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.
Did you know that natural and organic foods are in a “premium” class that is completely separate from gourmet and conventional foods? Neither did John Mackey, CEO of Austin, TX-based Whole Foods Market when he agreed to acquire arch competitor, Boulder, CO-based Wild Oats Markets for $565 million in February 2007. Fast forward to December 9, 2008, and Whole Foods is suing the Federal Trade Commission (FTC) which is still trying to block the deal based on the flawed logic that natural and organic constitute a “premium” category of foods that only these two competitors sell, and that by acquiring Wild Oats, Whole Foods will have monopoly pricing power that will harm consumers.
Independent natural products retailers don’t diagnose, treat, prevent or cure disease, but they do help millions of Americans on the path to well being. Independent natural products retailers can’t legally practice medicine, but their knowledge of nutrition and genuine empathy and concern supports those who are trying to get and stay well. Tens of millions of American consumers enjoy better health because there is a helpful natural products retailer nearby.
In the early 1970s, when natural products were just getting started, most food shoppers did not strongly believe that, “You are what you eat!” Perhaps just two in 100 shopped in natural foods stores to avoid the highly processed foods in conventional supermarkets. Today, 20 out of 100 shoppers say that they have healthy food habits, a tenfold increase from 30 years ago.