In its most recent quarterly conference call, Austin, TX-based Whole Foods Markets announced its new sweet-spot for store size is 35,000 to 45,000 square feet. This is down from 45,000 to 55,000 square feet it gave last year as its target range, which itself was down from the 55,000+ square foot range it had been aiming for mid-decade when the economy was rocking and rolling. Founder and chief executive officer, John Mackey, noted that this past year has been a “teachable moment” for the retailer, which it has used to become more efficient in all operating areas including labor, inventory and building stores. As a result, Whole Foods is increasing profits even though same-store sales are down.
Wal-Mart, the $400 billion largest-in-the-world retailer, is looking at its portfolio of store sizes and deciding to focus on its mid-size store, about 120,000 square feet. While huge by conventional grocery store standards, these “regular” Wal-Marts are two-thirds the size of its 180,000-square-foot superstores. Traditionally, it was the superstores that offered supermarket quantities of groceries, while the smaller 120,000 square foot stores had clothing and hard goods. A major goal of refocusing on the smaller footprint is to pump up fresh foods and groceries.
To accomplish this, Wal-Mart has come up with a strategy called, “Win, Play, Show,” where it will differentiate product categories by whether it wants to dominate (yogurt, baby food, home entertainment centers), compete (clothing, fresh produce) or merely have the minimum necessary for shoppers to occasionally fill in (hardware, fish). All this refining should allow Wal-Mart to squeeze into its 120,000-square-foot frame a formidable competitor to conventional supermarkets, all, of course, at lower prices. This is a brilliant strategy because it eliminates the struggle of getting a new, 180,000-square-foot store, which takes up 18 acres, built in desirable markets. Wal-Mart already has the real estate for the 120,000-square-foot stores.
Trader Joe’s, whose stores are diminutive next to Whole Foods and Wal-Mart, is methodically growing its footprint from its traditional hard ceiling of 7,000 square feet to 10,000, 12,000, and in some newer markets, 15,000 square feet. The gourmet-on-the-cheap retailer is famous for its efficiency—stores do in excess of $1,000 per square foot in sales per year, and yes, that is on the total footprint including back room and the thickness of the walls—and its incremental puffing-up the footprint will allow it to maintain its great efficiency.
Conventional Supermarkets
I’ve just done a market study for a client who operates in a very busy, high-volume trade area. Part of the work is visiting all the conventional supermarkets in the trade area to see how much natural products they are selling. The average square footage dedicated to natural products in supermarkets, including frozen, refrigerated, natural/organic meat, dairy, produce, supplements, health and beauty aids, and bulk foods was 2,094 square feet! The average. Most of the conventional supermarkets carried all of these categories. In fact, the independent retailers in the trade area typically had fewer doors of freezer and cooler, less fresh meats and poultry, and less organic produce than the conventional supermarkets.
Walking into a 3,000 square-foot independent natural products retailer in that market, the question that came to mind was, “Why would I shop here?” The answer came back, “for supplements,” which were still much better stocked and represented than in the conventional supermarkets; and for the knowledgeable service. But apart from that, the dingy lighting, cramped aisles, lightly stocked food shelves and questionable cleanliness gave the clear signal that this store is not on any new customer’s shopping list as a must-see destination.
It doesn’t have to be this way.
You Can Have What You Want
First, let’s admit that if more people are eating natural and organic foods, health is increasing in our society. Second, let’s remember that it is we—the natural products movement and industry that wandered in the cultural wilderness as outcasts and granola heads for 30 years—who were first to make the argument that natural is better. Third, now that the world agrees with us that bad ingredients are “out” and good ingredients are “in,” why shouldn’t it be our cash registers that ring? The answer is, there is no earthly reason why your cash registers can’t ring their share of those sales. It comes down to grit. Do you want it, or don’t you?
Since natural products will continue to grow from their current level of 6.3% of total food store sales to 50% by the year 2030, or to 75% by the year 2040, depending on which rosy scenario you choose, anyone with the gumption can snag their piece of the pie.
Partly, it is generational, I suppose. The folks running traditional independent natural products retail stores today are mostly of my generation. Baby boomers who may feel they are past the risk-taking years. But even if it is merely for retirement security, it makes sense to change the light bulbs, get a cleaning service to maintain the floors and, if you can’t sell foods against the supermarket, get rid of a few gondolas and open up the aisles so you can put in seating and reading materials, and make it comfortable for your customers who are interested in learning more about supplements. Make it classy, at least.
The one superior reason shoppers would prefer most independent natural products retailers is an emotional one. A person can feel that the folks who work in natural products stores actually see them as a human being. The human connection is usually lacking in the large national and regional chain stores, and is a powerful area where you can excel against them. Why not highlight this strength?
It may be easy, tempting even, to let yourself think that because you are small, you have no answer for large competitors. But this is not true. You have a built-in advantage; your human touch, with all its depth and joy. Maybe you are tired, burnt out. Okay. But if you hear yourself saying, “This is the way we’ve always done it, and it’s always worked for us, and we’re not going to change,” remember John Mackey, Wal-Mart, Trader Joe’s and all the conventional supermarkets that surround you. Change is a requirement in business. If you are not willing to change, you are not really in business. You are in lifestyle. And that’s okay. But there’s an opportunity for you to try and build something in the natural products marketplace, if that’s what you want to do. 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. Jay is next scheduled to deliver a talk at Healthy Harvest in Long Beach, CA called “The Future of Natural Product Retailing” on October 11 at 10:00 AM (exhibiting at booth 223). Jay also will give a seminar at NPA Northwest, October 16-19 in Seattle, WA (exhibiting at booth 237). He can be reached at (800)328-0855 or via e-mail at jay@retailinsights.com.
Published in WholeFoods Magazine, Sept. 2009
