Store Brands - Private Label Memo: Smart & Final-Owned Henry's Farmers Market Preparing to Debut New Natural & Organic 'Sun Harvest' Store Brand

Breaking News & Analysis: Retail Store Brand Development

Los Angeles, California-based food and grocery retailing chain Smart & Final LLC, which acquired the Henry's Farmers Market and Sun Harvest natural grocery chain (38 stores; 30 Henry's Farmers Market and Henry's Marketplace stores in Southern California; 8 Sun Harvest natural markets in Texas) from Whole Foods Market, Inc. in the summer of 2007, shortly after the Whole Foods-Wild Oats merger, is preparing to rollout a new natural and organic products store brand, multi-category line under the "Sun Harvest Natural" and "Sun Harvest Organic" labels.

The new "Sun Harvest" store brand will replace the retailer's existing "Henry's" and "Wild Oats" store brands, which it has been merchandising since acquiring the Henry's Farmers Market chain from Whole Foods in 2007. Henry's and Sun Harvest were two natural foods retail banners operated by Wild Oats Market, Inc., in addition to its flagship Wild Oats store banner.

Some products in a couple store categories, such as fresh meat, bulk foods and perhaps one or two others, will remain under the Henry's store brand. But the Henry's and Wild Oats' store brand items in all other categories will be changed to the new Sun Harvest store brand. New items also will be developed under the Sun Harvest store brand.

Their will be two "Sun Harvest" store brand labels -- "Sun Harvest Natural," for natural products items, and "Sun Harvest Organic," for organic products.

The two "Sun Harvest" brand labels -- natural and organic -- have two different looks but work cohesively with each other, suppliers who've seen the labels tell Natural~Specialty Foods Memo (NSFM).

The "Sun Harvest Natural" label is brown with warm tones and the "Sun Harvest Organic" label is green, which has become sort of a universal color for all things organic. Additionally, there are slight differences as to how the graphic image of a given product is depicted on the "natural" and "organic" item labels. For example, a label for "Sun Harvest Natural" cooked beans features cooked beans in a bowl on it. In contrast, the label for a similar "Sun Harvest Organic" item depicts the beans not in a bowl (a serving suggestion), but rather shows the beans out of a bowl in their pure form, without a serving suggestion.

Additionally, some of the "Sun Harvest" store brand natural and organic labels in certain categories such as ice cream have more of a whimsical-looking label to them and are designed to look less serious and more fun. The goal behind this design thinking is to put a smile on the face of shoppers when they see the items in-store -- to make natural and organic fun in a sense, as well as to sell product.

Smart & Final's plans for the new "Sun Harvest" private label store brand were announced to a select group of the retailer's suppliers, called the "Smart Alliance," at a company seminar in November, 2008. At one breakout session during the seminar, Smart & Final's director of corporate branding, Todd Fryer, gave a presentation on the new store brand line, along with presenting new labels for the retailer's conventional grocery "First Street" store brand, which it merchandises in its 282 non-membership warehouse-type stores and its new Smart & Final Extra format stores.

During that session Fryer also introduced the retailer's then new director of natural and organic products, Michelle Weisberg, who he said is in charge of converting over 500 food, grocery, perishable, vitamin-supplement and non-foods "Henry's" and "Wild Oats" brands across all store product categories into the new "Sun Harvest" store brand, along with creating and developing new store branded items category-wide.

Suppliers working with Ms. Weisberg, who is an industry veteran in creating natural, organic and specialty private label products for retail chains and is known for her product development innovation and creativity, tell Natural~Specialty Foods Memo (NSFM) she is developing what will be some extremely value-priced natural and organic items under the Sun Harvest brand, as well as developing some extremely creative specialty and premium-oriented natural and organic food, grocery and non-foods products under the new private label brand.

Smart & Final plans to begin phasing the new "Sun Harvest" store brand natural and organic products into the stores soon, replacing the "Henry's" and "Wild Oats" branded products gradually throughout this year. The existing store brands will be replaced with the new "Sun Harvest" items in a gradual manner, as those products sell down and new "Sun Harvest" store brand products are developed.

