We know today’s shoppers love online shopping and the convenience of their local big-box store. But are they still drawn to independent natural products retailers?
Well, according to the data collected from the 2015 WholeFoods Retailer Survey, the answer is a resounding, Yes! Consumers view independent natural products stores as critical parts of the lives and are increasingly giving these stores their business. As you will read, stores have seen increased foot traffic over the past year and are reporting a bump in sales and profit as a result.
What follows is a briefing on some findings from the 2015 dataset, reflective of the July 1, 2014–June 30, 2015 survey period. Expanded information will be available in the online version of this story at wholefoodsmagazine.com and in our Web presentation. A recording will be available on-demand at www.wholefoodsmagazine.com/multimedia in February.
38th Annual Survey
For 38 straight years, WholeFoods Magazine has surveyed U.S. independent natural products retailers about their annual sales, profits and operational expenditures. As in the past, 2015 respondents were located all over the country and in all population areas. Stores’ average age was 25 years of which 20 were under the current owner (see online sidebar, “Survey Participants,” for more).
Throughout our discussion of the 2015 WholeFoods Retailer Survey data, readers will see the analysis framed in terms of store type, specifically, how much perishable food a store sells. WholeFoods Magazine feels that perishables—including refrigerated and frozen food, fresh produce and prepared food—are a determining factor in a store’s foot traffic. That’s because shoppers are more likely to visit a store on a weekly or even daily basis to buy a convenient prepared meal or the fixings for a fresh homemade meal.
Therefore, the percentage of perishable food a store sells is strongly linked to its size, overall sales and profit, making it a helpful framework for understanding our survey data. The data were organized as follows (percentages are of overall gross sales): • 55+% perishables • 35–54% perishables • 20–34% perishables • 10–19% perishables • 0–9% perishables (>5 locations) • 0–9% perishables (1–5 locations).
All told, the 2015 numbers are reflective of $1.06 billion in gross sales and more than 1.7 million ft2 of gross lease area (GLA). Remember, this total includes only independent natural products retailers and does not incorporate the entire landscape of all stores selling natural organic products. Excluded are publically traded companies, mass-market stores, big-box stores, conventional grocers and others. For that information, we are again proud to include with our analysis the annual “2016 Retail Universe for Premium Natural, Organic Food, Supplement and Personal Care Sales” on page 25, prepared by Jay Jacobowitz, president of Retail Insights and WholeFoods merchandising editor.
We are also grateful for Jay’s help in the compilation and analysis of this year’s data.
Sales Growth in 2015
First, let’s talk broadly about some overall averages:
This year’s survey pool showed growth in several measures of sales and profit compared with 2014 respondents. Overall, sales grew 3.4%, gross profit increased 3.2% and net profit was up 7.0% in 2015 versus 2014. In a time when many people wonder whether the independent store is a dying business model, our year-to-year comparison suggests consumers are increasingly buying natural and organic products from independent stores.
Now, let’s look at sales by store type for a more focused picture. Stores that sold the most perishables (55+%) had the highest sales at $13.9 million in 2015, well above the average annual sales of $2,729,200 for all stores. The opposite store type—smaller shops with five or fewer locations that sold the least perishables—had annual sales far below the average at $578,356 in 2015.
This spread speaks to the diversity of the survey pool, which included large and small stores with varying product focuses. In fact, while $2,729,200 was the average annual sales total per store, the median overall sales figure was only $959,400; meaning half of all stores in the survey had higher sales, and half lower.
In looking at the ladder of sales in Figure 2, we can see that store sales were strongly tied to the sales of perishable food; the more the perishables sales, the larger the overall sales. The one exception was the 10–19% perishables group, which fell behind the small supplements chains (0–9% perishables, with more than five locations) in sales.
