CAPTAIN CRUNCH

LUCIA MOSES

Earth Fare is as much about what it doesn't carry as what it does.

What it doesn't: products containing hydrogenated and cottonseed oils, high-fructose corn syrup and bleached flour. Anything artificial (but you already knew that).

What it does: natural and organic products, often locally produced.

"Clean," quality food is the name of the game at Earth Fare, a natural food retailer with 12 stores in the Carolinas, Georgia and Tennessee. It focuses on education, through staff training, and cooking classes and nutrition lectures for shoppers. Warm, earth-toned walls, highly buffed floors, black shelving and accent lighting lend stores an upscale feel and recall a mini-Whole Foods Market.

But while other natural food chains are putting a stronger emphasis on price, particularly in the Center Store aisles, Earth Fare remains focused on its quality message, as its new slogan - "The foods you love. Only better." - unambiguously states. In-store signs tout products' local origins and other qualities, like gluten free. "We're not really price-driven," said Michael Cianciarulo, the chain's president and chief executive officer. "We're item-driven."

Yet Earth Fare may have to modify that stance to stay competitive in a food market where organics are becoming so ubiquitous, even Wal-Mart carries a selection. Leading conventional stores from Kroger to Safeway have launched natural and organic lines under their private label to appeal to the category's entry-level shoppers for whom price is a major barrier to buying organics regularly.

Moves by the top two natural food retailers - Whole Foods and Wild Oats Markets - seem to suggest they realize the channel can no longer

expect to compete on their ambiance and feel-good philosophy alone.

Wild Oats has experimented with various pricing schemes in recent years, the latest being its Wild Dividends program that lets shoppers accrue discounts on future purchases by buying designated items. Even Whole Foods, its "whole paycheck" moniker notwithstanding, offers organics at more down-to-earth prices through its "365" house brands. While retailers can get away with high prices on fancy prepared foods that don't easily lend themselves to price comparisons, "everybody's looking at prices on their commodity items," said Jay Jacobowitz, president of Retail Insights in Brattleboro, Vt., a consulting firm to natural retailers.

Earth Fare has taken small steps to strengthen its price image. Greater vendor promotional budgets and Earth Fare's expanding sales volume have made it possible for the retailer to run more buy-one, get-one-free sales. About 3,000 items at a time carry temporary price reductions.

A year ago, Earth Fare ramped up its price-check program. Store managers identify their top competitor, be it a Whole Foods, Harris Teeter, Sam's Club or food co-op. They check their prices against the competitor's - the top 100 items every four weeks, the 500 items every three months - and try to match them.

The retailer also is working to grow the penetration of its private-label program, which, with about 200 items under the Earth Fare and Farewinds names, represents about 5% of grocery items, way below the industry average. Another 60 products are slated to come out in the next few months.

New items also have received more focus. Earth Fare has reworked the way it introduces new products, admitting that its old method was haphazard at times, resulting in SKUs sometimes slotted in the wrong location. Now, the retailer enlists manufacturers' help with new-item introductions, and plans soon to begin using new-item tags to identify the 200-300 items that arrive at stores each month. "We think we do the best job in getting new items on the shelf," said Cianciarulo, a veteran of Publix Super Markets, Lakeland, Fla.

These efforts seem to be paying off. Total same-store and Center Store sales have been growing at roughly a double-digit rate for each of the past three years, according to Cianciarulo. "Center Store's a very profitable part of the store," he said. "It is a pretty darned good gross profit area [with] low labor costs." He attributes success to following two basic rules: "Just excel in store operations, and sell our philosophy."

That philosophy, key in the fight against Whole Foods and other sellers of naturals and organics, centers around "clean" food.

Earth Fare eliminated products containing trans fats long before the substance became a mainstream health concern. Two years ago, it announced it would no longer carry products containing high-fructose corn syrup. That ban resulted in the removal of 118 products, mostly snack bars and juices. The company said sales haven't suffered, nor has it heard any complaints from customers.

Cianciarulo, who says he understands having passion is as important as business sense, if not more so, believes such activities build confidence with customers. "It's a good way of telling what we're about." He pointed as validation to an Earth Fare-commissioned survey that found shoppers had an unusually high level of trust in the retailer.

Having well-trained associates is key to fostering that trust; knowledgeable staffers can explain that while "green" detergents may cost more than conventional ones, they require less soap per wash and therefore can save money. Earth Fare prides itself on the staff training it provides to that end. New team members undergo an orientation that lasts one to two days, and to be eligible for a bonus must attend monthly training sessions in the form of cooking classes, health or vendor lectures.

