Viewpoints

A Magic Number Emerges in the Natural Channel

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Supermarkets love numbers. Indeed, they are infused throughout the business, from prices and square footage to serving sizes and aisle counts. In this line of work, the right numbers mean success.

Currently there’s one digit that’s been getting more attention than the rest, and for good reason. The number is 1,000, and it’s become something of a benchmark because it stands for the number of stores that two companies in the natural food channel are planning to open in the United States.

The first reference to a thousand stores came last year, when Walter Robb, co-CEO of Whole Foods Market, told investors that the chain intended to accelerate the pace of store development over the next several years to reach 1,000 domestic units. It’s bold talk coming from a chain that’s on track to open roughly two dozen new stores in 2012.

More recently, the owners of the small-format Natural Grocers by Vitamin Cottage filed plans for a $115 million initial public offering to help finance its expansion. The plan is to expand beyond its current market in the West to 1,000 units (1,100 stores to be exact) throughout the country.

One thousand stores is a lot in any retailer’s play book, and Whole Foods and Natural Grocers are setting a very high bar. Whole Foods needs to more than triple its size, from its current 324-store count. Natural Grocers needs to jump even higher. It currently operates 54 units.

The true importance of the figure isn’t so much the number itself — it is, after all, just a number — but what it represents. The natural food industry has enjoyed red-carpet treatment on Wall Street the past year. The IPO for Annie’s Naturals, whose shares jumped 89% the first day of stock trading, got a better reception than Facebook. There are plenty of acquisitions afoot; the Sprouts and Sunflower Farmers Markets merger is only the most recent.

 

Whole Foods and Natural Grocers intrigue investors because they have plenty of new markets to build in. Both are emphasizing smaller footprints that will enable them to enter underserved markets once deemed insufficient by conventional operators. Both are still headed by their founders, so each company’s original vision remains focused and intact.

Combine all these assets with consumer demand for more natural and organic food products, and suddenly the idea of 1,000 stores doesn’t seem so outlandish. If anything, mainstream retailers should find it disquieting.

Discuss this Blog Entry 3

Michael (not verified)
on Jul 10, 2012

I think the 1,000 numbers being thrown about by Whole Foods, Natural Grocers and even Sprouts are more about looking "ambitious" rather than being a realistic medium term goal. Even Fresh Market has come up with its own nice round number. They think 500 is a reasonal store count.

Kellee Harris (not verified)
on Jul 11, 2012

As a vendor to Whole Foods, I think their number is understated at best...everywhere we go it seems consumers can't wait for a Whole Foods to locate in their hometown! Can you say that about any other major grocery chain?

Michael (not verified)
on Jul 12, 2012

Agreed, the Whole Foods story is tremendous but even at 40 stores a year, youre looking at about 17 years to reach 1,000. And that assumes that during that time no one becomes the "next" Whole Foods. Whenever I think about a company expanding, I think of all the retailers that have "expanded themselves into oblivion" Im content with a nice methodical pace that doesnt overextend its capabilities.

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