BRAVE NEW WORLDS

MATTHEW ENIS

Nestled within a wide, lazy bend in Indianapolis' White River, the neighborhood of Broad Ripple Village looks like the perfect spot for a natural food store. Amid the area's eclectic blend of local bars and restaurants, art galleries and funky independent shops, students from Butler University mingle with baby-boomer locals and the joggers and cyclists enjoying the nearby Monon Trail. It's an intersection, if you will, for the various demographic groups that have been embracing health and wellness for all of their different reasons.

So, it's not surprising to find the neighborhood playing host to a new natural food retailer. What's notable is the player involved: Supervalu, which last month unveiled its first Sunflower Market on Broad Ripple Avenue. It used the occasion to announce aggressive plans to open 50 similar locations during the next five years, becoming the first conventional grocer to undertake a significant rollout of a multi-unit natural food concept.

"This has been a dream of ours for several years - opening a value-priced natural and organic market," said Jeff Noddle, chairman and chief executive officer of Supervalu, during the store's ribbon-cutting ceremony.

If the dream has a happy ending, it will represent an unprecedented commitment to the category by traditional retailers who, just a few short years ago, had virtually no plans for whole-health merchandising - much less the merchandise itself.

Supervalu won't be alone for too long, either. Lakeland, Fla.-based Publix Super Markets and Chandler, Ariz.-based Bashas' Supermarkets are planning to launch their own stand-alone natural food concepts later this year.

"It's a growing segment in our business," explained Bashas' President Mike Proulx, describing the "tremendous response" that the chain has witnessed in its Natural Choice store-within-a-store departments. Inspired by that performance, the company spent the past two years planning Ike's Farmer's Market, a new produce-centered natur-al food format named after Ike Basha, one of the chain's founders.

"We put a team together and put them on a search - nationwide and coast-to-coast - getting ideas from other operators across the country, coming back to us with recommendations," Proulx said. "The feeling was that this just might be another format that our company can grow on."

There are similar feelings at Publix. The com-pany has already launched a Hispanic supermarket concept called Publix Sabor, and now executives are planning the new Greenwise by Publix natural food store concept, which is slated to debut later this year in Boca Raton and Palm Beach Gardens, Fla. Officials say these new special-focus formats will help them understand a different type of shopper who is already in their stores buying conventional products in other categories.

"Publix's primary objective is always to serve our customer," said Maria Brous, the chain's director of media and community relations. "The development of these special focus formats allows us to serve a particular customer segment to a degree that a more generalized store would not. It also allows us to gain a deeper understanding of the needs of that particular customer segment that can, in turn, allow us to provide a better offering in our conventional stores."

NATURAL SELECTION

Describing these new initiatives as "bold" would be missing the point, however. Reports of 20% year-over-year growth for the organic category have become commonplace, and the unflagging success of the natural food industry's leading retailer - Austin, Texas-based Whole Foods Market - is one of the worst kept secrets on Wall Street.

Instead, these new formats signal a tipping point for natural and organic retailing. Demand is rapidly becoming more mainstream, even as organic and all-natural products are becoming less expensive and easier to source. For leading conventional retailers, these new, targeted formats are a logical, well-considered direction for new growth, and when viewed together, they offer a glimpse at how the competitive dynamic within the natural food arena could quickly shift in the near future.

"They're definitely recognizing that they've got a fast-growing category within their traditional supermarket stores, and they're attempting to leverage that into an original concept," said Scott Van Winkle, managing director of Boston-based Canaccord Adams, referring collectively to the new-concept stores. "It's not really that different from the ethnic stores that several retailers have tried around the country - grabbing a fast-growing category and throwing a whole new concept at it and seeing if it sticks."

While Whole Foods will certainly put up a tough fight against any new competitors, it currently has little direct competition in many of its markets, and still does not have a presence in many large cities. Also, the company has continued to burnish an upscale, gourmet image, even as natural and organic foods demonstrate increasing mainstream appeal. This approach has had its merits, but it also leaves them vulnerable, noted Kevin Kelley, founding partner of Shook Kelley, an architecture and design firm in Los Angeles and Charlotte, N.C.

"The classic way a market works is that someone bold and audacious creates the market and proves the market; they own the mountain," he said. "Then, the classic strategy [for competitors] is to start segmenting the mountain. You ask, 'What is the greatest strength of that retailer, such as Whole Foods, and how do I turn that into a weakness?' With Whole Foods, you paint them as a Rolex or a Bentley."

