Retail Memo: Canada's Planet Organic Enters U.S. Natural Foods Retailing Market

Perhaps in a shot across the produce department and dietary supplements counter at Austin, Texas-based Whole Foods Market, Inc., which is expanding its number of natural products' supermarkets in Canada, Canada's Planet Organic Health Corp., a natural foods' and products' retailer based in Edmonton, Alberta, is moving into the U.S. natural products' retailing market in the U.S. via two very recent acquisitions.

On Friday, Planet Organic, which is Canada's biggest natural products retail chain, bought Santa Cruz, California-based New Leaf Community Markets, a privately-owned retailer which operates five stores in the Northern California seaside communities of Santa Cruz and Capitola, and in nearby Felton and Boulder Creek, in the Santa Cruz mountains.

Planet Organic acquired the company (New Leaf Community Markets) but only three of the five stores; two in Santa Cruz and one in Capitola. The other two stores will remain named New Leaf, but will be owned by independent operaters in some sort of a franchise arrangement, according to Rex Stewart, a co-ower of New Leaf Community Markets.

Additionally, New Leaf is nearly finished with a new store in the nearby coastal city of Half Moon Bay. That store is set to open soon. Further, Just last Tuesday the natural product's retailer received approval from the Santa Cruz City Council to build a brand new, $4 million natural foods supermarket in that city's westside. In fact, it was the search for capital to build these two new stores, and to remodel the existing stores, which led New Leaf to Planet Organic, Stewart said.

Edmonton, Alberta-based Planet Organic operates a chain of eight natural foods supermarkets in Canada under the Planet Organic name, 50 franchised vitamin and natural foods stores under the Sanger's Health Centres banner, Healthy's, a chain of seven natural health foods-oriented stores, and owns Trophic Canada, a manufacturer and marketer vitamin, dietary, mineral and herbal supplements.

Planet Organic will acquire all of the outstanding stock in New Leaf Community Markets, including a 5% share owned by employees, co-owner Stewart said. The Canadian parent company will infuse the small chain with capital so that it can remodel the existing three stores as well, and build new stores down the road, according to Stewart. He said he and his partner, co-owner Scott Roseman will continue to run the company under Planet Organic's ownership.

The Northern/Central California Coast region of which Santa Cruz is a part, is a politically progressive area, which among other things is home to a University of California campus and some of the best surfing waters in the U.S. It's also a major tourist attraction. In the late Spring and through the Summer the city of Santa Cruz and surrounding area's population swells by tens of thousands each week.

The Santa Cruz area has a very competitive natural products' retailing scene. In addition to New Leaf, there are local independent natural foods' stores Staff of Life and Food Bin. There also are a number of upscale, independent grocers in the area which offer extensive selections of natural and organic foods and products.

Further, Safeway Stores, Inc., Nob Hill Foods (a banner of Sacramento-based Raley's) and Albertsons' supermarkets' in the region all have expanded natural foods sets do to the demographics of the area. And, the 600 pound supernatural foods retailing gorilla, Whole Foods Market, is in the process of building a superstore (its first) in Santa Cruz.

New Leaf Community Markets isn't the only U.S. acquisition Planet Organic has made in recent weeks to signal its entry into the U.S. natural foods' and products' retail market. Just before it bought New Leaf, the retailer acquired the 11-store Mrs. Green's Natural Market natural foods chain, which is based in Scarsdale, New York.

The two acquisitions give the Canadian natural products' retailer a presence on both the east and west coasts' in the U.S., the top two natural products' retailing regions in the country. Mrs. Green's has stores located in New York state, New Jersey and Connecticut. The three states are commonly referred to as the tri-state region.

With the purchases of both New Leaf and Mrs. Greens', Planet Organic has two retail banners and (when the two new New Leaf stores open) 16 stores currently in the U.S. We expect more, similar acquisitions.

While Whole Foods Market, Inc. isn't likely to worry too much about that level of competition, the move by Planet Organic into the U.S. market demonstrates that unlike many natural foods' retailers--and the U.S. Federal Trade Commission--the Canadian retailer doesn't believe Whole Foods' has a monopoly on natural products' retailing in the United States.

Not only that, but since Northern California, where Planet Organic bought the New Leaf stores, is one of Whole Foods' strongest markets--it has 25 stores in the region and plans to build another 23-25 in the next 4-5 years--it appears Planet Organic isn't afraid of taking on the big guy.

We've written often since the Whole Foods/Wild Oats merger in August, 2007 that we believe the acquisition of Wild Oats Markets, Inc. by Whole Foods Markets, Inc. would actually stimulate more competition in the natural foods' and products' retailing sector rather than stifle it, like many argue. We believe impirical evidence like Planet Organic's entry into the U.S. market is proving us right.

Further, late last year, Boulder, Colorado-based Sunflower Farmers' Market announced it has raised millions of dollars in new capital and beginning this year is launching a major growth drive, including moving into new regions of the U.S. like Texas (Whole Foods' homeland), Utah and maybe even California.

The natural foods' retailer plans to open as many as 10-15 new stores a year for the next 4 -to- 5 years. The natural grocer currently has 15 stores in Colorado, Arizona, New Mexico and Nevada. four new stores are set to open soon in Colorado, and the first two stores are currently being built in Utah.

There are a number of multi-store and single store independent natural foods' retailers in both Northern/Coastal California and the east coast tri-state region which Planet Organic can acquire as a way of creating a chain in the U.S. Many are in need of additional capital to expand, and would likely welcome an opportunity to sell if the arrangements are similar to what the Canadian retailer is doing with New Leaf and Mrs. Green's.

It's rather possible we believe we're seeing the potential building of a new, decent sized natural products' retail chain in the making with Planet Organic USA.

Resources:
>Read a related piece we wrote on January 11, 2008, "Whole Foods' to Planet Organic: The Pie is Big Enough for Both of Us."
>Read a related piece we wrote on October 29, 2007 about the Whole Foods Market, Inc. acquisition of Wild Oats Markets. Inc. here.