Try to Build Something

Written By:
Jay Jacobowitz
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A couple of weeks before my mother passed away, and knowing she soon would, I asked for any advice she would give me. I was 31 at the time. After pausing for a moment, Mom answered, “Try to build something.”

These four words have stuck with me and over time, I’ve come to understand this: Mom did not say, “Build something,” which might mean attempting something you already knew you could do. Rather, Mom said, “Try to build something,” meaning take on a challenge requiring more effort.

My project, Retail Insights, is that challenge. And over the years building my company, I’ve had the pleasure of knowing many of you, the entrepreneurs who started and have sustained the natural foods movement, which is quite a challenge in itself.

First laughed at as back-to-the-Earth hippies, ridiculed for making yucky-tasting stuff, and pretty much ignored by the mainstream food industry for decades, the natural products movement is now the focus of the food industry, driven by the emerging health aspirations of most U.S. households. The natural products segment of the food business is growing at a rate four to five times that of conventional foods. And this is the main reason your local supermarket is expanding its aisles, freezers, and dairy and meat cases to offer more natural stuff.

So instead of having an exclusive on the fledgling natural products market, we now have a slice of a still expanding, but maturing natural products pie. And there is a territorial fight brewing among the largest, most aggressive natural products specialists such as Whole Foods Market, Sprouts Farmers Market, Trader Joes, The Fresh Market, Natural Grocers by Vitamin Cottage, Earth Fare, Mrs. Green’s and several others. This group boasts a current combined total of more than 1,000 stores with plans to double that number as soon as possible.

Coming Soon to a Theater Near You
Just where, exactly, will all these new stores go? It used to be that only the most densely populated trade areas, with the highest-quality households could support a large natural products store. But as demand for natural has penetrated deeper into society, resonating with households of more modest quality, trade areas that previously couldn’t support a natural products specialist now can.

And the challenge for those retailers wanting a piece of the natural pie will be to figure out where the next sweet spot is; the next best location. This will require a close look at the number of households in a given trade area, and quality factors—things like education, age and gender of occupants, and their spending habits—as well as pinpointing the sales of existing competitors. And this means all competitors in all channels including conventional supermarkets, mass merchandisers, club stores, vitamin chains, drug stores and, of course, independent natural products retailers.

The process is going to be messy: these aggressive chains will inevitably make mistakes along the way. Some of their new sites will underperform the sales projections. And while it is costly to run an unprofitable store, it will not be a fatal blow because the financial pain will be offset by the dozens or hundreds of other profitable stores in the chain.

So while you may have enjoyed a relatively competition-free past, it is not too soon to begin thinking about your more complicated—shall we say “challenging”?—future. How can you prepare? How will you compete?

Strategy & Tactics
It is fascinating to watch the evolution of the natural products marketplace. For over three decades, Austin, TX-based Whole Foods Market relied on its strategy of offering a completely differentiated product line compared to conventional supermarkets. You couldn’t easily get natural meats, organic produce, healthy bulk items, or foods without colorings or preservatives. There were almost no other large natural products retailers, and Whole Foods did a pretty good job of acquiring most of those that were.

Whole Foods’ same-store sales growth, the measurement Wall Street uses to evaluate the performance of food retailers year over year, was typically in the high single digits to low double digits—8 to 11%—every quarter, for years on end. And Wall Street gave Whole Foods a higher market value than the rest of the food-retailing universe.

Today, however, relatively new competitors such as Phoenix, AZ-based Sprouts Farmers Market are upsetting the apple cart. With 25% of its sales from fresh, high-quality conventional and organic produce, priced 15–25% below all competitors, Sprouts has jumped ahead of Whole Foods, turning in 12% year-over-year same-store-sales growth compared to Whole Foods’ recent performance in the 6% range.

What was once a bulletproof strategy for Whole Foods: “Our products are completely different from yours,” is no longer enough. Several other natural specialists and even conventional supermarkets are now carrying large natural and organic sets. This new competition has reduced its strategy to a tactic: it is now the quality of Whole Foods’ natural and organic offerings that is different. Not just natural meats, but from humanely raised animals, for example. But as Sprouts is demonstrating, “everyday” shoppers who had not yet felt they could afford to eat better are swarming into stores like Sprouts that are offering a lower price point for high-quality—and not necessarily organic—produce and other fresh and natural foods. Sprouts has realized that the universe of “everyday” shoppers is many times larger than the universe of high-end “foodies” that frequent Whole Foods.

The Place
A second aspect of this new competitive reality, beyond the battle over product mix, is presentation and facility. When the economy was galloping along before the recession and crash of 2007–2008, Whole Foods was touting its rich store build-out costs of nearly $400 per square foot. But Sprouts, with its relaxed, farmer’s market feel, simple low slung shelving, and un-fancy general lighting, has proven that a large swath of the shopping public will respond to what it perceives as a more comfortable atmosphere, one that emotionally aligns with the company’s lower price point.

What’s Left? Your People.
While you may be able to make a few tweaks to your product mix or prepared foods menu, or create some interesting choices in your facility and presentation, shoppers will most certainly respond to the new, larger and likely more conveniently located natural superstores once they enter your market.

As I search the country for ideas that work, successful independents seem to share a common trait: the quality of their people. Whether it is the second (or third!) generation in the family taking over and infusing new energy and ideas, or the owner has shared equity with his or her employees, or just that the owner’s deeply held values, vision and mission have inspired people to give their all, it is clear to me that the strongest stores are those that elevate the human touch to a place of honor.

These unique stores are infused with a subtle, invisible, yet unmistakable vibration of quality, projected from the hearts of the employees to all who enter seeking health, comfort and community. I predict that these are the stores that will survive and thrive. WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a comprehensive marketing service designed especially for independent natural products retailers. With 37 years of wholesale and retail industry experience, Jay has assisted in developing over 1,000 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.
 

Published in WholeFoods Magazine, July 2014