THE PRICE IS RIGHT

There is no Whole Foods in Indianapolis, but the new Sunflower location there does take aim at the "Whole Paycheck" reputation that natural food retailing has become unavoidably saddled with. The perception, and frequently the reality, of steep premiums commanded for food and other products grown without pesticides, raised without antibiotics or hormones, or made without artificial ingredients, is frequently cited as the industry's No. 1 barrier for entry by regular shoppers.

"Natural and organic products are going more mainstream. We've been watching this in our existing businesses for years," Noddle said. "But, any research that you do very clearly says that there are barriers, especially that these products traditionally have been very, very high priced."

In its efforts to slash prices, Sunflower will most obviously be assisted by the buying muscle and distribution network of parent Supervalu, the nation's largest food wholesaler and second-largest conventional food retailer (pending its planned acquisition of Albertsons' assets). Meanwhile, the company's specialty produce distribution division, W. Newell & Co., which last year opened a 155,000-square-foot warehouse two hours away in Champaign, Ill., will help ensure consistent supply and competitive pricing for Sunflower's selection of organic produce. And, there's the power of Supervalu's existing employee base.

"We really leveraged the expertise of the entire company to get this done," said John Hooley, president of Supervalu's Retail Food Cos., noting that everything from IT setup and store design to initial merchandising was accomplished internally. The know-how gleaned from the company's price-conscious Save-A-Lot division was particularly valuable, he said.

Several efficiencies have been introduced at the store level as well. Notably, other than a small bakery, coffee and prepared-food island operated through a partnership with Minneapolis-based French Meadow Bakery, the 14,000-square-foot store has no service departments, cutting down on labor costs. The store's selection of hormone- and antibiotic-free meats, for example, are all case-ready. And, to keep construction costs low, executives present at the ribbon cutting told WH that, like the Indianapolis store, future Sunflower locations will be placed in remodeled, existing structures.

"Our box size could be anywhere from 13,000 to 18,000 square feet," explained John Sturm, director of Sunflower Markets. "We want to be flexible to fit into existing spaces. Often, stores like this fit more easily into local communities."

It was clear during the store's grand opening that Sunflower intends to make good on its promise of "refreshingly real ... priced refreshingly right." Organic bananas were 49 cents per pound, and one brand of organic milk was $3.25 a half gallon. Throughout the store, "Real Deal" tags highlighted items on special, including popular packaged foods such as Amy's frozen burritos for 99 cents each, and Muir Glen organic pasta sauce priced at two for $4.

Supervalu's new "Nature's Best" natural and organic private-label brand was also co-launched with the store, and the company has said it plans to have 200 stockkeeping units of the brand available throughout its retail network within the coming months.

Similarly, Publix said that its GreenWise private-label brand will play a major role in GreenWise by Publix stores, and that the company plans to continue to expand that brand. Brous, however, emphasized that the expansion was not tied directly to the new format stores, but "to the very positive reception that we have received to date on our current GreenWise product line."

GOOD RECEPTION

What remains to be seen is how these new stores will hold up against direct competition from a Whole Foods, a newer Wild Oats location or a strong regional player, such as EarthFare in North Carolina. Even though the products that these companies sell have become more mainstream, what is unquantifiable, at this point, is how significantly the underlying message of the natural food industry has altered their new customers' shopping habits.

Kelley noted that the rigid standards for product content, sourcing and animal care standards established by the "supernatural" chains are one of the primary reasons customers are willing to pay more for products at their stores.

"Whole Foods is steeped in an ethic," Kelley noted. "They own a philosophy, and they've really spent a lot of energy sweating these internal decisions about how to treat ducks, how to treat salmon, how to treat lettuce growers. And, John Q. Public says, 'I don't know what's fair to ducks. This is hard. I'm too busy in my day-to-day life to spend time figuring that out. Why don't I pay you to tell me?'"

Conventional grocers may have trouble convincing that core audience that its new natural food stores aren't simply an attempt to cash in on the sector's popularity.

"There's going to be a certain percentage, and I can't quantify it, but if you took 100 people who are natural and organic customers, maybe 10 of those have a very aggressive social agenda," Van Winkle noted. The other 90% will be easier to convert, but chains that are trying to appeal to a new breed of consumer with a new type of store should be mindful of giving these operations plenty of room for independent decision making, he advised.

