Small natural-food stores feel pinch of Whole Foods

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Small natural-food stores feel pinch of Whole Foods

By Jeff Meyer | Special to The Christian Science Monitor

 

http://www.csmonitor.com/2003/0915/p16s02-wmcfidyln.html

 

After years of delivering organic produce to health-food enthusiasts

in Washington, D.C., Scott Nash amassed enough money to open a small

storefront in nearby Rockville, Md., in 1990.

But a few months later, Mr. Nash's elation with the opening turned to

misery when a giant health-food store opened just a mile away. The

rival - called Fresh Fields, and later bought by Whole Foods in 1996

- lured customers into its supermarket-size store with advertising

and a wide selection of fresh meats and seafood.

 

Nash's store struggled. Two months after Fresh Fields' opening, he

had to sell his motorcycle for $500 to pay his sole employee. Yet he

managed to keep the store afloat thanks to what he calls his

" scrappy " management style, two expansions that tripled his floor

space, and an obsession with matching or beating Whole Foods' prices.

 

Since opening his first My Organic Market, Nash has seen many of the

area's small natural-food stores vanish. Whole Foods Market Inc. now

operates 13 stores in and around Washington, and at least 145

nationwide. " They've pretty much stomped down all the competition, "

he says.

 

The struggle of local shops to eke out profits in a megachain age is

a classic retailing story. It was played out in the 1990s as

Starbucks, Barnes & Noble, and Home Depot blanketed the country,

forcing thousands of mom-and-pop coffee, book, and hardware stores to

shut down. But in the natural-foods industry, this story line has

more twists and turns.

 

Demand for natural foods and nutritional supplements has skyrocketed

over the past decade. The market for organic produce and vitamins is

growing much faster than, say, books or two-by-fours, says Frank

Lampe, editorial director of Conscious Media, publisher of a

healthy-lifestyles magazine.

 

The upshot: Small independent store owners like Nash can survive -

and even thrive. The number of independent or small chain natural-

and health-food stores in the US has grown by nearly a quarter since

1998, according to the Nutrition Business Journal (NBJ). Some 8,200

such stores now operate in the US.

 

Some industry observers believe the Washington health-food market is

an anomaly. " Whole Foods' coverage in the D.C. area is higher than

pretty much anywhere else, " says Grant Ferrier, editor of the NBJ.

 

Yet the fate of Washington independents is a cautionary sign to small

natural-food stores elsewhere. Whole Foods plans to enlarge its

average outlet from 35,000 to 43,000 square feet over the next few

years. " Our stores are getting bigger and bigger, " says Whole Foods

executive vice president A.C. Gallo. " We want people to feel that we

offer everything. "

 

Whole Foods expects to open at least 26 stores over the next three

years, Mr. Gallo adds. The nation's second-largest natural-foods

chain, Wild Oats Markets Inc. in Boulder, Colo., operates at least

100 stores and has expanded at a slower clip.

 

Industry analysts credit Whole Foods and Wild Oats with luring

legions of affluent urban customers into their stores. Shoppers rave

about the stores' fresh produce, fine cuts of meat, and prepared

foods such as Ed's Tantalizing Tofu and Cranberry Couscous.

 

Whole Foods' growth also parallels the rise in consumer interest in

organic and natural foods. Organic-food sales have nearly doubled

over the past five years, according to the Organic Trade Association.

Nash says this is no coincidence: " They've educated the masses ...

and brought natural food into the mainstream. "

 

Whole Foods sprang up in 1980, when John Mackey, the company's

current chief fidyl executive, helped open its first store in Austin,

Texas. A string of health scares in the 1990s - from E. coli to mad

cow disease - raised concern about where produce and meats came from,

says Katherine DiMatteo, executive director of the Organic Trade

Association.

 

Whole Foods capitalized on rising demand for organic products,

gobbling up regional natural-food stores. Today it's one of the 100

largest companies listed on the Nasdaq.

 

Some consumers perceive the super-sizing of natural-food stores as a

betrayal of the organic-food movement's " small is beautiful " roots.

They prefer to shop at small neighborhood stores because they can be

assured that all the produce is grown locally.

 

Such sentiments have not slowed Whole Food's expansion in Washington.

After it opened a store 1-1/2 miles away from People Garden Market, a

two-room health-food store in Washington, the smaller store's

business " drastically " declined, says owner Jeffrey Brechbuhl.

 

Although he knew the names of most customers, his 1,500-square foot

store was unable to compete with Whole Foods on price or selection.

Last month, Mr. Brechbuhl closed the store. He now sells organic

produce on the Internet. " I felt I did everything I could. But the

neighborhood didn't [support me], " he says. " The way the American

economy is working, Whole Foods is the way to go. "

 

Nash, who now runs three stores in suburban Washington, has little

patience for small-store owners who bemoan Whole Foods' expansion.

 

" These independents aren't entitled to survive; they're just entitled

to compete, " he says. " I think anyone that has a problem with [Whole

Foods] is really just whining. "

 

Whole Foods insists that its focus is to woo away customers from

traditional supermarkets, not put little guys out of business.

" [small stores] are not in our business model, conversation, or

consciousness, " says Gallo.

 

The chain has penetrated 30 of the 50 largest US markets. But it

hasn't finished building in the Washington area. Gallo says Whole

Foods plans to reopen a bigger store in Alexandria in the next few

years - just two miles from Nash's newest location.