This year, it is noteworthy that the 20–34% perishables group had annual sales above the mean, whereas last year, it was below. 2015 respondents falling into this segment had 27% higher sales than we saw last year—a larger spike than any other group. In fact, sales were up this year across all perishables-focused stores, except for the 10–19% group. These stores had about 7% lower annual sales compared with the 2014 respondents.
Digging in a bit deeper, this year’s average store footprint was slightly larger than that of the 2014 stores at 4,432 ft2 gross-lease-area (GLA) (versus 4,321 GLA ft2 in 2014) and 3,353 ft2 retailing area (versus 3,295 ft2 retailing area in 2014) for all participants. No surprise, average store footprint grew as perishable offerings grew, and decreased as perishables declined.
Now putting sales into the mix, 2015 stores also had slightly higher sales per square foot than 2014 stores. This year, the average sales per square foot of GLA were $616/ft2 and the average sales per retailing square foot were $814/ft2. Again, sales by GLA and retailing square foot declined as less perishable food was sold. The exception to the rule were the small supplements chains that focused on selling a higher volume of goods in a small footprint. While these stores were only slightly bigger on average than the 10–19% perishables group (2,484 GLA ft2 versus 2,263 GLA ft2), the small supplements chains had 21% more sales per GLA ft2 ($456/GLA ft2 versus $377/GLA ft2), a reflection of the higher average dollar value of supplements versus food.
Focusing on the opposite ends of the spectrum, we again see that sales by square foot were more than three times higher at perishable-focused stores than they were at the supplements-focused stores. As the percentage of perishables sales declined, so did sales per square foot (see Chart A).
The bump in sales at small vitamin chains—the 0–9% perishables stores with more than five locations—is interesting. This year, their sales-per-square-foot reached higher than those with 10–19% perishables sales; last year, it was lower. Sales by retailing square foot grew 22%, and climbed 21% per square foot of GLA in the small supplements chains with more than five stores.
This is meaningful as the average was down for most other groups. The 10–19% perishables group lost the most ground by this measure (down 9% in sales per retailing square foot and down 9% per square foot of GLA ).
The other store type that experienced growth in this area was the small- to medium-sized natural grocers, with 20–34% perishable food sales. Their sales per retailing square foot grew 15% this year, and bumped up nearly 13% in sales per square foot of GLA .
As we did in 2014, WholeFoods plotted out sales of perishables and supplements on one chart to see the diversity of the business models represented in the survey (see Chart B). Again, there is sort of a butterfly shape, whereby stores selling the most supplements (by percentage of overall sales) sold the least perishables. The reverse was true of the top-selling stores of perishables foods, which were on the lowest end of supplements sales (as a percentage of overall sales). However, because perishable- heavy stores are larger, their actual dollar sales in supplements can be greater than supplements-focused stores.
Effects of Perishables
So, how do perishables affect foot traffic and average transactions?
While 2015’s average transaction amount was about the same as we saw in 2014 ($31.63/transaction this year), there was a small bump in foot traffic when we averaged the results of all stores. Stores saw an average of 218 customers/day in 2015, versus 203 customers/day in 2014.
But there is some pretty impressive growth happening at certain store types. Some of the biggest changes in foot traffic came at the 20–54% perishables range. The 20–34% perishables group went from 245 customers/day in 2014 to 305 daily shoppers in 2015. The 35–54% perishables group was at 480 shoppers/day in 2014 and climbed to 555 daily transactions in 2015. That’s 24% and 16% growth, respectively.
Meanwhile, the 10–19% perishables group lost about 5% of their daily shoppers (97/day in 2014 versus 92/day in 2015). In fact, these stores’ daily shopper counts were less than the small supplements chains, and the lowest of all the perishables stores.
Two factors might be at work here. The smaller amount of perishable offerings in the 10–19% group aren’t enough for consumers to be fully convinced the shop will meet their daily or weekly food shopping needs. After all, 51% of their overall sales come from dietary supplements. While these goods may have higher profit margins than most food items, they are also very likely to be monthly stock-up items and won’t increase foot traffic as much as perishables will.
