August 21, 2007
Independents Deal With Big, Bad Whole Foods
When the topic of a big player putting mom and pop stores out of business comes up, the discussion usually comes around to the mention of chains such as Wal-Mart or Home Depot. In Hawaii, however, the entry of another big chain has little guys apprehensive about the future. The “big bad” in this case is Whole Foods, which plans to open four stores in the state over the next three years.
Dean Nelson told the Honolulu Advertiser what it was like when Whole Foods opened a store near his business, Dean’s Natural Food Market, in Ocean, New Jersey.
“You see your life and your family’s well-being flash before your eyes,” he said. “You get hit with one punch, recuperate, then get hit with another punch.”
According to Mr. Nelson, Whole Foods hit hard with sales down as much as 40 percent on some days. Still, his business survived while three other small competitors in the area were forced to close.
Now, independent natural food stores in Hawaii are interested in the experience of Mr. Nelson and others that have managed to survive the Whole Food juggernaut.
Daryl Yamaguchi, president and co-owner of ‘Umeke Market Natural Foods & Deli in Kahala, compared Whole Foods entry into the Hawaiian market to a retailing “tidal wave.” He doesn’t, however, see the chain’s entry as necessarily all doom and gloom.
“They are going to grow the market,” he said. “Anyone related to the industry is going to benefit.”
Damian Paul, owner of The Source Natural Foods in Kailua, is another who believes there will be some benefits to having Whole Foods in the market.
“Whole Foods will introduce natural and organic foods to a whole crop of people who wouldn’t shop in my store,” said Mr. Paul, whose business is a block from one of the locations where Whole Foods is expected to open. “I think it’s really going to affect Safeway, Foodland and Times more than it will us.”
Messrs. Yamaguchi and Paul along with others including Ed Thielk, president of Mana Foods in Pa’ia, Maui, are looking to prepare before Whole Foods opens by making adjustments in product selection, merchandising, customer service and other areas.
Mr. Thielk told the Advertiser, “We expect them to come in and start a price war immediately. We feel we can go blow for blow, but they have deeper pockets and it doesn’t hurt them as much.”
Mark Fergusson is CEO of Hawaii’s largest natural foods retailer Down To Earth Natural Foods and Lifestyle. The company operates five stores averaging 5,000 square feet. He doesn’t see Whole Foods entering the Hawaiian market as a friendly competitor.
“Whole Foods is a $5 billion company that built its success by eliminating the competition with their high-profile and aggressive CEO publicly stating that as his goal,” he said.
Merchants who spoke with the Advertiser said they expect to have to lower prices to remain competitive when Whole Foods opens for business. They also see the need to more aggressively manage inventory to offer products the bigger chain may not carry.
“While there may be some demand in Hawaii for the high-priced gourmet products and glitzy shopping experience that Whole Foods has to offer, this is not our market,” Mr. Fergusson told the Advertiser.
Turning back to Dean Nelson and his experience in New Jersey, he said he was able to survive the hits from Whole Foods (and Wegmans too) because he focused on areas where he could be stronger than the chains.
He also came to the understanding, he told the Advertiser, that “Your best customers are going to shop at both locations whether you like it or not. That’s just the way it is. There’s almost nothing you can do. You don’t beat these guys, you coexist with them.”
Today, he said, sales are back to within five percent of where they were before Whole Foods opened. “I feel we’re on pretty firm ground,” he said.
Discussion Questions: What should independent natural food stores do to prepare for a Whole Foods opening down the block or in a nearby town? Do traditional supermarkets have more to fear from Whole Foods than small natural food stores, as suggested in the Honolulu Advertiser article?
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Retailers need to make sure they are relevant to customers in the marketplace, especially as it changes with the introduction of new stores like Whole Foods. Local is appealing to more and more customers, but few do that really well.
Obtaining ongoing customer feedback is key and being willing to make changes in response to this feedback will make a difference.
I would also have every store manager visit a Whole Foods so they are very familiar with what their customers are seeing and experiencing.
Although Whole Foods’ entry into Hawaii may grow the overall market, there’s no doubt that comp sales will decline for most of the pre-existing competitors. The decline will not be temporary, either. The depth of the decline will depend on Whole Foods’ pricing and the number of locations they build. The best thing existing competitors can do? The strongest ones should merge and build superstores that make Whole Foods look second class. They need great customer service and knock ’em dead assortments. One without the other won’t be enough.
