The announced acquisition of Vitacost.com by Kroger—wow! Proctor and Gamble's announcement that it was buying New Chapter was the last time I heard news that was this unexpected and stunning. I expect that this acquisition will raise some of the same concerns.
At this point in the history of the natural products industry, there are very few products in the grocery, cold and frozen merchandise categories that are not fully integrated into the conventional grocery channel. There is no exclusivity.
Natural product stores can usually show speed and get products to the shelves first. They can also offer a more education-filled shopping experience by having caring and trained staff share how to use or cook with the products they sell. These are not insignificant offerings given the shabby state of customer service in much of the marketplace these days. However, they are counterbalanced by the ease of purchasing natural products while in a grocery or discount store buying run-of-the-mill household items.
One category in which a degree of exclusivity remains is in the supplement aisle. There are brands that recognize the superior shopping experience customers have in independent natural products stores and only sell their products in those outlets. Natural products retailers appreciate this exclusivity and fight for it. Remember the defeat of the proposal to have mass market retailers join the Natural Products Association last year? Independent stores did not want grocery and drug stores being seen as equals in the selling of natural products.
What happens to that exclusivity once Kroger's acquisition of Vitacost closes? A very casual perusal of the company's website shows many brands that refuse to sell to retailers outside the natural channel. Will the key products from those brands find their way to retail shelves in the Kroger family stores? If so, will they be sold at full retail price or discounted? Time will tell—but what a blow to natural stores if they lose this exclusivity and face pricing pressure to boot.
Those familiar with Kroger’s history would not be surprised with this latest venture, not only into health and wellness, but into health and wellness and natural products. Its banner in the Northwest, Fred Meyer, was one of the pioneers of the “store within a store” in the mid-1990s. This method involved having a separate area in a grocery store that sold only natural and organic items. Kroger executed that concept so well that many brands that would not sell to grocery stores did sell to the chain and promoted the fact that their lines were in those outlets. The Kroger banner in Colorado, King Soopers, had a multi-year partnership utilizing James Rouse, a prominent local naturopathic physician as a spokesperson and educator. Again, this was not just a positioning of the stores as having health and wellness products, but having natural and organic health and wellness products.
In the recent Natural Food Merchandiser Market Overview, the growth of natural product sales was pointed out. A decade ago, it was barely 1 percent of sales. Now it is 4 percent of sales, more than $4 billion annually, and growing at 15 percent a year. These sales are through a variety of websites and outlets with a clear set of leading outlets like we have in the retail space. Even if Kroger keeps the products on the Vitacost site and does not integrate them into its retail spaces, what would its potential investment into Vitacost do to increase the online retailer's sales?
Despite the gloomy questions I ask, I am not about to give up on the natural retail channel and its incredible group of retailers. I do not see this acquisition as good news for our space either. We need to look at it as yet another wake-up call that folks outside of our industry see great opportunities here. If we don’t step up and act on those opportunities to expand our influence and reach consumers with natural and organic products, someone else will—and possibly to our detriment.