In 1977, at age 24, I had the good fortune to become sales manager of a fledgling natural foods distributor in the Northeast. Over the next 20 years, we grew the business from $900,000 to $225 million, when we merged Stow Mills with United Natural Foods.
Before the baby boom generation (1946–64), when most work was physical and lifespan shorter, society didn’t consider the concept of optimal health. Securing food, shelter and safety took up most of our waking energy. The mass-agriculture and industrialization triggered by World War II gave Americans the ability to consistently meet and afford these basic human needs for the first time.
Senator Herb Kohl (D-WI), chairman of the Senate Special Committee on Aging, held a hearing May 26, 2010, on the marketing and manufacturing of dietary supplements. The original intent of the hearing was to find and expose dangerous levels of contaminants in supplements.
You know the feeling. You’ve just packed out your big order, or cut in space on your shelves for that hot new line, or built a promotional end cap for your monthly specials. Row upon row of neatly faced products beam brightly back at you. “Picture perfect!” you say to yourself.
January seems a particularly good time to resolve to improve your business. On the heels of the Great Recession and at the start of a new decade, you may be more ready for change than ever. Here’s what I’ve learned from successful independent natural products retailers around the country.
Most independent natural products retailers today are losing customers faster than they can replace them. This is the opposite of our history. Throughout the 1970s, ‘80s and well into the ‘90s, natural products retailers held an exclusive—if only because conventional grocers didn’t want or need natural products. This limited availability of natural products forced shoppers who wanted natural foods to travel to local, and sometimes not-so-local, natural products specialty stores.
In its most recent quarterly conference call, Austin, TX-based Whole Foods Markets announced its new sweet-spot for store size is 35,000 to 45,000 square feet. This is down from 45,000 to 55,000 square feet it gave last year as its target range, which itself was down from the 55,000+ square foot range it had been aiming for mid-decade when the economy was rocking and rolling. Founder and chief executive officer, John Mackey, noted that this past year has been a “teachable moment” for the retailer, which it has used to become more efficient in all operating areas including labor, inventory and building stores. As a result, Whole Foods is increasing profits even though same-store sales are down.
At Retail Insights, we’ve recently completed our 2008 retail food industry overview, and natural products are $34.19 billion, or about 6%, of the $542 billion total food store business. If you just continue the trend lines as they’ve been going, with natural products growing 8% per year versus conventional foods growing 1% per year, by the year 2040, natural products will be $400 billion, or 54%, of the then-$745 billion retail grocery business. In other words, we will increase to 10 times our present size, adding $365 billion on top of our current $34 billion.
Natural products are expensive. Most shoppers think so. If you lower your prices to match conventional products, will shoppers change their minds? Probably not. Here’s the true story of one retailer who tried.