It's a huge project, which includes about 500 skus throughout most product categories in the Henry's Farmers Market , Henry's Marketplace and Sun Harvest banner stores, ranging from dry grocery, perishable (dairy-deli) frozen, bakery (such as breads), to vitamins-supplements, body care, and non-foods. The majority of the new store brand skus will be in the consumables categories.

Sun Harvest brand and multi retail-format synergies

Smart & Final's Todd Fryer also said at the fall, 2008 seminar for select Smart & Final partners that the retailer plans to merchandise some of the "Sun Harvest" store brand natural and organic products in its 282 Smart & Final non-membership warehouse stores and its new "Extra" format stores, as appropriate. Doing this not only leverages the Sun Harvest brand across many more than the 38 Henry's and Sun Harvest banner stores, it offers the added benefit of allowing Smart & Final to obtain a lower cost of goods from its private label suppliers because the added Smart & Final and "Extra" banner stores allow for considerably more sales volume for the new natural and organic products' store brand line.

Smart & Final also is putting a particular emphasis on making sure the new Sun Harvest natural and organic store brand food and grocery items are competitively priced, particularly in price-sensitive categories like bottled juices, basic grocery items and others. Doing this is even more important because of the current recession, and it appears to us Smart & Final-Henry's is well aware of that, based on conversations we've had with supplier representatives who are working on the development of the new store brand with the retailer, along with our own research, analysis and reporting on the new store brand development.

Smart & 'Naturally' (and organic) serious

As we've previously reported on and written about, Smart & Final LLC has taken its entry into the natural and organic grocery retailing sector very seriously since its 2007 purchase of the Henry's Farmers Market chain from Whole Foods Market, Inc. The company operates the chain independently, using the existing Henry's corporate office in Southern California it acquired as part of the purchase of the chain. But the retailer also has and is integrating aspects of the natural grocery chain's buying, merchandising and operations with its Smart & Final corporate operations where it makes sense, and where it offers synergies, like in certain aspects of the new "Sun Harvest" store brand development program.

Since acquiring Henry's Farmers Market from Whole Foods, Smart & Final has cleaned up most of the Henry's and Sun Harvest banner stores, which were looking rather poor under Wild Oats' ownership, has significantly improved the quality and pricing in the fresh produce and fresh meat categories and departments, improved everyday prices across all categories (lower and better than before) and increased the chain's promotional activity. For example, among numerous other promotions, Henry's is currently running a 25% off full line item sale on all of the vitamins and nutritional supplements it sells in its stores, along with featuring a host of Super Bowl Sunday-related natural-organic food and drink items in its advertising flyer and in-store at special sale prices.

Smart & Final-Henry's Farmers Market also recently replaced one of the existing Henry's banner stores in the city of Santee in Southern California with a brand new natural and organic foods market, which is just down the street from the older store which it closed, and soon will open three new Henry's banner stores in Southern California, one in Carlsbad (near San Diego ) in late April, another in Monrovia, also set to open in late April, and a third in Woodland Hills, which is scheduled to open in early May. [Read our November 6, 2008 piece here: Retail Memo: Henry's Farmers Market to Open New Store in Santee, CA On November 12; More New Store's and Remodels On the Way.] [We also suggest reading this June 2, 2008 related story we wrote and published in the Blog: "Retail Memo: Analysis: Free of Wild Oats Markets, Inc.'s Ownership, Henry's Farmers Markets Seems to Be Starting to Get its Groove On."]

Based on our observation and analysis, sales seems to have improved across the board at all the Henry's and Sun Harvest stores since Smart & Final acquired the small chain from Whole Foods in 2007. Whole Foods essentially sold the stores to Smart & Final right after the Wild oats merger. Therefore other than care taking for the Henry's and Sun Harvest stores for a short time, Whole Foods Market didn't really operate them in any significant way and therefore isn't responsible for the shoddy look of many of the stores when they were sold to Smart & Final.

On the road to becoming major regional, multi-format player

In addition to taking a serious and well-focused to date operations and development approach with the Henry's-Sun Harvest chain, Smart & Final is moving strongly into a more overall consumer-focused food and grocery retailing approach with the development and growth of its Smart & Final Extra format stores. [See our story on Smart & Final's "Extra" format from yesterday at this link: Retail Memo: Los Angeles, CA-Based Smart & Final to Significantly Grow its New 'Extra' Food and Grocery Retailing Format This Year in the Western U.S.

