The Financial Times had one of the more insightful reports on the new, 80,000 square foot Whole Foods store in London. Two things stand out: first, that such a large proportion of the store is devoted to casual restaurant dining, and secondly, that it is selling a lot of prepared food.

Whole Foods already sells a far higher proportion of perishables (meat, produce, dairy, prepared foods) than most supermarkets - a characteristic that led the FTC in part to deem it a monopoly. But now it is moving further into prepared and eat-in meals. Is the supermarket morphing into a restaurant? Not exactly, as the article points out. Rather, Whole Foods is finding that supermarket and dining sales complement each other. What the article doesn't mention is that perishables, prepared food and restaurant meals also have higher profit margins than grocery items.

You see this trend of eat-in dining in stores such as Wegmans in the East, which Whole Foods cites as a major competitor. Their profits on this business might also explain why Wegmans can offer good prices on their grocery items. I also witnessed the trend at work at a Whole Foods in Alexandria, south of Washington. The prepared foods section was the busiest in the store at 7 p.m., and customers were eating their dinners in the booths by the front of the store. Many people had kids with them. Why? Because it's a fast meal but not fast food. You could still get an enormous range of salads, grains, beans, tofu, veggies and fruit to go with your pizza, roast turkey or prime rib.

As for whether this approach makes Whole Foods a monopoly, the FT had this interesting quote:

“They are definitely going to up the ante for consumers,” said one (observer). “I think the major British supermarkets have become complacent over the past few years and have become takers rather than givers on the back of the growing interest in organic food. That approach is going to have to change now.”

In other words, innovation don't stifle competition in the supermarket industry, it enhances it ... and consumers win.