BOULDER, Colo. -- Wild Oats Markets here believes the success of a competitor's store in its home base -- including attracting previously untapped customers -- demonstrates the longterm potential for natural-food supermarkets to increase their market share, Mike Gilliland, the chain's chief executive officer, said here.
Speaking in a conference call with securities analysts that was monitored by SN, Gilliland also discussed first-quarter financial results, disclosed the hiring of Damon & Associates to enhance the chain's private-label business, and commented on a new 25,000-square-foot store prototype.
According to Gilliland, the opening of a 39,000-square-foot Whole Foods Market store here in late February has had only a minimal effect on Wild Oats' sales. "Less than 25% of that store's business came from us, which indicates there's an increasing demand for natural food," he said.
Efforts by conventional supermarkets to increase their selection of natural food also bode well for Wild Oats' future, Gilliland said.
"Whenever a conventional supermarket puts in more organic produce or expands its dry grocery natural-food offerings, it helps legitimize what we do and has no ill effects on us," he said.
"For example, when King Soopers quadrupled space for organic produce last year and doubled the number of stockkeeping units for natural foods, our sales went up. Those kinds of offerings are not sustainable longterm for conventional operators because they can't afford to give it adequate store space."
For the 13-week first quarter ended March 28, the company said, net income rose 74% to $2.7 million, while sales jumped 31% to a record level of $91.6 million -- reflecting the opening of new stores in suburbs of Miami and Denver and the acquisition of a store in Nashville, Tenn. Same-store sales for the quarter were up 5%.
Gilliland said Wild Oats expects corporate sales to exceed $400 million this year, while same-store sales increases for the year will be in the 4% to 5% range. According to Gilliland, the effect of the new Whole Foods store here "has been minimal, and it won't impact our sales or earnings for the year. After seven weeks, we're seeing our comps trending back up, which proves that the medium-sized format can be competitive." Gilliland described the store as "the Taj Mahal of natural-food stores," noting it is one-and-a-half times the size of Wild Oats' largest unit in the area, with prices Whole Foods has acknowledged are 20% lower than the rest of its stores.
He said Wild Oats prepared for Whole Foods' entry by upgrading its local store base and introducing a frequent-shopper card program, but it did not alter its pricing or margins before or after the competing store opened. "We initiated competitive price checks several years ago and feel we are already competitively priced on sensitive items and priced where we ought to be," he explained.
While most Wild Oats stores average 15,000 square feet, most new stores, including three opened so far this year, are each about 22,000 square feet, Gilliland said, "and our new prototype will be 25,000 square feet, which can offer what a 40,000-square-foot Whole Foods can offer but in a smaller box with a lot more charm."
He said Wild Oats will also continue to build units of less than 12,000 square feet, including one due shortly in Santa Monica, Calif., "but 80% to 90% of our stores going forward will be larger than 20,000 square feet."
Wild Oats is willing to consider acquiring stores of 4,000 to 5,000 square feet, he added, "because they give you an opportunity to expand or relocate where you have a management team in place."
He said Wild Oats has hired Damon & Associates, private-label food brokers, to increase its private-label business. "We're doing close to 5% in private label now, but we think we can close in rapidly on 10% by the fourth quarter of this year.