The Truth about Independent Retailers that (Almost) No One Sees

Independents are the key to a healthier society.

merchandising insights

Written By:
Jay Jacobowitz
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Independent natural products retailers don’t diagnose, treat, prevent or cure disease, but they do help millions of Americans on the path to well being. Independent natural products retailers can’t legally practice medicine, but their knowledge of nutrition and genuine empathy and concern supports those who are trying to get and stay well. Tens of millions of American consumers enjoy better health because there is a helpful natural products retailer nearby.

jay jacobowitzIndependent natural products retailers don’t diagnose, treat, prevent or cure disease, but they do help millions of Americans on the path to well being. Independent natural products retailers can’t legally practice medicine, but their knowledge of nutrition and genuine empathy and concern supports those who are trying to get and stay well. Tens of millions of American consumers enjoy better health because there is a helpful natural products retailer nearby.

Our society is struggling with chronic disease magnified by ignorance. Diabetes, metabolic syndrome, obesity, high cholesterol, hypertension, cardiovascular disease and hundreds of other chronic and degenerative disorders can improve with diet and lifestyle changes. The dominant allopathic medical model in the United States—in service to pharmaceutical interests—overly relies on suppression therapy via prescription drugs. The dominant U.S. conventional foods business is addicted to cheap cost inputs for sugar and fat via generous federal subsidies in the Farm Bill for corn and soy, prime suspects in the cycle of chronic illness.

We in the natural products industry sought and promoted a better way, which consumers have increasingly embraced over the last 40 years, forcing a change in the dominant medical and food models. Conventional foods marketers are feverishly reformulating and repositioning “better-for-you” foods with fewer bad ingredients. The medical community is beginning to acknowledge the role of diet and lifestyle.

I do not think it is overstating the case to say that the natural products industry was the catalyst for these changes, this paradigm shift. Nearly every household (95%) in the United States now believes in the connection between good food and good health, and three in four households are buying more natural products. With perhaps 15% of households buying the lion’s share of natural products now, we are on the verge of a new wave of growth as the other 80% of households climb aboard the natural bandwagon.

So, what are independent natural products retailers doing to seize this unprecedented opportunity to grow while improving the health status of their communities; to, as the saying goes, do well by doing good?
 
Yin and Yang
The natural products industry is full of irony:
Irony 1: Industry pioneers were not business minded, yet created one of the most successful businesses in history.
Irony 2: When the industry was small, a few passionate shoppers bought many products. Now that the industry is large, millions of casual users buy a few items each.
Irony 3: Great success has created powerful new competitors that challenge traditional natural products retailers to change or risk failure.
 
The New Math
In the 1970s and 1980s, the natural products industry was concentrated. There were few retailers, few products and a few dedicated shoppers could sustain a successful store. Fifty to 100 committed natural foodies—folks who bought most of their groceries in natural foods stores—could easily support a small retailer.

Today, the natural products industry is dilute. There are tens of thousands of stores carrying hundreds of thousands of products. Although the industry is 30 times larger than it was in 1980, the newest shoppers are just cherry picking; a bag of organic salad greens here, a half-gallon of organic milk there. It will take years for these consumers to deepen their commitment to natural products to the same degree as “core” natural products shoppers.

As a result, these less-committed consumers don’t yet have good enough reason to make a special trip to an independent natural products retailer. Their regular conventional grocery store carries enough natural items to satisfy their current needs. This is the new math of the natural products industry: Although there are millions of new customers, independent retailers are having a harder time reaching them.
 
What’s Your Message?
Succeeding in business comes down to being different from your competitors. In 1970, independents were different because natural products were unique to their stores. No conventional supermarket carried yogurt or granola. This near-total exclusivity lasted the better part of 25 years, through the mid-1990s. And because of it, retailers didn’t have to work hard to be different; the products made them different. Their message, “We sell natural products,” was the same as saying, “This is how we’re different.”

After 25 years of selling natural products unopposed, when the products began to appear in enough other outlets to hurt them, natural products retailers stuck to the same message. But, “We sell organic milk, too,” is not a compelling message to the mom who has 15 minutes to figure out what’s for dinner, and is already inside her regular supermarket. Independent natural products retailers need to develop a new message based on what is different about their stores today.

