Natural Foods Merchandiser

Wallet share shifting to small stores

If only the prices were lower.

It?s the first thing customers would change about their local natural foods store. The Natural Food Merchandiser?s annual consumer research study found that shoppers were more likely to choose a store promoting low prices (51.6 percent) than one promoting staff knowledge (29.9 percent).

But competing on price is a losing proposition for many smaller retailers.

Industry experts and successful independents suggest a different solution: Really know your core shoppers and give them what they want, whether that?s a type of product or way of serving them. It?s customer service with insight.

The approach appears to be working, says Kyra Cavanaugh with Barrington, Ill.-based Willard Bishop Consulting.

Smaller stores are gaining advantage in the market again, she says. ?Independents have a much better finger on the pulse of what their local shoppers want and need … carrying local brands, supporting local agriculture, supporting artisan and specialty items,? she says. ?Consumers more and more are feeling anonymous in those big stores and recognizing the importance of supporting their downtown or local businesses.?

Like many shoppers surveyed by NFM, Nancy Person of Jacksonville, Fla., says she and her husband can?t afford to get all their groceries at her favorite market, Native Sun Natural Foods. Instead, she buys most items at Publix and gets naturals and organics—about 25 percent of her groceries—at Native Sun.

?I can go in and ask questions, and they have answers for me,? says Person, 47. ?I think one of the biggest things is having people who are knowledgeable, having people who are friendly.?

Native Sun?s managers and employees are stationed around the store to help shoppers find what they need and answer questions, says owner Aaron Gottlieb. The store, which carries only naturals and organics, made its reputation in Jacksonville as an authority on nutrition.

For Native Sun, success was both easy and hard. The store stood out because it had no competitors when it opened in 1997. But the store also had to teach people why they should buy organic, says Gottlieb, who was a recent organics convert following an illness.

Now he?s in the throes of building a second store.

Educating consumers is a role that?s grown along with the business. Gottlieb has reached out to local nutritionists and dietitians who now refer clients to Native Sun. The store requires letters from suppliers attesting to safe handling of food. And the staff periodically calls those companies. For example, they?ll ask a bakery how it ensures that gluten-free products aren?t contaminated with wheat.

Gottlieb also believes strongly in going head-to-head with supermarkets when it comes to pricing certain items. If he doesn?t meet a larger store?s prices on a few popular items, or hot sellers that retailer only recently introduced, Native Sun?s customers may assume all its products are more expensive, Gottlieb says.

?My No. 1 item in the store [bananas] I don?t make any money on. My No. 2 item [water in gallons] I actually lose money on, but I have 22,000 other products that I do make a good living on.?

On that note, independents are better off buying greater volumes of their most popular items to gain some leeway on pricing, Cavanaugh says. Too often, she says, small retailers mark down only the items they got a deal on from the distributor. But if the shoppers don?t want those items, a markdown won?t help much. What?s more, buying on deal makes for inconsistent inventory—a turn-off for shoppers.

As for pricing strategy, Cavanaugh advises a little psychology. An item priced at $2.49 would sell better priced at ?two for $5,? she says. Likewise, if a margin calculation puts an item at $2.09 retail, the retailer is better off marking it down to $1.99. ?They?ll make up the gross margin in increased unit sales,? Cavanaugh says.

She also offers advice some independents may not want to hear: Check out the competition. See how supernaturals are merchandising and running promotions. ?They can learn some things from the bigger guys, even though they don?t want to be them,? she says.

Giving customers what they want may mean a store abandons the traditional promise of selling only naturals and organics. ?If they know 50 percent to 60 percent of their shoppers are mothers with young children buying organic, it might be worth it to them to sell bibs and Pampers,? Cavanaugh says. In a high-income neighborhood, it might be imported cheeses and wine.

The Wheatsville Co-op, in Whole Foods? home territory of Austin, Texas, sells Coke, Campbell?s Soup and a few other conventional brands.

The 5,100-square-foot store is posting double-digit sales growth, and revenues are higher now than ever before—in spite of a new Whole Foods store a few miles away and an H-E-B Central Market store a mile away, says Dan Gillotte, general manager.

He believes that new shoppers become repeat customers because of the store?s friendly service—his top priority when hiring.

Wheatsville also has a suggestion board that customers can use to request new products. The store?s buyers respond to the suggestions by phone or in writing.

As a member of the National Cooperative Grocers Association, Wheatsville gets some volume pricing, but Gillotte makes no bones about having higher prices and fewer SKUs than nearby supernaturals. ?We just ask [customers] to think about us first,? he says. ?I think, in reality, few stores have everything you want.?

Shoppers are also attracted by the local meat, produce and other foods Wheatsville stocks. ?For some new vendors, we?re often the first company to give them shelf space,? he says. ?Some of the other, bigger stores do it less and talk about it more, so we try to do it a lot and talk about it a lot.?

Kelly Pate Dwyer is a freelance business writer in Denver.

Natural Foods Merchandiser volume XXVI/number 8/p. 14

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