Wednesday, April 16, 2008

Prepared Foods Memo: Planet Organic's Mrs. Green's Natural Market Planning Big Push in Fresh, Prepared Foods' Category

As we reported here, Canada's Planet Organic Health Corp. recently acquired two U.S. Natural foods' retail chains, 11 store Mrs. Green's Natural Market (acquired last year) based in Scarsdale, New York and 3-store (with a new store being built) New Leaf Community Markets (acquired this year), based in Santa Cruz in Northern California.

These two acquisitions marked Planet Organic's first move into the U.S.

We've said before the Canadian natural products' retailers move into the U.S. with these two acquisitions is further evidence of the argument we've been making since last year that contrary to the position of the U.S. Federal Trade Commission (FTC) and many U.S. natural foods' retailers, suppliers and observers that Whole Foods Market, Inc.'s acquisition of Wild Oats Markets, Inc. would stifle competition, we believe the opposite is true: that it's actually increasing competition and innovation by both natural foods' retailers and supermarket chains and independents in the USA.

As we reported in a previous piece, Planet Organic plans to add numerous new stores to its recently acquired Mrs. Green's (in the east) and New Leaf (in California) chains in the next couple years. Further, Canada's Planet Organic is on the lookout to acquire other small-to-medium-sized regional natural foods' retail chains in the U.S.

We've now learned Planet Organic is making a major investment at its Mrs. Greens operation in New York in the prepared foods' category.

Historically, when it was an independent operation, Mrs. Green's Natural Market supplied its 11 units with fresh, prepared foods out of a 3,000 square foot kitchen in the basement of one of its stores. This cramped commissary put a crimp on the volume of deli and other prepared foods' items the retailer could supply to it busy stores. It also meant the 40 chefs and others working in the 3,000 square foot basement kitchen were elbow-to-elbow for eight hours a day.

This situation no longer will be the case though. Planet Organic plans to build a new, state-of-the-art 30,000 square foot, above ground kitchen/commissary where not only will the retailer's chefs and others have plenty of space to create the fresh, prepared foods, but also will allow the natural foods' grocer to supply its stores better and with a larger variety of prepared foods items.

According to Harold Hochberger, Mrs. Green's founder and current Co-President under Planet Organic's ownership, the 3,000 square foot basement kitchen currently produces everything from fresh, organic pies and fruit smoothies, to complete vegetarian meals for distribution to and for sale in the stores.

The fresh, prepared foods produced in the basement kitchen account for about $3.5 million a year in sales for the 11-store natural foods chain, or about about 8% of total store sales, Hochberger says.

With the addition of the new, above-ground commissary which will be ten-times the size of the current basement kitchen, Mrs. Green's is looking forward to not only increasing the quantity and variety of prepared foods for its stores, but increasing that $3.5 million in annual prepared foods' category sales considerably.

Hochberger says prepared foods sales in the Mrs. Green's stores have been increasing by about 15% annually for the last few years. He and Planet Organic believe with the new commissary, which will cost at least $1 million to build and equip, sales growth will be even higher once the facility is operating. He says he expects the facility to open in about six months.

Planet Organic Health Corp. is currently launching an aggressive growth plan, on top of seven year's of already rapid growth, focusing on its home market of Canada and in the U.S.

Seven years ago, annual gross sales for the company were only $1.6 million. At present, the Canada-based natural products company has sales of about $100 million. That's a gain of $7 million a year in each of those seven years.

Planet Organic is a diversified, publicly-held natural products company. In addition to operating nine natural foods supermarkets in Canada under the Planet Organic Market banner (with more on the way) and the Mrs. Green's and New Leaf stores in the U.S., the company also operates 48 natural health stores in Canada under the Sanger's Health Centre banner and eight similar stores under the Healthy's and Planet Organic Living banners.

Planet Organic Health Corp. also owns Trophic Canada, which is that country's leading manufacturer and marketer of natural supplements.

Planet Organic's two acquisitions in the U.S.--one on the east coast and the other on the west coast, which are two of Whole Foods Market, Inc.'s strongest market regions--proves despite the arguments of the FTC and some suppliers, natural foods' retailers and industry observers, that retailers including Planet Organic and others like Sprouts Farmers Market and Sunflower Farmers Market, don't believe the combined Whole Foods/Wild Oats chain poses neither a barrier to entry in the natural foods' retailing category in the U.S. or offers too stiff of competition for them to grow and thrive.

After all, if they did believe such was the case, would all three of the natural foods' chains mentioned above be in such rapid expansion modes like they are?

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