Whole Foods Market's acquisition of Wild Oats Marketplace will have far-reaching effects on smaller, independent naturals retailers, but not for at least a couple years, according to retailing experts.
"I think it will take 24 months minimum of analyzing leases, figuring out probability of stores, deciding which stores to close, retraining employees, figuring out which employees will stay, and all the other things necessary to consolidate two companies," said Jon Schallert, a retailing consultant based in Longmont, Colo.
But after those two years, watch out, Schallert and others warn. The new Whole Foods will be a natural and organic superpower that will advertise and brand itself nationally, make pricing deals with distributors and lure customers away not only from conventional grocery store chains, but also from small and mid-size natural foods retailers.
But the news isn't all bad. Executives from Austin, Texas-based Whole Foods said they might close some smaller, underperforming or duplicative Wild Oats stores. "Traditionally, every supermarket draws from a 5-mile radius," Schallert said. If Whole Foods closes a Wild Oats store, it's unlikely it will allow another natural foods store to lease the space, which would cut down competition for small naturals retailers who have both chains nearby.
"Think about it—if you were Whole Foods and you were closing a store, would you lease it to a Vitamin Cottage?" or other mid-size naturals retailer, asks Darien, Conn.-based retail consultant Kevin Coupe. Schallert speculates that Whole Foods may be willing to let some Wild Oats stores stay empty for the duration of their leases rather than sublet them to competing naturals retailers.
Mike Gilliland, founder of Wild Oats and current co-owner of Sunflower Farmers Market, an 11-store chain in Colorado, New Mexico, Nevada and Arizona that is aggressively expanding, said he would love to take over some of the smaller Wild Oats locations. But he doesn't think Whole Foods would allow it. "Let's just say I would assume we're not on Whole Foods' Christmas card list," he joked.
Still, Gilliland thinks the Whole Foods-Wild Oats merger has some positives. "I don't think it hurts when the competition becomes a little less fragmented," he said. For example, his hometown of Boulder, Colo.—headquarters of Wild Oats—has three small Wild Oats stores, a flagship Wild Oats store under construction and a Whole Foods. "Instead of having [five naturals supermarkets] in Boulder, you'll just have one huge Whole Foods," he said. "It's more about real estate than anything else."
Gilliland is one of the many natural foods retailers who aren't very worried about the Whole Foods-Wild Oats merger. "Personally, I think it's going to have a smaller impact than people think," he said.
But Schallert and Coupe believe that ignoring the merger and not taking steps to set their stores apart will come back to bite some retailers once Whole Foods completes the Wild Oats takeover and puts its new marketing and purchasing plans in place.
"I was in a health foods store in Maine, and the owner was convinced [its] customers weren't going anywhere, that they'd always be loyal," Schallert said. "In this day and age, you can't say that—that's just totally naïve."
"I think as Whole Foods becomes more of a behemoth, it opens the door for smaller retailers to distinguish themselves and be more in touch with the typical natural foods consumer," Coupe said. "But you can't just sit and wait for it to happen. You have to aggressively market yourself."
Here's what Coupe, Schallert and others recommend for small to mid-size independent natural foods retailers:
- Go local. Despite Whole Foods' commitment to buying locally produced products, it will be too big to approach every small grower, manufacturer or distributor across the United States. Stores that already buy locally need to expand their programs even further, Coupe said. "You really need to enforce to the core natural and organic audience that you buy local stuff."
Another advantage to buying locally: "You'll get the vendors that are too small for Whole Foods to deal with, which makes you much more nimble and able to get new, trendier products to market quicker," said Bill Crawford, a former manager for a large natural products chain, and now director of grocery/mass retail custom programs at New Hope Natural Media.
- Watch your prices. Vitamin Cottage, a 24-store natural grocery chain in Colorado and New Mexico, successfully competes in Wild Oats' backyard by keeping prices low. But with the Whole Foods merger, "We're going to have to be more vigilant in buying and pricing to stay competitive," said Kemper Isley, Vitamin Cottage co-president. A bigger Whole Foods "will be able to exert better pricing and more buying power from suppliers," he said.
Isley said pricing is already a problem as mass merchandisers like Wal-Mart get into the organics market. "They're eating up the supply, especially on fresh produce. Look at organic apples—the supply became extremely limited and the price skyrocketed up to $3 per pound." Isley believes one way to keep prices low is to "strengthen ties to local growers. We can go to a smaller grower and they can supply all our stores. Whole Foods can't do that."
- Know your customers. You already provide personalized service. Do more of it, Coupe advises. "For anyone who comes into my store at least once a week, I would want to know their name, the number of kids they have, what kind of car they drive. … Collect data from surveys, but also pay attention. Get your people to ask questions at checkout, in the aisle. Hire people who are people-people, who want to know all about each customer. It's not rocket science." Coupe also recommends a lot of sampling to find out what people like.
"Show your core naturals and organic audience that you're not a giant, conglomerate, multinational company," he said. "Show that 'We know our customers like they don't.' "
- Specialize. "The stores I've seen doing really well take narrow niches and expand on them," Schallert said. Become an expert in a particular product line, such as probiotics. Or consider becoming even more specialized. "I don't think it's too far off that there will be entire stores that are natural foods butchers, or a natural bakery or an organic produce store," he said.
Vicky Uhland is a Lafayette, Colo.-based freelance writer.
Natural Foods Merchandiser volume XXVIII/number 4/p.1, 12