As I have been suggesting in my seminars this year, all businesses have a choice between three different models that emphasize people, products or place. Since everyone now carries natural products, and supermarkets generally have more convenient locations (the “place”), independents’ best option for being different from competitors is to emphasize people. Please see my March 2008 Merchandising Insights column, “People, Products and Places—Which Business Model Is Best for You?” for more information on how to do this.
 
Not Going Away Yet
Although some predict the death of independent retailers, this base of 10,000-plus stores may shrink, but will survive. Independents make up about one-third (33%) of retail sales in the natural products industry, a market share that has gradually been declining over the last 20 years. But while independents’ percentage of the pie has shrunk, the overall pie has grown, so that as a group, independents actually sell more dollars today than ever before.

For a glimpse of the future, we can look at independent conventional grocery stores. These mostly local and regional supermarkets—many of them high-quality—have about a one-fourth (25%) market share of the conventional foods business, which is a mature, highly price-competitive market dominated by behemoths such as Wal-Mart, Kroger, Albertsons and Safeway. Independent natural products retailers should ultimately control at least as much natural market share. And remember: the natural pie is growing.
 
Shakers and Bakers
Some independents bemoan the increase in competition, but it is the decades of uninterrupted industry growth that have permitted thousands of natural products retailers to make a terrific living—and to continue to make a decent living today—without having to re-invest money in the business. These are the “bakers.”

These self-directed retailers have more or less ridden the wave of natural products growth for many years without too much concern for the long-term health of the business. Running the store is more a lifestyle choice than a business venture; sort of like having a job with expenses.

Typically, the store looks about the way it did the day it opened, except that the equipment, fixtures, flooring, lighting and wall treatments are all well worn. Because it is more lifestyle than business, there is little desire to re-invest the profits for the long-term. And, “marketing” usually consists of advertising manufacturer-branded products that do not promote a separate identity or message for the store.

“Shakers,” on the other hand, tend to see the store as having its own identity and business needs. Although the store may be smaller than the supermarket down the street, these retailers take the business just as seriously. For instance, part of the profits go to regularly replacing and upgrading fixtures and equipment, and maintaining floor, wall and lighting treatments. Marketing efforts promote the identity and unique personality of the store, and develop a message distinct from product-based advertising subsidized by manufacturers.

These “other-directed” retailers also see the store as a vehicle to pursue something larger than a comfortable lifestyle: An opportunity to help raise the health status of their community and to provide an alternative for those who, perhaps out of ignorance, may face a lifetime of chronic illness and prescription medications.

These retailers often express the desire to re-invest and grow their stores as a way to retain good employees, and to give talented team members greater opportunities and a wider career path. For many, it is the next generation—the family’s children—coming into the business that is the driving force behind deciding to re-invest for long-term growth. For some, it is the desire to continually improve that motivates them, and for others, re-investing in the store is simply how they do business: with conviction.

One can appreciate “bakers,” the self-directed retailers, who have rather efficiently and inexpensively earned a comfortable living selling natural products; who have been their own boss while doing something they believe in. Personally, I am glad we also have “shakers,” the other-directed retailers who want to see how many people they can help.
 
A Final Irony
When I ask natural products retailers who attend my seminars around the country if they feel confident of being able to help most customers most of the time achieve a positive health outcome, nearly everyone raises their hand. Natural products retailers have good reason to be confident; together, they have helped millions of Americans improve health and achieve well being for many years.

So, here is one final irony: That those with a capacity to help others would aspire merely to secure a comfortable living for themselves. WF

Jay Jacobowitz is president and founder of Retail Insights®, a professional consulting service for natural products retailers established in 1998, and creator of Natural Insights for Well Being®, a holistic consumer marketing service designed especially for independent natural products retailers. With 31 years of wholesale and retail industry experience, Jay has assisted in developing over 800 successful natural products retail stores in the U.S. and abroad. Jay is a popular author, educator, and speaker, and is the merchandising editor of WholeFoods Magazine, for which he writes Merchandising Insights and Tip of the Month. Jay also serves the Natural Products Association in several capacities. He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.

Published in WholeFoods Magazine, November 2008