NATURAL GROWTH 1999

MARYELLEN LO BOSCO

Widespread interest in natural food has not only changed the way mainstream supermarkets do business, it has also permanently altered the "health-food store." No longer sole domain of the Birkenstock set, these alternative stores have practically gone mainstream.

But "practically" is the operative term here: While customers may not be as unconventional as they once were, they are still looking for the "small-store" experience and all that it implies. The retailers SN spoke with are expanding the number of their units and increasing the size of stores.

Earth Fare

Asheville, N.C.

"We really believe in the natural-food product philosophy," said Mike Cianciarulo, president and chief executive officer for Earth Fare, a 20-year-old enterprise that opened its fifth store in Athens, Ga., this month. The retailer plans to add two more out-of-state units next year.

Grocery products at Earth Fare have no artificial colors, flavors or aspartame, Cianciarulo explained, and he aims to keep it that way. "What's happening is that [natural-food supermarkets] are now selling Frito-Lay and A1 Steak Sauce, and I don't think that's the way to go. We are going to stay clean.

"It's very difficult to go into a 60,000-square-foot store when you have time restraints and find what you're looking for," he continued. "Customers have confidence in who we are, and they don't have to read all the labels in our stores."

Earth Fare also avoids grocery products with hydrogenated oils, growth hormones, cottonseed oil or bleached white flour, and it carries a lot of organic items.

Although he said his stores haven't taken a position on it yet, Cianciarulo said some customers have been asking about genetically modified ingredients in packaged goods.

"I can't believe the information customers have and the questions they ask. They have a lot of understanding about what food products contain, in comparison to customers at an upscale supermarket chain," he noted.

Earth Fare's customers are generally higher-income college graduates. While they are knowledgeable, so is the staff. Earth Fare requires all employees to attend at least one education or training session monthly, which the store hosts in its community rooms. Outside speakers are invited weekly, and attendance is very strong at these events.

Most of Earth Fare's stores are about 18,000 square feet, although the new unit, the largest, is 23,000 square feet. The grocery section uses black gondolas and canopy lights and accounts for about a third of the store. Soy milk is still a very large category, Cianciarulo said, and frozen food is the fastest growing category, along with dairy. In new stores, there will be 30 to 35 doors of frozen foods. "Frozen is an exploding category," Cianciarulo noted. "Dinner varieties are really growing."

Demos are a very important part of selling the grocery section. According to Cianciarulo, Earth Fare has one full-time demo person for each store, along with part-time people. Two or three demo stations are set up every day, and most of what is promoted is grocery. "We demo to stimulate sales," Cianciarulo said. "We get demo support from manufacturers, but we also demo local producers."

Bulk food is also a key shopping area at Earth Fare. The stores carry up to 300 stockkeeping units, which include rices, beans, flours, liquid products, candies, pastas, soap powders, tofu and more. Earth Fare has "tremendously big sales" on bulk, Cianciarulo said, and he thinks some sales this year are being stimulated by Y2K anxiety.

To promote sales, Earth Fare mails out circulars as part of the local newspaper, and also solicits new customers through target marketing. However, demoing is the primary method for building the customer base, Cianciarulo said.

PCC Natural Markets

Seattle

PCC Markets, a natural-food co-op, is opening its newest, largest and most diverse store in November in Issaquah, Wash., said Jeff Voltz, CEO. The new market is about 23,000 square feet, while older units range in size from 9,000 to 13,000 square feet. Voltz said most new stores will be in the 25,000-square-foot range.

"One of the highest priorities for our shoppers is product selection and variety," he said. PCC carries 16,000 items, "and only 14 of them are granola," Voltz quipped. He describes his shoppers as well-educated baby boomers. "Everybody shops elsewhere too, but we are a full-service store."

According to Voltz, about 50% of sales come from grocery, dairy, frozen and bulk food. "We have product standards," Voltz said. "We strive to put the most wholesome and purest products on our shelves."

Some of the largest categories in grocery are alternative beverages (like soy and rice milk), organics, frozen food and pet food, Voltz said. "Many more companies are bringing in organic packaged items, and that's a pretty huge growth area," he said.

In the new store, frozen food will be given 33 doors. "The frozen prepared section has grown, and organic products," said Voltz. He noted that entrees, dinners and snack foods are popular because people are looking for convenience and for meal solutions.

Demos are also very important at PCC, which uses this form of promotion at least four days per week. "We probably demo 30 grocery items per month," Voltz said. Like Earth Fare, PCC will also demo smaller manufacturers and cottage producers who can't afford to support a demo themselves. "We try to be balanced in the variety of foods represented. About 25% of our demos are oriented around food-nutrition information," Voltz said.

In the bulk section, PCC carries between 250 and 300 items, not including herbs and spices. A full range of products includes grains, cereals, flours, nuts, snacks, candies, nut butters, syrups and oils, soaps and other cleaning items, shampoos and other health and beauty care products.

Currently PCC carries the Western Family private-label brand in some conventional items, like tomato sauce and aluminum foil, but the retailer is looking into other possibilities. "There's a feasibility study going on now that is looking into a private label for cooperatives," Voltz said. The national association for cooperative grocers has retained a Chicago consultant to complete the study, he said.

PCC gets most of its groceries from Associated Grocers and Mountain People Northwest. About 60% is purchased through distributors. As for promotions, PCC uses a monthly schedule and runs "cooperative advantage pricing." Usually about 1,000 items in the store are reduced on a monthly basis.

Mother's Market

Costa Mesa, Calif.

Mother's Market has expanded its flagship store to 15,000 square feet, but its third store, which opened in 1996, is only 10,000 feet, and another new unit, set to open next year, will be that same size.

"I understand from one of our distributors that a lot of smaller natural-food stores are sprouting up throughout the U.S.," said Sharon Macgurn, chief marketing officer. "When natural-food stores get too big, they are no longer filling the niche they once did, and they are becoming more like a regular supermarket." For that reason, Macgurn said, Mother's plans to continue opening small units.

Because of the size of these units, products are merchandised closely together. At the Costa Mesa store that SN visited, for example, grocery items can be found all over the store, and clothing hangs from the ceiling. If it weren't for the careful attention paid to interior decoration, these stores might appear crowded. Instead, they convey a feeling of abundance.

Mother's has a huge selection in grocery, including a large number of bulk items. In two stores, bulk is near the produce, while the third unit merchandises bulk between produce and packaged goods. Items include rices, grains, nuts, beans, flours, coffees, granolas, dried fruits, candies and seeds.

"We have one full-time person just for bulk that fills and places orders, in addition to clean-up people," Macgurn explained.

Mother's has also been fielding consumer questions about GM products, she said, but the store is still doing research on the subject.

While Mother's doesn't have a rigid set of standards when it comes to product philosophy, the retailer carries primarily vegetarian products and is known as the place to come for specialty items, such as macrobiotic, wheat-free and dairy-free foods, and organic selections.

"We specialize in specialized diets and hard-to-find items, like goat's milk, seaweed, tamari and bochi plums. We look for organic and have a lot of organic foods. We don't carry alcohol products," Macgurn explained.

Like other natural-food shoppers, Macgurn's customers shop other stores, including Trader Joe's, conventional area supermarkets like Ralphs and Fred Meyer, and Price Club and Costco.

"The customer has changed. Twenty years ago, people thought we were strange. Now we are part of Orange County, and people find it acceptable to shop in a natural-food store," Macgurn said.