Sunflower Farmers Market founder and CEO Mike Gilliland in the produce department of one of his natural foods stores. The Sunflower Farmers Market stores are built around the produce department, which is generally located in the center of the store, and features conventional, organic and locally-grown fresh produce at prices considerably lower than Whole Foods Market, Inc. stores and most upscale supermarkets. With six stores coming to Texas and a new store in Boulder, Colorado, will Gilliland, already not a freind of John (Mackey), and his fast-growing Sunflower Farmers market chain become the new thorn in John Mackey and Whole Foods' side?
Claims by the U.S. Federal Trade Commission (FTC)--which continues to argue and appeal to the U.S. Federal Appeals Court in Washington D.C. that the Whole Foods Market, Inc.-Wild Oats Markets, Inc. merger has created a natural foods retailing monopoly and should be broken up--aside, two food retailers, among the many, are taking on the combined Whole Foods-Wild Oats juggernaut in two U.S. markets: Whole Foods' backyard home state of Texas, where it got its start and which it protects closely, and in Hawaii, where the supernatural retailer is launching four new stores as its entry for the first time into the multi-island-state market.
Natural~Specialty Foods Memo has argued that the FTC, along with retailers and suppliers who share its position vis-a-vis Whole Foods, are with all due respect plain wrong. In fact, we've been arguing and writing since last year when the acquisition-merger of Wild Oats by Whole Foods Market, Inc. was announced, that it would actually stimulate and increase natural foods category retailing rather than decrease competition.
Our argument is simple: Wild Oats was basically no longer an innovative (or for that matter very good) natural foods retailer. However, it's position as the number two supernatural foods retailer after Whole Foods tended to suppress innovation by other retailers to a certain extent because they viewed the category in many ways as a two retailer contest.
Certain retailers like Sunflower Farmers Market, Sprouts Farmers Market, Trader Joe's and some others were well on their way to competing in the category in their own unique ways. However, we've watched what in our analysis is a floodgate of players willing to take on Whole Foods Market, regardless of if they are natural foods retailers or supermarket companies, emerge since just late last year.
The joining of Wild Oats into Whole Foods provided some creative deconstruction in the retailing category. After the dust settled a bit, numerous retailers realized it wasn't such a mega-deal after all; that in fact there was plenty of competitive space available to them in the natural foods retailing space--be they natural foods format food retailers, hybrids or supermarket operators--to take on Whole Foods in regional markets throughout the U.S.
Sunflower Farmers Market: Texas bound by way of Boulder
One of the most aggressive post-merger competitors in the natural foods retailing space, albeit much smaller than Whole Foods, is Colorado-based Sunflower Farmers Market. Late last year the "fighting tiger" natural foods retailer, which operates natural foods supermarkets which range from 15,000 -to about 30,000 square feet with a focus on fresh produce and natural products for less (retail price), raised $30 million in new financing and announced it would more than triple the number of stores it has (currently 14) over the next three -to- four years. Plans call for having 21 stores open by the end of this year alone and 30 or more by the end of 2009.
Sunflower, which was founded and is headed by Mike Gilliland, the founder of Wild Oats, not only is expanding the number of stores it has in the Western U.S., but also is going right at Whole Foods with plans to open six stores in Texas, Whole Foods Market, Inc's home state, where it was founded and has its corporate headquarters.
Sunflower Farmers Market also plans to open its first store in Boulder, Colorado where it is headquartered. Boulder also is where Gilliland founded Wild Oats and has lived for decades. Boulder also is now Whole Foods' second hometown, having acquired Wild Oats which was based in Boulder, and the numerous stores it operated in the city. Gilliland left Wild Oats well before the acquisition-merger with Whole Foods Market, Inc.
Sunflower Farmers market founder and CEO Gilliland and John Mackey, Whole Foods Market founder and CEO, had a falling out many years ago, and to this day don't speak socially at industry events and other functions. Let's say Mike Gilliland isn't on the "friend's of John" email buddy list; nor is Mackey on Gilliland's Yahoo messenger "buddies" list in turn.
The Austin-American Statesman, based in Whole Foods' Texas hometown of Austin, has a recent (June 3, 2008) piece about Sunflower Farmers Market's decision to move into Texas with an initial six stores, including a 30,000 square feet natural foods supermarket in Austin, which Gilliland says will beat Whole Foods Market retail prices by 15% or more everyday in all categories, and even more in fresh produce.
Of course, Natural~Specialty Foods Memo is certain Whole Foods will fight back against that price undercutting on its home turf. Despite that, Sunflower is a serious competitor despite being so much smaller. It's good at what it does, and fears not Whole Foods Market post the Wild Oats' acquisition.
