Henry's Farmers Market, a division of Los Angeles-based Smart & Final, was continuing to talk last week with Sprouts Farmers Market, Phoenix, about a possible acquisition of the 43 Henry's stores, sources told SN.
If that deal is consummated, it will represent just one instance — albeit the most significant — in a series of recent moves by natural food chains to expand their banners into new markets.
Sunflower Farmers Market, the Boulder, Colo.-based company operating in six Southwestern states, is moving into Northern California in March; Greensboro, N.C.-based The Fresh Market is continuing to move beyond the Southeast; and Asheville, N.C.-based Earth Fare is set to expand into Ohio.
Neil Stern, senior partner at McMillan Doolittle, Chicago, said the flurry of growth among natural food operators is occurring “because that market is clearly growing faster than the conventional market as a lot of people take advantage of opportunities that present themselves and as more small, local guys achieve success.
“At one point, Whole Foods had bought up most of its local competition, but nature abhors a vacuum, and many of these operators are more approachable than Whole Foods, with lower prices and less elaborate stores.”
Scott Mushkin, an analyst with Jefferies & Co., New York, said the motivation for natural food operators to expand is generated by the return of annual sales growth of 10% to 15%.
“Growth has just exploded,” he told SN, “with the success of one company promoting excitement among the others.”
Much of the sales impetus is coming from upper- and upper-middle-class consumers, he noted, “who continue to migrate to better-for-you, perishables-focused offerings and away from more traditional products. The big question in 2011 is, will that attitude trickle down to the traditional supermarkets?”
The middle class has not seen its income increase for the past 10 years, Mushkin pointed out, “so the bifurcation with the more affluent group is quite large. And the middle class is also moving away from traditional supermarkets to dollar stores and mass merchants.”
According to Mushkin, affluent consumers are opting for natural food alternatives for two reasons: “First, they want to eat healthier, better-for-you foods based on their education.
“And among Baby Boomers with empty nests, they like the smaller sizes of the boxes and will opt to shop those stores and cook rather than go out to dinner.”
A spokesman for Smart & Final told SN discussions to sell Henry's “are still at a preliminary stage, and no agreement has been reached.”
However, he said there have been discussions between the two companies in the past “that didn't get very far. But they have gone further this time than in the past.”
Henry's, a farmers' market-style retail format with a heavy emphasis on perishables, operates 43 stores — 34 in Southern California under the Henry's banner and nine Texas-based stores under the Sun Harvest banner.
Sprouts could not be reached for comment. It operates 54 farmers' market-style stores — 17 in Southern California, 15 in Arizona, four in Colorado and eight in Texas.
Sunflower operates 32 stores in Arizona, Colorado, Nevada, New Mexico, Texas and Utah, with plans to open its first California store in the northern part of the state, in Roseville, in March.
The Fresh Market, Greensboro, N.C., has disclosed aggressive growth plans, saying it intends to grow its base from 95 stores to any many as 500. “We view expansion as a core competency,” the company said in a statement.
Earth Fare, Fletcher, N.C., which operates 21 stores in six Southeastern states and which expanded into Florida last year, has announced plans to open in Fairlawn, Ohio. If that move is successful, the company said it will back-fill between Ohio and its home base.
