Will an IPO enable Natural Grocers to take on Whole Foods Market?

Will an IPO enable Natural Grocers to take on Whole Foods Market?

 The natural products retail world is set to get another publicly traded company. Natural Grocers by Vitamin Cottage, a Lakewood, Colo.-based chain with 55 stores in 10 states, is planning to raise as much as $115 million in an initial public offering on the New York Stock Exchange.

The date of Natural Grocers’ IPO and the opening price range for the company’s shares have yet to be announced. We do know one key thing, however, from the IPO registration Natural Grocers filed June 18 with Securities and Exchange Commission: The retailer is hungry for growth. In its SEC filing, Natural Grocers said it plans to expand its store base to at least 1,100 locations.

This is obviously an aggressive goal given that the retailer currently has fewer than 60 locations. Natural Grocers’ target of 1,100 stores is also slightly higher than the 1,000 stores Whole Foods Market—the shining star of publicly traded food retailers—is currently gunning for as part of its stated expansion objectives. Whole Foods is on track to open between 24 and 27 stores this year, followed by up to 32 more in 2013.

Natural Grocers has a long way to go to catch up to Whole Foods Market’s current 317 locations, but at least one retail consultant believes the Colorado-based retailer is well positioned to take on Whole Foods. Jon Schallert, a retail consultant based in Longmont, Colorado, told the Denver Post that the key to Natural Grocers’ successful expansion will be to move into midsize and smaller markets that wouldn’t appeal to Whole Foods.

“What’s really neat is that Vitamin Cottage is not as large as Whole Foods,” Schallert said. “They are much more nimble. You can really be profitable [in the midsize and smaller markets].”

Unfortunately for Vitamin Cottage, Whole Foods already understands—and is working to seize—the opportunities that can be found in secondary markets. During the first quarter of its 2012 fiscal year, Whole Foods opened six new stores—including one located about 20 miles outside of Sacramento in Folsom, Calif. As Whole Foods Co-CEO Walter Robb told stock analysts in February, the Folsom store opening demonstrated how successful “smaller, more suburban markets” can be for natural products retailers.

“In many cases, these markets offer less competition, allowing our differentiated store experience to stand out even more in the marketplace than it does in some of the larger, more competitive markets,” he said.

The Natural Grocers IPO announcement, along with its stated expansion goals, demonstrate a few things for me. The first is that natural, organic and healthier products continue to be viewed as a sweet spot for retail—and one that can be found well outside the traditional wealthy urban and suburban natural products hotspots.

I also find it interesting, but not necessarily surprising, to see another natural products company choose an IPO as its means for raising capital.

In March, Annie’s Inc.—the growing and profitable maker of organic mac and cheese, gluten free snacks and other better-for-you family food staples—delighted analysts and the industry alike with its oversubscribed and extremely successful IPO debut. As Annie’s demonstrated, investors will gobble up shares of companies at the forefront of the growing health and wellness movement.

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