Unless the independents are doing very well, expect a a good old fashioned whoopin’. Traditional supermarkets will get hurt depending on the location and type of trade area. If a Whole Foods works in a given area, most likely Trader Joe’s does too. That just compounds the situation. I’ve seen co-ops hang in there pretty well, but privately owned natural foods independents might as well kiss their store goodbye.
There is no question that Whole Foods is a great retailer. That being said, let’s not forget that they are a mass retailer of natural and organic products, and this provides an opportunity for the independent stores. The independent retailers should focus on taking a more consultative role with the customer. They need to become experts on the products that are available in the marketplace, and why one product might be better than another. They need to consistently search for new, innovative products, and have these products on the shelf before Whole Foods has approved the products for their stores.
Don’t be so sure it will become a price war. What many people do not realize is the fact that Whole Foods continues to purchase a lot of their merchandise through natural food wholesalers. These are the same wholesalers that serve the independent. In this market, price is not necessarily the driving factor to shop a particular store. Knowledge and breadth of product will make a huge difference.
I have shopped occasionally at Whole Foods, but usually go to smaller produce and specialty stores for my fresh produce and meat, (“whole paycheck,” you know) while using a large grocery chain for on-sale stock-ups of most items. On Sunday I needed to pick up a couple of diet related items and was passing right by a Whole Foods store so I swung in. Imagine my surprise when the quart of goat’s milk and the Stoneyfield Farm yogurt were each priced nearly a dollar less than I have been paying at the supermarket–and the checkout was a whole lot faster, too. This has prompted me to re-evaluate some of the popularly held notions about Whole Foods’ pricing. Is there a stealth change in pricing strategy going on at Whole Foods? If so, chains and independents alike better start to worry.
Others have mentioned co-ops and the better independents doing well despite Whole Foods, and I think their selection of bulk items could be key to that. I come from San Francisco, where many of us learn that shopping in natural foods co-ops can actually SAVE you money, because you can get good quality staples, spices, and even shampoos in bulk.
In many California cities, Whole Foods fits into the landscape more as a high-end gourmet specialty market than a natural foods store, and it serves a different demographic. If you’re on a budget, you might go there to get a particular item once in a while, yet you do most of your shopping for natural and/or organic at someplace like San Francisco’s Rainbow Grocery.
The same question has been asked about independents competing with Wal-Mart Supercenters.
There’s no doubt that a Whole Foods down the block will probably result in an immediate 15-20% drop in sales for any supermarket or health food store in the same trading area. The curiosity factor alone will temporarily cause that loss.
Long-term, I think smaller, health-oriented stores have to re-examine the whole price/value relationship. We joke about Whole Foods being called “Whole Paycheck.” But when push comes to shove they have better pricing than most small local stores. Smaller retailers are going to have to take less of a margin on a lot of items when they are no longer the only game in town.
But as is the case with Wal-Mart and independents, differentiating your store is the key–whether it’s by selection, service or convenience.
Smaller operations may have the local advantage in this situation. By providing products that cater to the local market and by providing superior customer service, the smaller guys may have an edge over Whole Foods. My advice is to really focus on the customer and train your staff to take care of them in any way possible. Catering to local markets is also key to success. Exclusive deals with local vendors will also benefit the small retailer and keep customers coming back.
I agree with Mark, the collective power of local retailers would be a good overall business strategy. The independents should also move now to deeply understand their shopper base, what they like, and what they’d like the independents to do to serve them better today. If they keep the dialog open with shoppers and respond to their evolving needs, they might be able to hold them off from switching. Of course, the shoppers will try Whole Foods, who wouldn’t? But those shoppers will tell their local grocers how to better compete if they are asked and listened to. The independents need to compete by listening and responding quickly to the changing needs of their shoppers.
Whole Foods will lower its retails for a significant period of time when it enters this market. However, it won’t do so for a prolonged period of time as the supernatural chain is not about to effect long term gross margins.
Whole Foods stores also are places where people want to shop. Great stores people love. As such, there’s no doubt they will hurt these independents in both the short, medium and long range time frames. The questions for the independent thus becomes two-fold: first, how can I best prepare for the short and medium range effects of Whole Foods’ arrival in my market? Second, how can I best prepare for the long range competitive situation the mega grocer will bring?
A few suggestions:
First, these independents must focus on doing things Whole Foods won’t. These can include home delivery, having customers email and fax orders into the store, having the store pick the orders, and having the orders carried out to the customers car when they arrive.
Second, these independents need to put a major emphasis on personal service. In the natural foods realm, they can get deeper into nutritional supplements and niche health and wellness items that Whole Foods might not bother with. They also can beef up their customer product request programs. Let their shoppers know there isn’t anything they want that the retailer won’t bring in for them.