Moreover, the mix of perishable offerings in these 10–19% stores may be less likely to draw daily shoppers. Their perishables offerings focused on refrigerated (6.2%) and frozen foods (4.7%), comprising $92,670. There is little to no focus on fresh produce (1.4%) or prepared foods (1.4%), both strong magnets for daily shoppers. Together, these categories’ earnings totaled just $23,827 in sales in 2015 for the 10–19% perishables group.
Compare those figures with the other perishables stores, specifically those in the 20–54% range. Their fresh produce and prepared food sales as a percentage of overall sales are much higher. The 20–34% perishables group brings in 7.8% of its sales from produce and 6.1% of its sales from prepared food (comprising $437,346 in 2015). The 35–54% perishables group does even more business in these areas, with 17.1% coming from produce and 10.7% coming from prepared food (totaling $1,872,144 in sales in 2015).
As we noted in our past several surveys, the 10–19% perishables range is not an easy place for retailers to negotiate because they offer some but not enough perishables to grow their tally of daily grocery shoppers. We can also see this challenge come to bear when looking at daily customers per 1,000 ft2 GLA . The 10–19% perishables group had fewer daily customers per thousand square-feet than all other perishables stores, and even less than the larger supplements chain stores.
For a complete breakdown of all stores’ sales by product category, see Table 5 online.
The Net Result
Thus far, we’ve been talking about sales, but it’s important to see how the numbers shake out after accounting for all expenditures. In other words, profit.
This year, average gross profit margin (GPM) for all stores was 37.6%. While this was about the same as what we saw in 2014, the actual dollar amount grew to an average gross profit of $1,026,815 (see Figure 7).
While all stores were fairly close to the average GPM percentage, the dollar amount varied widely. The highest dollar gross profit came from the 55+ perishables group at $5,376,806, though their GPM percentage was just a percentage point over the average. Meanwhile, the lowest gross profit by dollar came from the0–9% perishables group with one to five stores, at $234,076. Their GPM percentage was one of the highest at 40.5%, however.
Net profit also increased in 2015. The average net profit for all stores was $124,673, which was 4.57% of all sales (see Figure 8). Overall, stores with the smallest net profit percentage were on the higher range of the net profit dollar amount. These also were the perishable-oriented stores. Supplements stores had the highest net profit percentage, but tended to be lower in terms of the dollar amount. We should point out that the 10–19% perishables group was the least profitable of all the perishable-oriented stores, and even had profits that were less than the supplements chains.
Inventory. Inventory costs are the biggest expenditure for natural products stores. Overall, respondents spent an average of $1,702,403 on inventory this year; wholesale inventory costs were 62.4% as a percentage of sales. It should be noted that the median wholesale inventory cost was less than half that amount: $614,975. Indeed, the average wholesale inventory costs varied widely, with the 0–9% perishables group that have five or fewer locations, spending $344,342 (59.5% of sales) and the 55+% perishables group spending $8,562,576 (61.4% of sales).
As we saw in 2015, the stores that spent the greatest percentage of their earnings on inventory were the 35–54% perishables group and the 20–34% perishables stores. They spent 65.2% and 63.2%, respectively.
Considering inventory turns next, the average number of annual inventory turns for all stores was 11.44, though the 55+% stores turned over their inventory the most in 2015 (19.25 turns) and the smallest supplements stores did so the least (5.50 turns).
Payroll. After inventory, payroll expenses are another large bill to pay. On average, companies spent about 14.8% of their total annual sales on labor. That’s $403,239 in annual labor costs. Stores averaged about nine full-time employees, six part-time employees and 17 full-time equivalent employees (FTEs). But these numbers were quite different depending on store type. For instance, 55+% perishables group had 104 FTEs on average, whereas the supplements-focused stores had about three to five FTEs.
