Executive Interviews: Q&A with Danny Wells

Introduced into the business working at his parent's health food store in 1960, Danny Wells is a natural products industry veteran of over 40 years. Although he has experience as a retailer, manufacturer and distributor, he is best known as an internationally respected retail consultant. Danny shares with us the perspectives drawn from his nearly 50 years in the industry, and some well informed advice.

1) Given that you have been involved in health food retailing since your parents opened their store in 1960, you are in a unique position to describe how retailing has changed over the years.

In what ways is it different?
In the 1960’s we were known as the “health food” industry and retailers operated “health food” stores. They were mostly small, supplement-stocked stores with a minor selection of food and body care.

In the 1970’s our stores enlarged and we became “natural food” stores. Our trade handle changed to the “natural foods industry,” which morphed into the “natural products” industry in the 1980’s. The driving categories were natural foods, bulk, grains, and supplements.

The driving force for growth in the 1980’s was organic, and we became merchants of natural and organic products. Stores continued to expand in size and volume.

Today the emerging driver is “local”. With the growing concern over the carbon footprint being left by our production and delivery of products, “local” trumps organic. In fact a study in Canada concluded that the carbon footprint left after growing an organic product in California and trucking it to Toronto is significant and perhaps detrimental.

From an environmental perspective cross country delivery of organic many not be defensible, and a local non-organic product may be a better choice. Of course, an organically-grown local product will trump all.

If one studies the undercurrent of these category drivers over each decade, the theme is “fresh”. Over the years consumers want fresher products. In the consumer’s mind health food was “fresher” than processed food, natural food fresher than health food, organic food fresher than natural food, and local food fresher than all.

In what ways is the industry the same?
Although there has been significant consolidation, we are still a somewhat fragmented industry of smaller retailers and suppliers. However, it is from these smaller businesses that creative entrepreneurs continue to expand the walls of the category.

Most people who enter the trade still do so through a supplement taken to alleviate a health issue, and then they become converted to natural health and alternative therapies. As a result we continue to have an industry of associates who are passionate about and committed to the category.

There are many second generation retailers who have or will be taking over their parent’s store with the same core values and passion. Although there are fewer smaller stores opening than in former years, those who are entering the industry for the first time through the retail channel carry with them this same zeal and ideals. The same is true on the supply side, with committed entrepreneurs bringing fresh, innovative, sustainable, and ecologically sound products to market.

Fortunately, most of conventional and mass retailers are still committed only to velocity, and the independent natural retailer continues to thrive.

Are there things the industry as a whole is doing better now?
The industry players have stronger balance sheets. Retailers have cleaner and better merchandised stores and are better leveraging technology to increase sales and lower expenses.

What has fallen by the way side that you feel should be reintroduced?
I don’t see anything critical missing. The rising tide of the natural products wave of interest continues to float all boats that are sea worthy. Any process, product or company that has fallen by the way side in some ways missed the mark.

That being said, one process that this industry was built on that has been lost by some does require attention. This industry was built on story telling—the health food story, the natural food story, the organic story. I’ve sold more products by telling stories than lowering prices ever could. Many of us need to revive the art of story telling.

What are common mistakes retailers make?
Two come to mind.

1) Generally, retailers continue to carry too much product that is slow or non-selling. We still need to work on increasing our inventory turn rates, and removing slow sellers. Quarterly review of sales data to determine and remove slow or non-sellers is something few retailers are doing regularly. If retailers would do this they could be easily reducing inventory by 15% to 25%. Distributors could be dropping slower selling sku’s and suppliers would follow. Over 70% of single faced merchandise goes unnoticed by the customer. We need to progress from primarily single faced operations to predominately multiple faced retailers.

2) The second big error is thinking that price is the issue for consumers and that lowering prices will result in higher sales. One statement I am known to often utter is “we don’t sell products, we sell solutions.”

The consumer’s understanding of the scientifically proven efficacy behind the products we sell is the force that drives all sales. The more our customers know and understand about our products, the more they will buy.

Price only becomes a consideration when a product reaches commodity status, and these products represent a relatively small percentage of the over 1 Million natural products (according to the Living Naturally data base) we have access to today.

What can manufacturers do better to support their customers?
We need more partnering relationships between suppliers and retailers. Too much of our interface is related to the deal or promo of the month. Suppliers and retailers should be sitting down and planning 12-month programs of promotion, education and marketing together.

We have to start looking past the single deal to an ongoing program of mutual respect, support and loyalty. I see long term partnering relationships really driving significant sales and margins for both suppliers and retailers.

Looking at the broader industry, how have you seen it change?
Certainly the flowing of natural products to other channels has changed the industry. On the positive side it has increased the visibility of the category to millions of consumers who have never set foot in a natural products store.

On the flip side, it has resulted in a shift of focus for some retailers from being customer and solution oriented, to product and price oriented.

Rather than finding out what their customers needs are, and telling stories about those products that fill those needs, some retailers have become very product and deal focused.

What should the industry as a whole be doing better?
There are two basic retailing formats: premium and discount. We already know who the winner of the price game is. WalMart with $400 Billion in sales is the number one retailer and dominates the discount format. If you combined the sales of the number 2, 3, 4, and 5 retailers in North America, the total would not equal WalMart.

By nature of the category, we are a Premium trade. The more we focus on selling solutions, telling stories, and promoting benefits, the more products we sell.

We are also a new products industry. Natural products are launched first here and then, when velocity warrants, migrate to other channels. Our job is to focus on developing and bringing new products to the market. If they sell well enough and move to mass, let them go. Not physically, but emotionally. Then look for, bring in, and tell the story of the next great find.

Where do you see the industry in five years? 10?
In each of the 48 years since I began working in my parent’s store, I have heard the predicted demise of independent natural products retailers, and how they will go by the way side like the independent grocers, hardware store operators, or booksellers.

The natural products industry has been around since the 40’s and still after nearly 70 years over one half of all natural products are sold in the natural channel. Within this channel over 60% of sales are through independent retailers.

If you stop and think about this it is remarkable. I know of no other industry that has been around as long as ours that still has a group of seemingly fragmented independents capturing such significant market share. You may find my use of the word “seemingly” to be curious. Although they physically and financially are fragmented, their passion and commitment to the category is a bonding force that unites them.

The independents are the backbone of this industry. I don’t see that changing. I remember picking up a Prevention magazine in my parent’s store in 1960 and flipping to the back pages where all the mail order companies advertised. Here were the same products we were selling in our store available by mail at 30% to 50% less than our prices.

Fast forward to 2008. If selling more products in this industry is about price then how is it that the mail order and internet channels have captured less than 5% of all sales, when they are selling everything carried in our retail stores at half-price?

Success in this business is a result of finding out what your customers want, and giving them more of that; and finding out what they don’t want, and taking that away.

Those companies that focus on their customers and not the competition will continue to thrive, and be with us for decades. Those who focus on the competitor and price, most likely will not.

Overall, I see a bright future ahead.

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