Historically, Smart & Final has put more of a retailing focus on the institutional customer -- small grocery store, convenience store and restaurant buyers, for example, than on individual customers -- with its non-membership flagship stores. The stores sell to the public as well as institutions. But because of the focus on large and multi-pack items tend to cater more to the institutional customer more than to individual shoppers. All of the Smart & Final's stores are in the Western U.S. and Mexico.

In recent years Smart & Final has added more single-pack items in those non-membership warehouse-style stores. And because they are non-membership, unlike Costco or Sam's Club which require shoppers to pay an annual membership fee, the stores also make it easier for non-institutional consumers to shop them, which many individual customers do. The non-membership Smart & Final stores began as sort of a cash & carry operation for institutional customers primarily. They've evolved though over the years to targeting both institutional and individual consumers.

With the opening of its first Smart & Final "Extra" banner and format store in August, 2008, the retailer signaled it was going after individual shoppers in a big way with the about 35,000 square foot hybrid supermarket-warehouse format stores.

Smart & Final plans to use numerous skus from the new Sun Harvest natural and organic store brand line, which will include at least 500 skus, in its "Extra" format food and grocery stores. For example, at the November, 2008 seminar, the retailer said it plans to merchandise numerous Sun Harvest store brand items in its "Extra" stores, one of the first of which will be Sun Harvest Natural California Style Pizza, which is a frozen, all natural upscale style pizza in various varieties. Think California Pizza Kitchen brand or Wolfgang Puck brand pizzas.

Doing this -- merchandising numerous skus of the "Sun Harvest" store brand natural and organic products in the "Extra" stores, which sell fresh, perishable and shelf-stable food and grocery products -- will allow Smart & Final to further the hybrid (in a natural and organic direction) nature of the stores, growing the specialty and natural merchandising and product offerings in the "Extra" stores, while still maintaining the format's conventional grocery and fresh foods focus.

Timing good for new Sun Harvest store brand

We think the timing for Smart & Final-Henry's Farmers Market of its new "Sun Harvest" natural and organic store brand is good because consumers are shifting to store brands across all categories in order to save money in the current recession. This is equally, and probably even more true among natural and organic food and grocery shoppers, who are being forced to trade-down in whatever ways they can in order to still be able to afford natural and organic food and grocery items over conventional products. Many are trading-down from natural-organic to conventional in fact because they must. Value-priced store brands help such shoppers to continue to buy natural and organic.

We also think integrating the majority of the "Henry's" and all of the "Wild Oats" store brands into a single new store brand -- "Sun Harvest" -- is a good idea because not only does it allow for a clearer shopper focus on a single store brand, but using the Sun Harvest name, say rather than keeping the "Henry's" brand, allows for better brand marketing at the Smart & Final banner stores, since it's less associated with a store name -- Henry's Farmers Market -- than the brand "Sun Harvest" is. Shoppers might look with a crooked eyebrow at a brand called "Henry's" throughout those stores. But brand "Sun Harvest" fits right in.

Additionally, "Sun Harvest" is a far more universally-oriented brand name than "Henry's" is. It's also much more tuned-into natural and organic products in the minds' of consumers we believe. "Sun" and "Harvest," sound fresh, natural, organic. "Henry's" on the other hand being a proper name just sounds, well...like a proper name. The brand name "Sun Harvest" therefore resonates much better in consumers minds with "natural and organic" than does the brand name Henry's does, in our analysis.

And of course the "Wild Oats" store brand is merely a relic of past ownership, a name Smart & Final has to get rid of anyway as part of its purchase agreement with Whole Foods Market, Inc.

Rolling on out

The first new "Sun Harvest" natural and organic store brand items should start hitting the Henry's stores in Southern California and the Sun Harvest natural markets in Texas soon in a gradual rollout basis

Then later, selected "Sun Harvest" store brand items, such as the Natural California Style Pizza to start, will begin appearing in the Smart & Final "Extra" stores. Selected "Sun Harvest" store brand items, such as natural and organic apple juice and some others, also will be selectively introduced in a more limited manner into the 282 (and growing) Smart & Final non-membership warehouse stores later this year.

