Natural Grocers confronting 'serious internal competition'

Coming off a year in which it was beset by encroaching competitors, cannibalization, and poor economies in several of its regional markets, Natural Grocers by Vitamin Cottage is reeling in its store opening pace and planning to more strongly emphasize its points of difference to the larger market, co-president Kemper Isely said.

“Fiscal 2016 was a challenging year for Natural Grocers,” Isely said late Thursday while reviewing results of its fourth quarter and fiscal year and its plans for 2017.

Even events like the presidential election and deflation found ways to trip up the natural/organic retailer this year, Isely noted in the call: He attributed soft sales in the quarter in part to consumer sentiment damaged by the sense of divisiveness that accompanied the election. And while deflation has come with its own challenges to conventional competitors, Natural Grocers’ discerning assortment has been less vulnerable to price swings and as a result, wide gaps opened between retail prices on items like eggs.

Isely emphasized the company made good progress adjusting to these challenges as the year went along, particularly after the changing environment prompted the company to adjust guidance in the spring. Its outlook for 2017 in the meantime is rooted in the realization that the mainstreaming of the natural/organic trend has created an environment where specialists like Natural Grocers will need to work harder to highlight what makes it unique, and minimize the extent to which its new growth impacts surrounding stores.

Its marketing plan for 2017 includes promoting its ingredient standards, pricing, nutrition and wellness positioning; driving excitement with product news; refining its loyalty plan and continuing to build on digital media, Isely said. It’s monthly “Health Hotline” flier is evolving into a digital magazine format “that we can distribute to millions of people,” he said. The company is also planning an aggressive radio campaign in its markets for the first half of the year, and advertising on billboards.

Store growth, as reported, is expected to decline from 23 new stores in 2016 to a range of 15 to 20 in 2017, or from 22% store growth to between 12% and 16%. Isely said the company would open five stores in the current first quarter, four in the next and would be “dynamic after that.” That’s in part because the company prefers to finance growth through cash flow rather than borrowings, Isely said.

New stores in 2016, he said, have been slower to meet projected first-year sales in part because introducing them creates a ripple effect on sales at surrounding stores. Although that moderated a bit during the year, Isely said, “we still have some serious internal competition.”