BOULDER, Colo. -- Wild Oats Markets here said initial consumer reaction has been positive to the chain's decision to stock a handful of conventional grocery items.
"The reaction so far is, we didn't bring in enough," Perry Odak, president and chief executive officer of the natural foods chain, told investment analysts during a conference call less than a week after the first group of conventional items was introduced.
Odak said Wild Oats has added "a limited number" of conventional items in its grocery sets so far -- fewer than 20 stockkeeping units, encompassing a variety of cleansers and paper towels, including items from Tide, Clorox, Formula 409 and Bounty.
Sonja Tuitele, the chain's senior director, corporate communications, told SN the company plans to add another 40 SKUs over the next few weeks, including brands of breads, soups and other food items that will be more mainstream "but with healthful images and all-natural ingredients." Those items will be integrated into the Center Store section, she noted.
A selection of national brands of health and beauty care items that will be introduced, including aspirins and analgesics, will be featured on their own endcap, she said.
Tuitele said Wild Oats decided to add the conventional items based on consumer research, "which indicated our focus on being the purest of the pure in terms of natural items was too narrow."
Odak said the number of new store openings scheduled for the second half will slow. Wild Oats has already opened six stores this year, with one Wild Oats store in California and two Henry's Markets in Phoenix set to open before the end of the year, he said; several other stores slated to open in the fourth quarter, however, will be delayed until 2006, he noted.
"This is somewhat of a slowdown from the 12 stores we opened last year, but we have a full pipeline of leases for new stores in 2006 and 2007, and we plan to continue to deliver 10% square footage growth annually," Odak said.
Robert Dimond, senior vice president and chief financial officer, said the company has 17 leases or letters of intent signed for new sites that will open over the next three years. Capital expenditures during the first half of 2005 were $12 million, compared with $27.4 million in last year's first half, with the reduction resulting from spending in 2005 "that's more heavily skewed toward the latter half of the year than it was in 2004," Dimond said. Cap-ex for the full year will fall between $35 million and $40 million, compared with $50.8 million last year, he noted.
Odak said gross margins rose to 29% during the second quarter that ended July 2 and should reach 30% by the end of the year. That goal will be achieved, he said, from sales growth in several higher-margin categories, including a new holistic health line, additional food-service items and private-label products.
Wild Oats' holistic health department, encompassing vitamins, minerals, supplements and body-care products, was re-engineered last year, "and went from a zero to negative growth and now to positive growth, with the highest gross margins in the store," Odak said.
The chain is also re-engineering its food-service sections and is about to introduce several new lines over the next few months, he said, including pizza, sandwiches, hot foods, grab-and-go and cold salads.
It has already launched a new line of deli meats under the Dietz & Watson label, "and we're seeing a substantial increase in sales," Odak said.
Average basket size at Wild Oats rose 5% to $22.31 during the second quarter, compared with $20.95 a year earlier, Dimond said.
