Natural Foods Merchandiser

Wild Oats Founders Pair in Plan to Pare Prices

Wild Oats Markets Inc. founders Mike Gilliland and Libby Cook are still plotting the details, but said they hope to have the first in a small Southwestern chain of discount natural grocery stores open by the end of March 2003.

The pair will follow a course set by Monrovia, Calif.-based Trader Joe's, offering a limited number of products at deep discounts and sold without the heavy staffing typical of a natural grocer. "I think there is a universe of people who are familiar with the products and who don't need to be romanced," Gilliland said. "They want to buy and get a better price. They don't need the education or the sales job."

Browsing a natural grocery store has traditionally been a high-touch experience, during which as much advice as product is dispensed. "I think that's adequately covered by Whole Foods and Wild Oats and the independents out there," Gilliland said. "It seems like this would have a wider appeal.

"Hopefully we will attract the usual suspects, but we also hope to create a compelling enough price point that it really does bring in the mainstream customer who's not a fanatic, but may be drawn in if the products are sold at or below the [price of] conventionals," he said.

Gilliland said he expects to open two or three 20,000- to 30,000-square-foot stores in 2003. The stores will be full service, including supplements sections, but will have fewer brands to choose from than is typical. "Instead of 15 brands of mustard, we'll have a couple," Gilliland said. He expects to negotiate lots of direct sourcing agreements to keep prices low.

RBC Capital Markets analyst Carole Buyers, who covers Boulder, Colo.-based Wild Oats and Austin, Texas-based Whole Foods Market Inc., said Gilliland could be successful in areas populated with highly educated consumers. "But to play the price scheme in specialty retail is tough."

Gilliland's target demographic may exist, but finding and maintaining it—and negotiating rock-bottom purchase deals—will take careful attention, said Barry Perzow, who led Capers Inc., a Canadian natural retailer that merged with Wild Oats in 1996. Perzow now is president of Boulder, Colo.-based Pharmaca Integrative Pharmacy Inc.

"If Mike's got the Trader Joe's mindset, it could work," Perzow said. "But the buying has to be so sharp that the ability to buy better is going to be driving the whole success of the business. Trader Joe's has created a buying template that nobody has been able to compete with. It's not an easy concept to casually replicate as a startup in today's competitive market."

At Trader Joe's, as much as 85 percent of the product mix is house brands. Perzow said two other North American retailers have successfully staked their business on private label brands—Stew Leonard's three-store New England chain and Loblaws in Canada, where 50 percent to 60 percent of sales come from the store's President's Choice house brand. "Again, the challenge for Mike is getting out of the gate with one, two, three or four stores and convincing customers to trust the private label."

Observers expect Gilliland and Cook to launch the new concept in northern New Mexico, where there are three Wild Oats stores in Albuquerque and one in Santa Fe, and a Cherry Valley Market that is owned by Wild Oats co-founder Randy Clapp.

Gilliland said there are no plans to immediately re-enter a partnership with Clapp. "Down the road, we might do something together, but we have no plans right now," he said.

Gilliland and Cook founded what became Wild Oats in 1987; the pair left Wild Oats in 2001. Gilliland, who was chief executive officer, is bound by a noncompete clause until March 1, 2003.

Gilliland said he doesn't expect the new, still unnamed chain, to reach the size of Wild Oats. "I think we'll try to keep it more manageable," he said. "We learned we didn't know how to manage a big chain."

Natural Foods Merchandiser volume XXIII/number 8/p. 5, 7

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