Given this diversity, looking at FTEs per 1,000 ft2 is a helpful measure. The average number of FTEs/1,000 ft2 was 2.77 for all stores. The four smaller store types—20–34% perishables down to the 0–9% perishables stores—all had a similar number, ranging from 2.06 to 2.59 FTEs/1,000 ft2. Meanwhile, the two largest store types had many more employees. The 55+% perishables group had 6.75 FTEs/1,000 ft2 and the 35–54% group had 4.26 FTEs/1,000 ft2, which makes sense since they need staff to run the labor-intensive perishable food sections like prepping sandwiches, making smoothies or sprucing up the produce selection.
Sales per labor hour are an interesting measurement. By these numbers, one can see that having a larger staff also lessens a store’s efficiency in terms of sales by labor hour. The average sales per labor hour were $82.96, but the largest grocery chain stores had the lowest: $68.59 for the 55+% perishables stores and $82.95 for the 35–54% perishables group. Who had the most? The larger supplements chains had the most with $113.67 per labor hour. The next-highest by this measure was the 20–34% perishables group, with earnings of $100.03 per labor hour.
Marketing and rent. The other big expenses tracked by this survey were marketing and rent expenditures. Stores’ overall average marketing expenditures were $39,356, which was 1.4% of all sales. All survey participants spent more or less this percentage, with a range of 1.2–1.9%. This varied greatly, as is evident by the median annual marketing budget of $16,600 for all stores. As for rent, stores paid an average of $100,482 annually on rent (3.68% of sales). WF
Throughout this article, the term “average” indicates “mean.” In some cases, the numbers add up to slightly more or less than 100% because of rounding. Any calculations made by “square foot” were made with the store’s gross lease area (GLA) unless otherwise stated.
Notes on the 2016 Retail Universe
By Jay Jacobowitz, Founder and President of Retail Insights®
Traction. 2015 was the year natural products gained significant traction outside their core channels of distribution. Overall, natural and organic product sales grew a stunning 14.9%, adding $9.367 billion to total $72.4 billion in sales, and reaching 11.39% of total U.S. food store sales. Perhaps more noteworthy is this fact: total U.S. food store sales grew 3.1%, adding $19.1 billion; meaning natural and organic products growth made up nearly half (49%) of this number. At this rate, the natural products industry is on track to reach one-third of total food store sales within the next generation, or $500 billion of the then $1.5 trillion U.S. food store business.
Who gained most in 2015? Conventional supermarkets, which grew 39.6%, added $3.7 billion in natural sales, led by Kroger’s aggressive push into its private label Simple Truth natural and organic lines. Next, supernaturals including Whole Foods Market, Sprouts Farmers Market, Earth Fare and others clocked in with $2.4 billion in new sales, increasing 13.4% to reach $20.8 billion and an industry-leading 28.8% natural market share.
Club stores rang up the third highest gross dollar increase in sales, $1.038 billion, a 29.9% increase, trailed slightly by mass merchandisers like Target and Walmart, also adding just over $1 billion in natural sales.
The independent natural channel also grew, adding $426 million in sales, although store counts declined by 77 units to total 6,722 stores. Even though store counts slid, total square footage increased: average GLA grew to 3,470 ft2 from 3,300 ft2. What we are seeing is the survival and growth of the fittest independents. Long-time incumbents are expanding their footprint and adding perishables, and are reaping robust sales increases.
The vitamin chain channel, including GNC and The Vitamin Shoppe, swelled by $400 million, and even the pharmacy channel managed a $31.9 million increase.
For those interested in more detail on the “2016 Retail Universe,” please contact Jay@retailinsights.com.WF
Published in WholeFoods Magazine December 2015
Material about the 2015 WholeFoods Retailer Survey is copyrighted and can be sourced to: K. Chiarello-Ebner, “2015 WholeFoods Magazine Retailer Survey Overview,” WholeFoods Magazine, 38 (12), 18–25 (2015), www.wholefoodsmagazine.com.