NATURAL SELECTION 1997

CHAPIN CLARK

BOULDER, Colo. -- As the market for natural products has expanded in the United States, so has Wild Oats Markets here, now the second-largest natural-food supermarket chain in the country.

An important part of Wild Oats' growth plan and a big contributor to its bottom line, said Mary Beth Lewis, chief financial officer, is its Natural Living section, which comprises vitamins, supplements, herbal products, body care, homeopathic remedies, health-related books and other general merchandise.

Lewis spoke to SN during a visit to the chain's headquarters.

In 1996 Wild Oats acquired 14 existing natural-food stores and opened seven new ones. So far this year, the company has acquired nine stores and opened two, making for a total of 50 stores in 11 states and British Columbia. Twelve new sites are planned for 1998.

Wild Oats has enjoyed a corresponding increase in sales -- $226.4 million for the first nine months of 1997, compared with $129.1 million for the same period a year earlier, a 75% rise.

"The overall industry is growing at a phenomenal rate, and Natural Living is the fastest-growing segment of our business," said Lewis, citing the graying of America's baby boomers as a major factor.

"As we age, we're more concerned about preventive health maintenance. And as people re-evaluate the effectiveness of the health-care industry, they feel they have to be more responsible for providing their own health care."

Chainwide, 25% of total sales currently come from Natural Living, said Karen Lewis, director of purchasing for the department, who is not related to Mary Beth Lewis. "Every category is contributing to growth."

According to Mary Beth Lewis, the emphasis Wild Oats gives Natural Living, as well as the dollars per square foot the section earns, sets the retailer apart from competitors like Austin, Texas-based Whole Foods Market, the No. 1 natural-food supermarket chain.

"In our stores, there's a much more powerful presentation of Natural Living products," she noted.

In an Alfalfa's store adjoining Wild Oats' corporate offices here (Wild Oats merged with Alfalfa's in July of last year), the Natural Living section takes up about 6,000 square feet of the recently remodeled unit's 18,000 to 20,000 square feet and features about 30,000 stockkeeping units.

The layout of the store is such that shoppers must pass through Natural Living to get to the main checkout area and exits.

Natural Living aisles are broken up into signed 4-foot sections -- so as not to overwhelm customers -- the purchasing director pointed out. They are organized largely around a solution selling scheme. There is a sports nutrition section, a colon health section and a joint health section, as well as cleansing, allergies/cold/flu and women's health areas.

Allergies/cold/flu, for example, is an 8-shelf endcap featuring herbal capsules from OHCO (20-count, $20.29), citrus lozenges from Quantum (24-count, $4.49) and goldenseal oil from Michael's Naturopathic Programs ($6.29 for 2 ounces), among many other products.

A densely stocked, 4-foot-long homeopathics section features oils from Hyland's, Newton, Nova, A. Vogel and Natra-Bio. Prominently displayed on a middle shelf are a homeopathic guidebook and brochures touting the Colorado Institute for Classical Homeopathy.

Indeed, consumer education is a theme that runs throughout the Natural Living department.

A sign near the registers lets shoppers know that Lynn Smith, the store's nutritionist, is available for free 30-minute consultations.

A large reading section offers books for sale on stress and anxiety, diabetes, heart health, self-healing, cancer and Chinese herbs, among other subjects. The section also includes several cookbooks.

Even Wild Oats' promotional materials have a strong educational bent -- its flier gives details on 50 different items for sale each month.

"It's critical that you are able to explain to consumers what a product is, what its indications are, what its origins are," said Mary Beth Lewis. "The difference between [competitors] and

us is that educational component."

One of the most interesting features of Natural Living is a bulk herb section, where shoppers can work individually with a store employee to develop custom herbal remedies. One shopper told SN that a staffer had helped him devise a concoction of two herbs that had cleared up his gout.

Wild Oats, Karen Lewis noted, will also special-order products upon request for Natural Living shoppers.

As Wild Oats establishes itself in the consumer's mind as a reliable source of health-related information, private label becomes a more appealing opportunity.

There are currently "several hundred" Wild Oats and Alfalfa's private-label stockkeeping units in Natural Living, said Karen Lewis, adding that she is looking to grow that number "by leaps and bounds." The chain is also in the process of unifying its private-label line, supplied by Irvine, Calif.-based Vitamer, under the Wild Oats banner.

The Natural Living department here has a 4-foot private-label supplement section with "alphabet" vitamins, beta carotene, bioflavonoid, a multivitamin, selenium and chromium, to name a few. Other private-label SKUs are scattered throughout the department.

Wild Oats also sells a limited assortment of its own organic-cotton clothing, which is displayed in a remote spot against the department's far wall.

"We need to do a better job of telling that story," Karen Lewis admitted.

The store has had more success with a kind of one-stop table-setting shop -- an antique-looking armoire full of hand-crafted mugs, teacups, place settings, candles, candle holders and place mats, with a Kuchenprofi gadget stand display nearby -- that serves as an end-aisle bridge between Natural Living and the juice bar/deli area.

"Cross merchandising is always a goal," she said of the specialty housewares, which can bring margins of 50% or greater.

Greeting shoppers as they pass through the checkout is a magazine section with a mix of titles -- Bon Appetit, Martha Stewart Living, Shaman's Drum, Yoga Journal -- that seems to mirror perfectly the tastes of Wild Oats' customers.

"If you can just get the stores built, people will find you," said Mary Beth Lewis. "There is a very large unmet demand for natural products; we have a pocket of customers in just about every city in the country."

Vitamins, supplements and other nutraceuticals will continue to be an effective way to reach those customers, she added. "We're past the point of people believing this is just a fad."

Most analysts, she said, predict high-teens sales growth in the category for the next several years.

But as traditional supermarkets, drug chains and mass merchants make more of a commitment to nutritional supplements, natural personal-care products, even aromatherapy, will Wild Oats be able to keep pace?

"I welcome the competition," said Karen Lewis. "I think the more information people get about natural supplements, the better. I think it'll benefit us."

"Our best point of contact with consumers will remain grass roots," said Mary Beth Lewis.