WILD OATS SEEKING MORE PRIVATE-LABEL PARTNERSHIPS

Jon Springer

NEW YORK -- Wild Oats Markets' experiment with selling its private-label products in venues other than its own stores is off to a promising start, sparking the retailer to seek similar avenues to grow.

Speaking at the Banc of America Securities Consumer Conference here last week, Ed Dunlap, chief financial officer of Boulder, Colo.-based natural foods chain, said the addition last October of Wild Oats private-label products to Peapod.com's offering added $9 to the average basket size of the Chicago-based Internet retailer, which is a division of Ahold USA, Quincy, Mass. The test "exceeded all expectations," he said, and will be extended to other Peapod markets this year.

A test of "store-within-a-store" boutiques selling Wild Oats' private-label products at five of Ahold's Stop & Shop supermarkets will begin soon, he added. The retailer is in discussions to launch "several other" boutique offerings and online alliances, Dunlap said.

Such partnerships will help build awareness of the Wild Oats brand, he stated. "Our intent is to build a strong national brand and do it quickly, and without a lot of capital expense."

Wild Oats introduced around 500 private-label offerings last year and expects to introduce around the same number this year, Dunlap said. Sales of private-label items increased by around 50% last year, he noted.

Expanding private-label awareness is one part of an effort under way at Wild Oats to build its overall brand strength and appeal to more mainstream shoppers, he pointed out. Private-label development will also help improve margins, which Dunlap described as "under pressure during 2004 due to internal initiatives and external events," including price wars in Texas and California.

Investments in technology and facilities that Wild Oats made in 2004 will help the chain better control labor, shrink, and improve its buying practices in 2005, all of which should improve the company's margin performance, Dunlap said. Additionally, Wild Oats is working to re-engineer perishables at its stores, including "a complete overhaul of the food-service departments," to include more seasonal and ethnic items. The company is also adding items that may not have fit Wild Oats' previously stated definitions of natural and organic fare. These would include gourmet items, convenience foods and national brands with a healthful image, which will help drive more traffic to its stores and broaden their appeal, he explained.

"We believe our natural and organic positioning is important to maintain, but feel we've alienated mainstream shoppers in the past," Dunlap said. "We put standards ahead of taste and experience. [Now] they will be on an equal [field], if not putting taste and experience first."

Wild Oats is currently experiencing positive same-store sales in all its regions except Southern California, which is still fighting the sales shifts as the result of the California grocery strike, Dunlap said. He predicted the company will show a profit in 2005, even though it expects to restate earnings due to a change in lease accounting.