executive Tony Antoci said.

Under Amazon, Whole Foods has continued to streamline how it buys products, seeking to operate as a single operation rather than purchasing products through separate regional entities. Last year, the company combined regional and global category merchants into one role.

Write to Jaewon Kang at [email protected]