From The Fall 2005 Issue of Natural Grocery Buyer

Pricing strategies still spark debate

Competing on price can become tricky proposition in natural space

Kelly Pate Dwyer

If only the prices were lower.

It’s the first thing customers would change about natural foods. Natural Grocery Buyer’s annual consumer research study found that shoppers were much 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, a consultant with Barrington, Ill.-based Willard Bishop Consulting.

Many 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 NGB, Nancy Person of Jacksonville, Fla., says she buys most items at Publix and gets naturals and organics—about 25 percent of her groceries—at Native Sun Natural Foods, her “favorite market.”

“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.”

Owner Aaron Gottlieb 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 on hot sellers that the other 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,” he says.

On that note, independents are better off buying greater volumes of their most popular natural items to gain some leeway on pricing, Cavanaugh says. Too often, she says, small retailers mark down the items they got a deal on from the distributor. But if shoppers don’t want those items, a markdown won’t help much. What’s more, buying on a deal makes for inconsistent inventory—a turn-off for shoppers.

She also offers advice some store operators may not want to hear: Check out the competition. See how natural grocers, specialty stores, health food stores, even farm stands are merchandising and running promotions. If you’re trying to improve performance in a niche category, look at the successful niche retailers, even if they’re a fraction of your size.

Large and small, they’re going after your customers. The Wheatsville Co-op, in Whole Foods’ home territory of Austin, Texas, sells Coke, Campbell’s Soup and a few other conventional brands along with lots of natural and organic products.

The 5,100-square-foot store is posting double-digit sales growth, and revenue is 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 actually 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 supermarkets. “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.”

Sidebars:
Purchase channels for natural, organic and health products

Kelly Pate Dwyer is a freelance business reporter in Denver.