PALM BEACH, Fla. -- The healthy living channel, given favorable and rapidly changing consumer trends and demographics, is in position to challenge for a greater share of the retail food market.
That's what Michael Gilliland, chief executive officer of Wild Oats Markets, based in Boulder, Colo., told the first SN Food Retailing Summit here.
Wild Oats, a company that began with one "eclectic" store that sold everything from organic foods to bicycles and crystals, evolved in just over 10 years to a 60-plus store chain that expects to close out this fiscal year with $700 million in sales. But despite that growth, the natural foods sector -- which tallied $15 billion in 1997 sales -- accounts for only 3% of U.S. retail foods sales, Gilliland said.
Wild Oats -- currently in 17 U.S. states and doing business under another banner in Canada -- is also girding for increased competition from other channels, including supercenters that realize the natural foods industry "is riding the crest of a demographic wave." While the core customer remains the environmentally conscious baby boomer, a still-growing senior citizen population becoming interested in homeopathic remedies and the general public's concern about food safety issues will fuel greater demand, Gilliland said.
"What happens when the Krogers, Albertson's and Safeways of the world decide to get into our business?" Gilliland asked, rhetorically. "We think there are a number of barriers to entry we think will keep them from having any kind of a meaningful effect on our business anytime soon." The hurdles major chains face if they want to enter the channel, Gilliland said are:
* Credibility: "They [the customers] trust us [and] the products we sell," Gilliland said. "And we think that level of credibility is something the chain stores can't just create overnight."
* Customer Service: Explaining that Wild Oats devotes significant resources to staff training -- it even has opened a management training school -- Gilliland said, "The payroll levels required to sustain that effort would really be prohibitive for a chain, especially for one in a unionized environment."
* Education: Like others in the channel, Wild Oats invests heavily in brochures and flyers that are distributed in stores and through direct mail; the company also rolled out an interactive Web site and its stores feature a "community room" for lectures, cooking classes and the like.
* Absence of a national brand and the corresponding slotting fees: "As everybody knows, [supermarket retail] is a highly complex business of pinching pennies, and when you layer on top of that the difficulty of dealing with so much perishable product, which represents more than 50 percent of our stores, and you take away the slotting allowances and vendor support...it certainly creates more problems," Gilliland said.
* Diversity in the vendor base: Gilliland said the channel is supplied by a fragmented corps of "several thousand vendors" -- a situation that would present logistical problems for traditional grocers.
So far, according to Gilliland, traditional grocers' attempts to penetrate the channel have backfired. "Every retailer right now carries organic produce and some type of natural foods product. If anything, that has not hurt our business at all; if anything, I think it has legitimized some of the things we're doing right now."
He went so far as to say conventional grocers "have become a feeder for us; a customer gets turned on to a new natural product they might like and the next logical question is, 'Where can I get more of this?' And they usually end up coming to us."
Looking forward, Gilliland mentioned the existence of "several thousand independent retailers" in the natural foods channel and "virtually every other operator is a one-to-three-store regional chain. We think these stores represent a huge pool of potential acquisition targets for us."
"In the immediate future, we have a lot of catching up to do getting even with conventional grocers in terms of IT [information technology] distribution efficiency infrastructure, and some of the conventional guys we've hired from Vons [Cos.] and Lucky's [Lucky Stores] and Ralphs [Grocery Co.] are helping us do that. We have a number of technology initiatives under way," including replacing point of sale software, and "we just rolled out our attempt at e-commerce."
"We're constantly pushing the quality envelope, the customer service side of the envelope and avoiding the commodity side of the business." Gilliland said the company is looking to provide "bigger perishable offerings where we can outperform the big-box stores and see the dairy offerings shrink; natural living [as a channel] can't make a living forever selling A,B,C vitamins."
What Gilliland said the company envisions is a store where customers not only shop for grocery items, but to come in for a homeopathic diagnosis of their ills and then purchase the natural "prescription."
He also mentioned the rollout of a new format called Peoples Market, which Gilliland described as "an Old Navy version of Wild Oats. I think there's huge opportunities in a number of channels to expand this business," he concluded.
This presentation was moderated by Chris L. Grindem, senior partner and management director at J. Walter Thompson Retail Group.