Doing OK

JON SPRINGER

The addition of a National Basketball Association franchise to Oklahoma City in 2008 may have sent a message to America that the big leagues had arrived in the Sooner State. But many residents of Oklahoma City are waiting to celebrate a different shot of “Thunder.”

A Whole Foods Market is under construction and set to open next year in an upscale shopping complex known as Classen Curve in Northwest Oklahoma City. The store would be the first in Oklahoma for the Austin, Texas-based natural foods retailer, and, sources said, should stand out in a market with a longstanding reputation for price-oriented grocers but until now nearly devoid of the kind of experiential retail brand of a Whole Foods.

“The grocer with the more aesthetic, higher-end feel here is a Wal-Mart Neighborhood Market,” explained Mark Inman, a senior vice president at real estate services firm CB Richard Ellis/Oklahoma in Oklahoma City. “They're not huge stores. They don't look bad. But for us, it's about as good as it gets.”

Oklahoma City's peculiar food retail mix is due mainly to saturation from a three-pronged attack from Wal-Mart, observers say. The Bentonville, Ark.-based retailer operates supercenters, Neighborhood Market food/drug stores and Sam's Club warehouse stores in Oklahoma City — accounting for nearly half of the food retail market in the Oklahoma City metropolitan statistical area, according to Metro Market Studies, Tucson, Ariz. The MSA includes seven counties in and around Oklahoma City. With 1.75 million residents, it is the 46th largest market in the nation.

Other estimates place Wal-Mart's control of the market near 60%. Burt P. Flickinger III, managing partner of Strategic Resource Group, New York, said he projected Wal-Mart would control two-thirds of the entire state of Oklahoma by the end of its 2014 fiscal year.

Wal-Mart's effects in Oklahoma City have been profound and in some cases unexpected. It sent one local competitor to bankruptcy court, and many others fleeing. Survivors have had to play Wal-Mart's game — laser focused on price and cost — while also differentiating behind local tastes and service offerings. The overriding emphasis on price in Oklahoma City has made it difficult for discounters such as Aldi to make the impact they might in other regions, while Wal-Mart's sheer power has kept national competitors from willingly engaging it here.

Wal-Mart itself in some ways is a victim of its success in Oklahoma City, observers added. Its density in the market has slowed same-store sales and in some cases created sales cannibalization.

And while the grocery market in Oklahoma City is daunting, these events are transpiring in a market that has rebounded from urban decay and economic peril in the 1980s and early 1990s, and the blow of the federal building bombing in 1995.

Oklahoma City has withstood the economic downturn relatively well, figures show. Unemployment in Oklahoma City of about 6% is well below the national average, according to the U.S. Bureau of Labor Statistics. Per capita income in the city has surged from 8% below U.S. averages in 2004 to 4% above in 2009, according to city figures, while the cost of living index remains well below the national average, indicating a market with untapped buying power. Population growth of 7% since 2004 has far outpaced nationwide population growth of 4.8%.

“This speaks strongly to job and income growth, as well as quality of life improvements that have inspired people to move to Oklahoma City,” Mick Cornett, Oklahoma City's third-term mayor, said in a state of the city address early this year. “I had a reporter from California ask me why so many from his state were moving to Oklahoma. I told him it's the reverse of the ‘Grapes of Wrath.’ It's the ‘Wrath of Grapes.’”

Three of the top eight energy companies in the country are based in Oklahoma City, and one, Devon Energy, is in the midst of building a new corporate headquarters that would become the tallest building in the state. Voters last year approved a new, eight-year, penny tax to raise $777 million toward an ambitious plan of downtown improvements including transportation and recreation, along with a new convention center.

“I doubt any other large city in the United States has weathered this economic slowdown better than Oklahoma City,” Cornett said.

This growth helped attract the NBA's Seattle SuperSonics in 2008, rechristened as the Oklahoma City Thunder, and has also been an attraction for Whole Foods, which in May announced plans for its first Oklahoma City store. The 35,000-square-foot unit will be an anchor tenant in Classen Curve, a development on the campus of Chesapeake Energy.

“Whole Foods Market has watched Oklahoma City's transformation these past 10 years with great interest,” Walter Robb, co-chief executive officer of Whole Foods, said in a statement.

The Right Location

According to Inman, Whole Foods took its time getting to Oklahoma City while searching for a location convenient to the right demographic. The city's vast size — at 623 square miles, it's the second largest city by area in the Lower 48 states — means incomes are spread a little farther than in typical markets.

“It was a pretty big market for them not to have a store,” Inman said, “and I know they'd been looking for years to find a location. Finally, they pulled the trigger.

“Essentially, our incomes are in the suburbs, and with 1.3 million people Whole Foods didn't view it as a two-store town, so they had to find real estate that could pull all the incomes into one place,” he explained. “That can be a struggle.”

Key to Whole Foods' arrival was understanding Oklahoma City's untapped buying power and wide-open spaces, explained Alison Oshel, the director of community redevelopment for the Oklahoma City Chamber of Commerce.

“Our population is screaming for a better shopping experience and we can show we are in the moderate to luxury price category now, and we can afford a Whole Foods,” Oshel told SN. “I don't think we're as value conscious as a 54% market share from Wal-Mart would indicate. It's just that we don't have any other choices.”