Third, they must review their retail price-point structure. Expect Whole Foods to have surveyed many of the most popular independents. They will then set their local stores’ pricing even below these independents to make a difference when they open. The focus for the independents needs to be on the top selling 20% or so of natural and organic groceries, produce and perishables. Whole Foods will lower its retails on these top movers. Whole Foods also will be hammering their vendors for store opening hot deals…and will get them. These independents need to be aware of this fact and talk to their suppliers, local brokers, and the like.
Let me offer an example of what a large 2 store independent in Northern California once did beginning 3 weeks before the opening of a large, modern, upscale Safeway Store in the independent’s town.
For these 3 weeks the independent slashed prices on the top selling grocery, meat, produce and dairy items. Not just 10% cuts but significant cuts–15-25%. They then doubled the size of their regular weekly advertising circular for those 3 weeks. They also bought tons of local radio time on the two most popular area radio stations. They blasted their promotion (including “give away” prices on items like Best Foods Mayo, Tide, Clorox, etc. Paper towels, toilet paper–pantry-loading items). They did the same with key fresh meat, produce and dairy items. Lastly, during each of these 3 weekends, the independent staged a free BBQ in its store parking lots–free hamburgers, hot dogs, sodas, etc. This also was promoted via print and radio, as well as written about in the local newspapers.
The result: The Safeway had a very soft opening…and next few weeks. The independent had brought in so many of the shoppers in the city of about 100,000, plus shoppers from surrounding towns, that most of the residents’ pantries were loaded up with great buys. I call it the “Competitor Pre-Opening Pantry-Loading Promotion.”
I’m not suggesting the independents in this case copy this promotion. Rather it’s merely a demonstration of some of the things innovative independents can do to stave off their larger competitors. It just takes a little Guerrilla Marketing.
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Retailers need to make sure they are relevant to customers in the marketplace, especially as it changes with the introduction of new stores like Whole Foods. Local is appealing to more and more customers, but few do that really well.
Obtaining ongoing customer feedback is key and being willing to make changes in response to this feedback will make a difference.
I would also have every store manager visit a Whole Foods so they are very familiar with what their customers are seeing and experiencing.
Although Whole Foods’ entry into Hawaii may grow the overall market, there’s no doubt that comp sales will decline for most of the pre-existing competitors. The decline will not be temporary, either. The depth of the decline will depend on Whole Foods’ pricing and the number of locations they build. The best thing existing competitors can do? The strongest ones should merge and build superstores that make Whole Foods look second class. They need great customer service and knock ’em dead assortments. One without the other won’t be enough.
Unless the independents are doing very well, expect a a good old fashioned whoopin’. Traditional supermarkets will get hurt depending on the location and type of trade area. If a Whole Foods works in a given area, most likely Trader Joe’s does too. That just compounds the situation. I’ve seen co-ops hang in there pretty well, but privately owned natural foods independents might as well kiss their store goodbye.
There is no question that Whole Foods is a great retailer. That being said, let’s not forget that they are a mass retailer of natural and organic products, and this provides an opportunity for the independent stores. The independent retailers should focus on taking a more consultative role with the customer. They need to become experts on the products that are available in the marketplace, and why one product might be better than another. They need to consistently search for new, innovative products, and have these products on the shelf before Whole Foods has approved the products for their stores.
Don’t be so sure it will become a price war. What many people do not realize is the fact that Whole Foods continues to purchase a lot of their merchandise through natural food wholesalers. These are the same wholesalers that serve the independent. In this market, price is not necessarily the driving factor to shop a particular store. Knowledge and breadth of product will make a huge difference.
I have shopped occasionally at Whole Foods, but usually go to smaller produce and specialty stores for my fresh produce and meat, (“whole paycheck,” you know) while using a large grocery chain for on-sale stock-ups of most items. On Sunday I needed to pick up a couple of diet related items and was passing right by a Whole Foods store so I swung in. Imagine my surprise when the quart of goat’s milk and the Stoneyfield Farm yogurt were each priced nearly a dollar less than I have been paying at the supermarket–and the checkout was a whole lot faster, too. This has prompted me to re-evaluate some of the popularly held notions about Whole Foods’ pricing. Is there a stealth change in pricing strategy going on at Whole Foods? If so, chains and independents alike better start to worry.
Others have mentioned co-ops and the better independents doing well despite Whole Foods, and I think their selection of bulk items could be key to that. I come from San Francisco, where many of us learn that shopping in natural foods co-ops can actually SAVE you money, because you can get good quality staples, spices, and even shampoos in bulk.
