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BANC OF AMERICA CONFERENCE

NEW YORK -- The nation's two largest natural foods retailers intend to take additional market share from conventional supermarkets this year by aggressively opening new stores and combatting perceptions that their goods cost more.Whole Foods Markets, Austin, Texas, and Wild Oats Markets, Boulder, Colo., will also compete with one another in more markets than ever before in 2000, executives from the

NEW YORK -- The nation's two largest natural foods retailers intend to take additional market share from conventional supermarkets this year by aggressively opening new stores and combatting perceptions that their goods cost more.

Whole Foods Markets, Austin, Texas, and Wild Oats Markets, Boulder, Colo., will also compete with one another in more markets than ever before in 2000, executives from the respective companies said in separate sessions at the Banc of America Open Exchange consumer conference here last week.

Whole Foods currently has 107 stores in 22 states, with 27 new stores in its development pipeline and a goal of 200 stores by 2004, said Chris Hitt, Whole Foods president. The company recorded sales of $1.6 billion for the 1999 fiscal year ended Sept. 26, an increase of 12.8%.

Wild Oats operates 106 stores in 22 states and has plans for 16 new stores and seven relocations this year, and will remain active in the acquisition arena, said Jim Lee, its president and chief operating office. The company reported sales of $721.1 million for the fiscal year ended Jan. 1, up 35.9%.

Both companies said they are converting shoppers from traditional stores. Both also said an important part of the conversion effort is overcoming consumer perception that natural foods supermarkets charge higher prices than conventional supermarkets.

"We do market basket studies, and it's remarkable how competitive we are with Giant in Washington and Stop & Shop in Boston," said Hitt. "Our stores don't look cheap or feel cheap, so there's a perception that they are expensive."

Lee said, "The biggest obstacle in getting that crossover customer is that they think they can't afford us. The majority of our customers still shop with us as a second choice, but we're seeing more becoming primary."

Both companies said they are competing with conventional retailers on price by developing extensive private-label programs. "There are not many national brand names in the natural foods arena -- we feel we might as well be one," said Lee, adding that Wild Oats intends to extend its premium Wild Oats organic label and less expensive Down to Earth Values natural labels from 80 to150 items this year.

Whole Foods' three-tiered private-label products account for around 12% of its total sales, said Hitt, although he added that Whole Foods' private label program is slowing some: "Our customers have told us they don't want us to be a private-label store."

Demographics and consumer trends are working in favor of the natural food retailers, the executives maintained, citing growing concerns over food purity and awareness of healthier lifestyles and nutrition. The natural food industry, which includes "organic" and minimally processed foods, as well as vitamins and supplements, is a $15 billion a year industry growing at a compound annual growth rate of 22%, according to figures cited in a Banc of America Securities report.

Wild Oats and Whole Foods currently operate stores in seven common states, and Whole Foods' planned expansion into St. Louis and Denver later this year means additional competing markets.

Their real estate strategies and boxes differ considerably, however. Whole Foods tends to build new stores of 35,000 to 40,000 square feet, while Wild Oats has grown primarily through acquisitions and can operate in smaller boxes. Its prototype new store is 25,000-28,000 square feet.

Both chains intend to reduce the number of store banners they currently operate. Lee said Wild Oats would reduce its banners from 12 to seven by year-end. Hitt said he envisions one brand name for the entire Whole Foods chain, but did not say how soon the company could change its stores.