According to Oshel, the chamber demonstrated to Whole Foods officials that regional shopping malls in the city had done exceptionally well — including Penn Square, one of the most productive per square foot in the portfolio of owner Simon Property Group.

“If you looked at the black-and-white demographics, you think they wouldn't be successful, but they are extremely successful,” Oshel said. “We were able to show Whole Foods that there were things about our market that were different. Retailers had to understand that what might be a 10-mile drive in Dallas would be a 20-minute drive time here.”

Selection for foodies and fans of natural/organic foods has otherwise been limited in Oklahoma City, aside from two units of Akin's Natural Foods, a Tulsa-based chain, and various independents around nearby Norman, home of the University of Oklahoma.

Independent Success

Independents led by Crest Foods, Edmond, Okla., have also worked to attract the specialty shopper, sources said, but have done so while also emphasizing sharp pricing.

With just seven stores but market share of about 12%, Crest has drawn comparisons to WinCo Foods for its ability to match Wal-Mart on pricing.

“They have a real fighting spirit,” David S. Rogers, president of DSR Marketing Systems, Deerfield, Ill., who has studied the Oklahoma City market. “When Wal-Mart came in, they were determined to survive and did everything they needed to do including reducing costs, and basically, just being ferocious. I think Wal-Mart has given up trying to finish them off.”

Sources say the 80-year-old company — now run by a third generation of the founding Harroz family — has succeeded behind a financial formula of owned real estate and little debt, and by positioning its stores behind customer service, selection and pricing. Officials were not available for comment.

Crest's newest store — a 95,000-square-foot location in South Oklahoma City, is dubbed Crest Fresh Market and includes specialty departments including sushi, service meat and seafood, bakery, deli and floral. It boasts a Premium beef program making USDA Prime cuts available.

“While Wal-Mart has sabotaged itself with the discontinuation of local brands, Crest, like WinCo, has been very successful in competing against Wal-Mart by supporting local suppliers. It's a winning strategy,” Flickinger said. “Crest stores also do a lot more community involvement, and are far stronger than Wal-Mart in fresh meat and fancy produce. Oklahoma's a big center of the plate market where meat is very important.”

Buy For Less, another independent based in Oklahoma City, operates 13 stores under the Buy For Le$$, Valu Foods and Super Mercado banners in the Oklahoma City market. Although the chain has traditionally focused on the lower-end demographic, owner Hank Binkowski told the Oklahoman newspaper recently that he would like his next store — as well as renovations to existing stores — to emphasize natural and organic foods and expand specialized food service.

Buy for Less and Crest — as with most of Oklahoma's independent retailers — are supplied by Associated Wholesale Grocers, Kansas City, Kan.

AWG also owns one of the largest players in Oklahoma food retailing, the Homeland chain. Homeland operates 25 stores in the MSA and holds about a 14% market share, according to Metro Market Studies. That chain was badly hurt by Wal-Mart's expansion in the early 1990s, filing for Chapter 11 reorganizations in 1996 and 2001. But it has fought back in part through acquisitions of retailers also damaged by Wal-Mart — including some former Albertsons stores left behind when that chain left the market.

According to Rogers, the Albertsons stores “weren't offering enough in return to justify prices that were 25% or 30% above Wal-Mart, and they paid the price.”

Wide-open spaces providing plenty of land for development — along with a relative lack of opposition from organized labor in a right-to-work state — allowed Wal-Mart to saturate the Oklahoma City market with Supercenters in the 1990s, sources said. Oklahoma City was then one of the first markets in which Wal-Mart experimented with a heavy concentration of Neighborhood Market stores between its larger outposts. Along with five area Sam's Club locations, Wal-Mart provides a vehicle for a wide variety of shopping occasions.

The resulting pressure drove out dozens of competitors and, sources said, may have spooked other retailers from entering the market. Among those who have looked but not yet committed to Oklahoma City are Sprouts Farmers Market, Sunflower Markets and Tulsa, Okla.-based Reasor's. “Reasor's was a chain we'd talked to for 10 years and they always said no. Now they're saying maybe,” Oshel said.

H.E. Butt Grocery has told city officials that expansion to Oklahoma City would be difficult at this time from a logistics standpoint, but the San Antonio-based retailer also remains on the radar, Oshel said.

“Wal-Mart is already so well-positioned here, the idea of coming in and finding real estate, then competing with them just would be slow and very tough,” added Inman.

A recent arrival of Batavia, Ill.-based discounter Aldi has not made an especially large impact yet, sources added. Its six area stores account for 1.2% market share, Metro Market Studies said.

“The problem in the Oklahoma City area is that there is a Wal-Mart near all the major intersections so there is no need to drive very far if you want to buy groceries at a Wal-Mart,” noted David S. Livingston, a Waukesha, Wis.-based consultant and a former Oklahoma City resident. “Perhaps Crest's low-price image affects Aldi too.”

“Because of the price compression, the limited assortment stores like Save-A-Lot and Aldi really haven't taken the town over,” added Rogers. “There's too much of a trade-off in terms of a limited selection. I think they do well in places where there is a wider spread on pricing — that's not Oklahoma City.”

Livingston noted a nontraditional competitor — the commissary at Tinker Air Force base — is one of the military's highest volume units.