Earth Fare believes its customers want to understand manufacturers' motives, processes and product ingredients. Thus, in-store signs emphasize attributes like locally made and gluten free. The weekly flier features mini-profiles of suppliers that describe the company, how their products are made and their nutritional attributes. "We spend most of our messages on the quality of the product," Cianciarulo said. While he acknowledged the day will come when Earth Fare will face price pressure on everyday Center Store products, he said, "If you make it a price issue, it's always going to be a price issue."

The retailer also tries to forge community connections by sourcing products from local growers and manufacturers. "We have hundreds of products across the store that are locally produced," said David Bowles, director of purchasing.

Recognizing that some shoppers still need convincing to try natural foods, Earth Fare shoots to have 10 food demos per week. "We're still fighting the taste perception," Cianciarulo said. "The rice cakes of years ago that kind of tasted like Styrofoam stuck together - people still think our foods taste like that."

Research seems to support the "clean food" strategy.

People are more concerned about the kinds of additives that Earth Fare prohibits in the foods it carries. A Natural Marketing Institute survey found that in 2005, 52% of the general population agreed at least somewhat that they tried to limit the amount of trans fat in their diet, up from 16% in 2004. In 2005, the first time the institute asked, 43% of the general population agreed at least somewhat that they preferred not to use products containing high-fructose corn syrup.

In addition to growing concern about ingredients like sugars and "bad" fats, there's greater interest in products that are locally made or connect emotionally with consumers, said Laurie Demeritt, president of market research firm The Hartman Group.

Still, Earth Fare has a tough road to hoe. Four of its stores compete directly with Whole Foods; soon, it will be five. As the retailer opens new stores - two are under construction and another 15-20 are planned over the next five years - it's increasingly likely to find Whole Foods in its backyard.

Jacobowitz said the latter has been selecting new markets based on the presence of a rival - and, with annual revenue of $4 billion to Earth Fare's $100 million, can easily afford to carry a weakly performing store if it means crippling the competition.

"Whole Foods wouldn't pick these trade areas were it not for Wild Oats or Earth Fare," he said, adding that he believes a shakeout is likely. "If Whole Foods follows Wild Oats and Earth Fare into an area, you're likely to find there's too much square footage for the stuff." How Earth Fare makes out may depend on whether trust trumps price - or the perception thereof - in that battle for the natural food shopper. By LUCIA MOSES

Earth Fare is as much about what it doesn't carry as what it does.

What it doesn't: products containing hydrogenated and cottonseed oils, high-fructose corn syrup and bleached flour. Anything artificial (but you already knew that).

What it does: natural and organic products, often locally produced.

"Clean," quality food is the name of the game at Earth Fare, a natural food retailer with 12 stores in the Carolinas, Georgia and Tennessee. It focuses on education, through staff training, and cooking classes and nutrition lectures for shoppers. Warm, earth-toned walls, highly buffed floors, black shelving and accent lighting lend stores an upscale feel and recall a mini-Whole Foods Market.

But while other natural food chains are putting a stronger emphasis on price, particularly in the Center Store aisles, Earth Fare remains focused on its quality message, as its new slogan - "The foods you love. Only better." - unambiguously states. In-store signs tout products' local origins and other qualities, like gluten free. "We're not really price-driven," said Michael Cianciarulo, the chain's president and chief executive officer. "We're item-driven."

Yet Earth Fare may have to modify that stance to stay competitive in a food market where organics are becoming so ubiquitous, even Wal-Mart carries a selection. Leading conventional stores from Kroger to Safeway have launched natural and organic lines under their private label to appeal to the category's entry-level shoppers for whom price is a major barrier to buying organics regularly.

Moves by the top two natural food retailers - Whole Foods and Wild Oats Markets - seem to suggest they realize the channel can no longer

expect to compete on their ambiance and feel-good philosophy alone.

Wild Oats has experimented with various pricing schemes in recent years, the latest being its Wild Dividends program that lets shoppers accrue discounts on future purchases by buying designated items. Even Whole Foods, its "whole paycheck" moniker notwithstanding, offers organics at more down-to-earth prices through its "365" house brands. While retailers can get away with high prices on fancy prepared foods that don't easily lend themselves to price comparisons, "everybody's looking at prices on their commodity items," said Jay Jacobowitz, president of Retail Insights in Brattleboro, Vt., a consulting firm to natural retailers.

Earth Fare has taken small steps to strengthen its price image. Greater vendor promotional budgets and Earth Fare's expanding sales volume have made it possible for the retailer to run more buy-one, get-one-free sales. About 3,000 items at a time carry temporary price reductions.

A year ago, Earth Fare ramped up its price-check program. Store managers identify their top competitor, be it a Whole Foods, Harris Teeter, Sam's Club or food co-op. They check their prices against the competitor's - the top 100 items every four weeks, the 500 items every three months - and try to match them.

