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RETAIL VIEW: Organic/natural foods format gaining momentum

Build a better mousetrap, and the world is supposed to beat a path to your door.

It probably was with this old adage in mind that Whole Foods Chief Executive Officer John Mackey recently told a business publication, "I keep waiting for the competition I've been hearing about, but nobody else is doing quite what we're doing."

That magazine, BusinessWeek, published an article in mid- October questioning whether the natural foods retailer was growing too fast and also detailed the growth of that sector.

Mr. Mackey's bewilderment over his lack of competition no doubt revolves around the firm's double-digit annual sales growth -- financial figures that any supermarket chain would be proud of, and figures that most are not even close to achieving.

At the time of the article, BusinessWeek pointed out that the stock for Whole Foods Market Inc. was trading at $128 per share, which is about 42 times next year's projected earnings, much greater than basically any other publicly traded supermarket. Since then, the stock has risen another 16 percent, and as of Nov. 2 was above $149 per share.

Stock industry analysts point to the 15 percent same-store sales growth every year when the industry average is more like 1 percent. The 176-store company also has ambitious expansion plans, with 65 additional stores in development. This apparently has helped create investor optimism, and is leading to more players in the organic/natural foods store space - even if they are arriving more slowly and a bit differently than Mr. Mackey expected.

Of course, there is Wild Oats and Trader Joe's, which offer a similar concept in a stand-alone, unconventional supermarket setting. But other conventional chains are also getting into the act. Some are launching organic/natural food sections within their stores. Others are developing natural food stores. In the past two weeks alone, two conventional supermarket chains announced plans for natural food formats.

Minneapolis-based Supervalu Inc., which has more than 1,500 stores under various banners, is launching a new supermarket chain called Sunflower Market. The first store is set to open in mid-January in the Broad Ripple neighborhood of Indianapolis.

Lynne High, the company's director of corporate communications, confirmed that this market will be the first in a chain of supermarkets. Supervalu is not yet ready to release information quantifying how quickly it will develop this chain, but Ms. High said that this first offering is not a pilot but rather a prototype. There will be others, and the indication is that growth will come fairly quickly.

The location of the first store is indicative of the type of community where Supervalu expects the Sunflower concept to thrive. "The Broad Ripple neighborhood is a very eclectic community," Ms. High told The Produce News.

Clarifying Supervalu's positioning of this store in an e- mail addendum to the question, she added, "It's culturally diverse, and is a 'destination' for all of Indianapolis with its many unique shops and restaurants."

In an organic nutshell, it's a very similar neighborhood to the areas where Whole Foods typically sets up shop, although it is interesting to note that Whole Foods has no stores in the state of Indiana and none under development there, according to its web site.

Like Whole Foods, Sunflower Market will offer both organic and conventional produce, though Ms. High said, "We will source organic produce wherever possible. Clearly, organic is the focus."

The store itself is smaller than the new Whole Foods markets and smaller than a "normal" sized supermarket. The footprint for a Sunflower Market location will be 12,000 to 15,000 square feet and will stock 8,000 to 12,000 items. In launching the new store banner, Supervalu has also launched a new private label called "Nature's Best." Initially, the label will be used for about 100 packaged products in the grocery, frozen and dairy departments, but the label will be expanded to other items. The private brand will also be used to market natural and organic foods in Supervalu's other store formats.

The company's press release announcing the concept pointed to the rapid growth in natural and organic foods with market research showing that 96 percent of consumers use fresh organic produce at least occasionally.

But a bit differently than other natural food stores, Supervalu is apparently expecting to offer organic items at a lower price than has typically been the case. In its press release, Supervalu pointed out that price is the biggest obstacle to increased organic sales. "Research also indicates that while 66 percent of the U.S. population seeks organic products that offer nutritional, appetizing solutions for themselves and their families, the cost of organic foods is the most common obstacle for consumers."

Supervalu CEO Jeff Noddle was quoted as saying, "Sunflower Market draws on our expertise in small-box formats, and leverages our supply chain expertise, which enables us to deliver outstanding natural and organic products at a price point consistent with consumer expectations."

John Hooley, president of corporate retail for the chains, added, "Simply put, our goal is to provide customers with great-tasting, wholesome foods at affordable prices." Another entry into the natural foods format comes from Bashas' Inc. in Arizona, which is developing Ike's Farmer's Market, with its first store due to open in August in central Phoenix.

Bashas' did not return a phone call from The Produce News, but a story in a daily paper in Arizona revealed that the market will be opened in an upscale neighborhood in a currently closed Bashas' market. The firm is investing $5 million in the remodel.

The name comes from the company's founder, Ike Basha, and, according to son Johnny Basha, is two years in the making. Like the Sunflower concept, he told the Arizona Republic that the store will feature "high-end organic and [is a] natural food store with extremely competitive prices."

A Bashas' team of executives has apparently been traveling the nation researching other natural food stores before launching its own concept. There is no word on how many Ike Farmer's Market stores Bashas' expects to open.

The BusinessWeek story on Whole Foods examined the market and its potential. It said that some analysts predicted that the country can sustain 500 stores.

Mr. Mackey of Whole Foods said that at one point that he thought 100 stores under his banner would saturate the market. That clearly is not the case.

Despite the appearance of these other potential competitors, the Whole Foods CEO stands by his original comment that no one is doing it quite the same way as his chain. He, in fact, defends the relatively high prices that Whole Foods charges and does not expect the lower-priced competitors to make a dent in his marketplace. He believes Whole Foods is selling the "highest quality food in the world," which justifies its price and will keep his natural foods customers coming back time and time again.

While others are not following exactly in his footsteps, there is clearly the impression that this is a market sector that can be tapped throughout the country.