Hawaii: Defending the home turf with a new format and chain
Hawaii is a state in which Whole Foods Market is making a major new store opening effort in an attempt to become a major player in food retailing on the islands. Whole Foods has never had a store in Hawaii. But its changing that by having four stores in development at the same time: two in Honolulu (a huge 67,000 square foot unit and a smaller 27,000 square foot store); a store on the island of Maui (26,366 square feet), and a 40,000 square foot Whole Foods superstore on the island of Kailua. There also are future plans for even more Whole Foods stores in Hawaii.
Most Hawaii food retailers, especially those with upscale and natural foods offerings, have been extremely concerned and worried about the competitive impact Whole Foods Market's arrival on the islands will have on their businesses and the market, and fear a significant loss of business from the successful every place it goes natural foods grocery chain.
However, that's not the case with all of Hawaii's food retailers. Hawaii-based The Sullivan Family of Companies, which operates the Foodland, Sack-N-Save and Food Pantry chains, which are conventional supermarkets and discount supermarkets, has created a brand new format designed to compete in the natural and specialty foods space with Whole Foods Market on the islands.
The new chain or banner, called Lahaina Farms, gets its start next Wednesday when the first small-format (14,000 square feet) Lehaina Farms natural foods supermarket opens in the Lahaina Gateway Lifestyle Center in Lahaina, which is on the island of Maui, where one of the four Whole Foods stores will open possibly as soon as later this year.
The first Lehaina Farms store (not all of the new natural-specialty format stores will necessarily be called Lehaina Farms by the way, according to the company) is a combination natural, organic, specialty and fresh foods store with an upscale but price-conscious focus.
The Maui News, the Island's main newspaper, has a feature article in today's issue about the venture by the company best known in Hawaii for its Foodland chain, which is a longtime fixture on the islands.
Although the retailer's experience is primarily with conventional and discount supermarkets, it apparently hasn't heard about the Whole Foods monopoly as it's creating a natural foods chain of its own at a time in which Whole Foods Market, Inc. is making a major play in the Hawaii food and grocery retailing market.
The cup runith over: Lots of competition for Whole Foods
These two food retailers are just the tip of the iceberg in terms of grocers who don't buy the now tired argument by the FTC and some retailers and vendors that Whole Foods has achieved monopoly status by virtue of its acquisition of Wild Oats. In fact, one wonders if it had it all to do over again if Whole Foods Market, Inc. would have even bothered doing the deal, since it's caused lots of distraction for the retailer. But yes, they would do it again no doubt.
Additionally, although the retailer isn't talking about it, Whole Foods has found many of the former Wild Oats stores to be lacking in many ways, both physically in size and in condition, as well as the poor locations of many of the stores.
While John Mackey recently said the integration and conversion of the Wild Oats stores to the Whole Foods banner and system is going well, we've talked to a number of Whole Foods employees who've told us numerous aspects of the process have been a pain in the portion of the hog that sells for the cheapest price per pound. Chief among these pains being the condition of many of the former Wild Oats stores, as we mentioned above, along with some of the poor locations.
We've written about numerous other retailers that are putting a competitive challenge to Whole Foods in the natural products retailing category. These include smaller natural foods retailers like Sunflower Farmers Market and Sprouts Farmers Markets, Trader Joe's, and numerous independent natural foods retailers.
It also includes mega-supermarket chains like Safeway Stores, Inc. with it's upscale Lifestyle format supermarkets, the newer versions of which keep looking more and more like a Whole Foods store, but with the added benefit of selling basic groceries as well.
Additionally, in Texas there's HEB, which continues to build mega-upscale stores that rival Whole Foods in look and product selection. There's also Market Street in Texas, which is building and opening some of the most interesting upscale supermarkets full of natural and organic products in the U.S.
On the east coast there's Wegman's, which of late has been opening 100,000 square foot supermarkets that combine basic groceries, specialty and organic products, fresh, prepared foods and non-foods items in a format that losing nothing to a Whole Foods superstore.
Southern California alone has Sprouts Farmers Markets, Henry's (which Whole Foods sold as part of the Wild Oats acquisition) SuperValu-owned Bristol Farms, upscale Gelson's, Trader Joe's, Vons' upscale Pavilions stores, numerous independents, and now Tesco's Fresh & Easy Neighborhood Market, which sells lots of organic foods at discount prices, all as key competitors to Whole Foods in that market in the natural products' niche
There are many more; we could use another four thousand words and still just be getting warmed up. But we will same that for next time; as we plan on featuring these and many more retail players in the days and weeks to come here on Natural~Specialty Foods Memo.
Meanwhile, we suggest the FTC move on. Might there be some monopolistic or price-fixing issues in the oil industry that could warrant a closer look. After all, the top three U.S. oil companies' senior executives have bigger combined expense accounts than Whole Foods Market, Inc. has annual sales. Well, almost as much.