The retailer also is working to grow the penetration of its private-label program, which, with about 200 items under the Earth Fare and Farewinds names, represents about 5% of grocery items, way below the industry average. Another 60 products are slated to come out in the next few months.

New items also have received more focus. Earth Fare has reworked the way it introduces new products, admitting that its old method was haphazard at times, resulting in SKUs sometimes slotted in the wrong location. Now, the retailer enlists manufacturers' help with new-item introductions, and plans soon to begin using new-item tags to identify the 200-300 items that arrive at stores each month. "We think we do the best job in getting new items on the shelf," said Cianciarulo, a veteran of Publix Super Markets, Lakeland, Fla.

These efforts seem to be paying off. Total same-store and Center Store sales have been growing at roughly a double-digit rate for each of the past three years, according to Cianciarulo. "Center Store's a very profitable part of the store," he said. "It is a pretty darned good gross profit area [with] low labor costs." He attributes success to following two basic rules: "Just excel in store operations, and sell our philosophy."

That philosophy, key in the fight against Whole Foods and other sellers of naturals and organics, centers around "clean" food.

Earth Fare eliminated products containing trans fats long before the substance became a mainstream health concern. Two years ago, it announced it would no longer carry products containing high-fructose corn syrup. That ban resulted in the removal of 118 products, mostly snack bars and juices. The company said sales haven't suffered, nor has it heard any complaints from customers.

Cianciarulo, who says he understands having passion is as important as business sense, if not more so, believes such activities build confidence with customers. "It's a good way of telling what we're about." He pointed as validation to an Earth Fare-commissioned survey that found shoppers had an unusually high level of trust in the retailer.

Having well-trained associates is key to fostering that trust; knowledgeable staffers can explain that while "green" detergents may cost more than conventional ones, they require less soap per wash and therefore can save money. Earth Fare prides itself on the staff training it provides to that end. New team members undergo an orientation that lasts one to two days, and to be eligible for a bonus must attend monthly training sessions in the form of cooking classes, health or vendor lectures.

Earth Fare believes its customers want to understand manufacturers' motives, processes and product ingredients. Thus, in-store signs emphasize attributes like locally made and gluten free. The weekly flier features mini-profiles of suppliers that describe the company, how their products are made and their nutritional attributes. "We spend most of our messages on the quality of the product," Cianciarulo said. While he acknowledged the day will come when Earth Fare will face price pressure on everyday Center Store products, he said, "If you make it a price issue, it's always going to be a price issue."

The retailer also tries to forge community connections by sourcing products from local growers and manufacturers. "We have hundreds of products across the store that are locally produced," said David Bowles, director of purchasing.

Recognizing that some shoppers still need convincing to try natural foods, Earth Fare shoots to have 10 food demos per week. "We're still fighting the taste perception," Cianciarulo said. "The rice cakes of years ago that kind of tasted like Styrofoam stuck together - people still think our foods taste like that."

Research seems to support the "clean food" strategy.

People are more concerned about the kinds of additives that Earth Fare prohibits in the foods it carries. A Natural Marketing Institute survey found that in 2005, 52% of the general population agreed at least somewhat that they tried to limit the amount of trans fat in their diet, up from 16% in 2004. In 2005, the first time the institute asked, 43% of the general population agreed at least somewhat that they preferred not to use products containing high-fructose corn syrup.

In addition to growing concern about ingredients like sugars and "bad" fats, there's greater interest in products that are locally made or connect emotionally with consumers, said Laurie Demeritt, president of market research firm The Hartman Group.

Still, Earth Fare has a tough road to hoe. Four of its stores compete directly with Whole Foods; soon, it will be five. As the retailer opens new stores - two are under construction and another 15-20 are planned over the next five years - it's increasingly likely to find Whole Foods in its backyard.

Jacobowitz said the latter has been selecting new markets based on the presence of a rival - and, with annual revenue of $4 billion to Earth Fare's $100 million, can easily afford to carry a weakly performing store if it means crippling the competition.

"Whole Foods wouldn't pick these trade areas were it not for Wild Oats or Earth Fare," he said, adding that he believes a shakeout is likely. "If Whole Foods follows Wild Oats and Earth Fare into an area, you're likely to find there's too much square footage for the stuff." How Earth Fare makes out may depend on whether trust trumps price - or the perception thereof - in that battle for the natural food shopper.

Earth Fare

Established:

1975, as Dinner for the Earth

Headquarters:

Asheville, N.C.

Trade area:

North and South Carolina, Georgia and Tennessee

Stores:

12

Average store size:

26,000 square feet

Annual sales:

$100 million

Motto:

"The foods you love.

Only better."