Drawing a parallel with Unilever's acquisition of Ben & Jerry's ice cream, he explained, "everyone thought that it was going to be a disaster-but, the more Unilever left Ben and Jerry's alone, the more it stayed what it was. That's what really has to happen if you're going to go after that social cause-based consumer, who's making a decision based on something beyond the natural and organic consumer making a health decision."

All three companies acknowledged that educating their shoppers - about both unfamiliar brands and nutrition - would be a key aspect of these new formats.

"Expertise is going to be a must," Proulx said. "Customers are looking for information, they're looking for nutritional ways of enhancing their lifestyles, and they're looking for that expertise." He added that Bashas' was preparing to be very flexible with its new Ike's Farmer's Market, currently slated to open in summer 2006. "We'll see what the reception is, and what our customers tell us - what needs to change, what's got to go and what they need more of - and we'll strategically go from there."

Brous said that Publix's experience with its existing GreenWise departments had helped prepare the company for the "gatekeeping" role category managers would need to play in the new GreenWise stores - stocking products that meet the strict demands of a new breed of label-readers.

And, at Sunflower, several efforts are being made to make up for the cost-saving lack of service departments, including a comprehensive shelf-labeling program that highlights food qualities such as organic, kosher, gluten-free, dairy-free or low-sodium, and even offering simple preparation tips for some products. Customers can also check in-store electronic kiosks for nutritional advice, or simply ask the store's staff.

Noting that a special effort had been made to hire staff with experience in the natural food industry, Ed Ambrose, category manager and natural food expert for Supervalu, explained, "What we don't have in the service cases, we have on the floor with our employees."

One Cool Room

When designing the first Sunflower Market, John Hooley, president of Supervalu's Retail Food Cos., says that the team at Supervalu asked themselves questions like, "How do you create a memorable experience for customers shopping for organic produce? How do you keep it fresh?"

A large, windowed walk-in cooler was their single answer, both figuratively and literally. Housing most of the store's temperature-sensitive produce, the cooler adds an adventurous flourish to the location's otherwise simple layout.

With its aluminum frame stretching between the rust-brown concrete floors and exposed barrel roof, the shoppable cooler lends an almost industrial feel to the area, enhancing by way of contrast the lush greens, reds, oranges and yellows contained inside. Traffic naturally flows from the store's entrance into the other half of the produce section, through the cooler, and into a corner of the store devoted to wine, artisan and organic cheese, all-natural meat and bulk bins.

Clearly proud of the produce department's unique design, Hooley elaborated on why the cooler is such a standout fixture. "It's visible from the street, it allows us to keep the produce fresher and offer more variety, and inside, customers experience the fresh smells of an open-air farmers' market."

Giant Store,

Big Health Focus

Retailers don't have to build new whole-health stores to get in on the act. Giant of Carlisle's new, 92,000-square-foot prototype store in Camp Hill, Pa., might be conventional in nature, but it fits a little of everything under one roof, with health and wellness as a major theme throughout.

In one unique example, the company has partnered with Motion Motivation, a Harrisburg, Pa.-based "family exercise provider" that encourages exercise and healthy, fit lifestyles through fun activities, such as cheerleading and cardio-kickboxing classes. Enrollment costs about $50 per six-week course.

"Health and wellness is one of our top priorities at Giant, as is improving the lives of children," explained Beth Holmes, health and wellness manager for Giant, a division of Ahold USA. "It's part of our philosophic mission."

The store also features a large community center, which hosts classes presented by Pinnacle Health Systems, a major regional hospital group, on topics ranging from childbirth education to first aid for parents. Giant's staff nutritionists also use the center to teach popular courses on subjects such as gluten-free living, healthy fats and diabetes management. They often follow up their lectures with hands-on demonstrations in the store's state-of-the-art cooking school.

Holmes explained that one of the store's goals is to offer a total solution package for customers who need information about nutrition or maintaining a healthy lifestyle. For example, if a patient visiting the store's pharmacy has questions about how food they regularly eat may interact with their medication, or if they ask questions about lowering their cholesterol through their diet, the pharmacist can recommend a group class or set up individual consultations and store tours with a staff nutritionist.