In many California cities, Whole Foods fits into the landscape more as a high-end gourmet specialty market than a natural foods store, and it serves a different demographic. If you’re on a budget, you might go there to get a particular item once in a while, yet you do most of your shopping for natural and/or organic at someplace like San Francisco’s Rainbow Grocery.
The same question has been asked about independents competing with Wal-Mart Supercenters.
There’s no doubt that a Whole Foods down the block will probably result in an immediate 15-20% drop in sales for any supermarket or health food store in the same trading area. The curiosity factor alone will temporarily cause that loss.
Long-term, I think smaller, health-oriented stores have to re-examine the whole price/value relationship. We joke about Whole Foods being called “Whole Paycheck.” But when push comes to shove they have better pricing than most small local stores. Smaller retailers are going to have to take less of a margin on a lot of items when they are no longer the only game in town.
But as is the case with Wal-Mart and independents, differentiating your store is the key–whether it’s by selection, service or convenience.
Smaller operations may have the local advantage in this situation. By providing products that cater to the local market and by providing superior customer service, the smaller guys may have an edge over Whole Foods. My advice is to really focus on the customer and train your staff to take care of them in any way possible. Catering to local markets is also key to success. Exclusive deals with local vendors will also benefit the small retailer and keep customers coming back.
I agree with Mark, the collective power of local retailers would be a good overall business strategy. The independents should also move now to deeply understand their shopper base, what they like, and what they’d like the independents to do to serve them better today. If they keep the dialog open with shoppers and respond to their evolving needs, they might be able to hold them off from switching. Of course, the shoppers will try Whole Foods, who wouldn’t? But those shoppers will tell their local grocers how to better compete if they are asked and listened to. The independents need to compete by listening and responding quickly to the changing needs of their shoppers.
Whole Foods will lower its retails for a significant period of time when it enters this market. However, it won’t do so for a prolonged period of time as the supernatural chain is not about to effect long term gross margins.
Whole Foods stores also are places where people want to shop. Great stores people love. As such, there’s no doubt they will hurt these independents in both the short, medium and long range time frames. The questions for the independent thus becomes two-fold: first, how can I best prepare for the short and medium range effects of Whole Foods’ arrival in my market? Second, how can I best prepare for the long range competitive situation the mega grocer will bring?
A few suggestions:
First, these independents must focus on doing things Whole Foods won’t. These can include home delivery, having customers email and fax orders into the store, having the store pick the orders, and having the orders carried out to the customers car when they arrive.
Second, these independents need to put a major emphasis on personal service. In the natural foods realm, they can get deeper into nutritional supplements and niche health and wellness items that Whole Foods might not bother with. They also can beef up their customer product request programs. Let their shoppers know there isn’t anything they want that the retailer won’t bring in for them.
Third, they must review their retail price-point structure. Expect Whole Foods to have surveyed many of the most popular independents. They will then set their local stores’ pricing even below these independents to make a difference when they open. The focus for the independents needs to be on the top selling 20% or so of natural and organic groceries, produce and perishables. Whole Foods will lower its retails on these top movers. Whole Foods also will be hammering their vendors for store opening hot deals…and will get them. These independents need to be aware of this fact and talk to their suppliers, local brokers, and the like.
Let me offer an example of what a large 2 store independent in Northern California once did beginning 3 weeks before the opening of a large, modern, upscale Safeway Store in the independent’s town.
For these 3 weeks the independent slashed prices on the top selling grocery, meat, produce and dairy items. Not just 10% cuts but significant cuts–15-25%. They then doubled the size of their regular weekly advertising circular for those 3 weeks. They also bought tons of local radio time on the two most popular area radio stations. They blasted their promotion (including “give away” prices on items like Best Foods Mayo, Tide, Clorox, etc. Paper towels, toilet paper–pantry-loading items). They did the same with key fresh meat, produce and dairy items. Lastly, during each of these 3 weekends, the independent staged a free BBQ in its store parking lots–free hamburgers, hot dogs, sodas, etc. This also was promoted via print and radio, as well as written about in the local newspapers.
The result: The Safeway had a very soft opening…and next few weeks. The independent had brought in so many of the shoppers in the city of about 100,000, plus shoppers from surrounding towns, that most of the residents’ pantries were loaded up with great buys. I call it the “Competitor Pre-Opening Pantry-Loading Promotion.”
I’m not suggesting the independents in this case copy this promotion. Rather it’s merely a demonstration of some of the things innovative independents can do to stave off their larger competitors. It just takes a little Guerrilla Marketing.