Whole Foods Opens Shop in Detroit

That's quite an experiment

Detroit may be on the verge of bankruptcy, yet as of this morning its solvent citizens can purchase gourmet cheeses and craft beers at the first Whole Foods store to open inside the city. It might seem like a risky bet on a troubled market for the high-end grocer, but this is a savvy play that combines discounted real estate, generous subsidies, and little local competition.

In investing terms, Whole Foods is buying low—so low, in fact, that the company won't have to do much to bring its Detroit outpost into the black. To start with, Whole Foods got a sweet deal on the Mack Avenue space. The project cost $12.9 million, according to the Wall Street Journal, but the company probably paid less than half the total cost, thanks to about $5.8 million in state and local grants and tax credits. Ram Realty, a development partner building apartments nearby, donated land worth about $1 million and put up part of the $6.1 million equity package with Whole Foods to cover the rest.

Last year, the average Whole Foods store measured 37,000 square feet and posted $682,000 in weekly revenue, according to the company's SEC filings. If the 21,500-square-foot store in Detroit is as busy as an average store, Whole Foods can expect around $20.6 million in yearly sales. At the company's 2012 operating margin of 6.4 percent, that's about $1.3 million in annual profit coming out of Detroit.