Retail Memo: Los Angeles, CA-Based Smart & Final to Significantly Grow its New 'Extra' Food and Grocery Retailing Format This Year in the Western U.S.

Los Angeles, California-based Smart & Final Stores LLC is planning to expand the number of it's new hybrid supermarket-warehouse-style "Extra" format stores, the first of which opened in August, 2008 in Southern California.

Smart & Final currently operates eight "Extra" stores - six in Southern California (four in Orange County and the one in Bellflower pictured above) and two in Northern California's San Francisco Bay Area, in Pleasanton and Fremont. The stores are nearly double the size of the retailer's non-membership warehouse stores -- 25,000 -to- 35,000 square feet, compared to about 17,000 -to-18,000 square feet for the traditional non-membership warehouse-style stores. Like Smart & Final's warehouse format stores, the Extra stores are non-membership.

The "Extra" stores also carry about 4,000-4,500 more items -- including many more in single-unit sizes -- than Smart & Final's non-membership warehouse-style stores do, which cater to small businesses and restaurants, as well as to individual consumers.

The "Extra" target customer is the individual consumer rather than the institutional customer, which is the primary customer segment for Smart & Final's non-membership warehouse stores.

In addition, the "Extra" format puts a greater emphasis on fresh foods, including produce (the fresh produce departments are in the 4,000 -to- 5,000 square foot range), meats, deli and prepared foods, compared to the non-membership Smart & Final warehouse-type stores. The Extra stores also carry a small assortment of natural, organic and specialty food and grocery products.

The "Extra" Stores are designed to be more appealing to shoppers than Smart & Final's warehouse-style stores are. This includes having an enhanced interior design package and softer colors, more traditional style shelving, improved and more colorful in-store signage, and more shopper-appealing merchandising and displays. The stores are a hybrid supermarket-warehouse store in format but look more like a traditional supermarket in design than they do a traditional warehouse store. Having visited a couple of the stores, we agree they achieve that design enhancement over the traditional warehouse-format stores.

Smart & Final appears pleased enough with the performance of the current eight stores that it's planning to open a number of new "Extra" format stores in 2009 in Southern California, Northern California, and in other states in the Western USA where it operates its 242 non-membership warehouse stores. Those states Smart & Final operates in are, in addition to California: Oregon, Washington, Arizona, Nevada and Idaho. The retailer also operates stores in northern Mexico in a joint-venture arrangement.

Likely look for an "Extra" format test store in Arizona and one in Nevada in 2009 -- and potentially additional stores in both states before next year is out. These are two states where Smart & Final operates its non-membership warehouse-style stores but has yet to open any of its new "Extra" format stores.

In addition, Smart & Final plans to open at least one new "Extra" store in Northern California's San Francisco Bay Area, in the city of Brentwood, and another in the Central Valley city of Stockton, which is about 35 miles from Brentwood, according to a previously published report in the Sacramento Business Journal.

We've also learned Smart & Final is looking for additional locations for 2009 in Southern California and in Northern California, including in the Bay Area and the Sacramento region. The Sacramento Business Journal report mentions this, as have a number of our sources, along with a couple of other previously published reports.

Further, the retailer also has plans to convert some of its existing Smart & Final banner non-membership warehouse format stores into Extra stores in 2009. It's likely some of these stores could be in Arizona and Nevada, along with in California, in addition to the company converting some its traditional non-membership warehouse format stores in Oregon, Washington and Idaho into the new format on a case-by-case basis, since it would make sense to do so wherever the company operates existing Warehouse stores.

We suggest a good candidate for such conversion is the Smart & Final Warehouse store in downtown Oakland, California. Since the store was built many years ago, the neighborhood has changed much. There have been numerous new residential developments built over the last few years, resulting in thousands of new residents in the area. As a result, the downtown Oakland area near Jack London Square where the Smart & Final Warehouse-style format store is built is understored in terms of supermarkets. We believe converting the store into the "Extra" format store presents and opportunity for the retailer, as well as add an important food retailing venue to the understored neighborhood.

Tesco's small-format Fresh & Easy Neighborhood Market was planning on locating one of its grocery and fresh foods stores nearby the existing downtown Oakland Smart & Final non-membership warehouse store. But the company pulled out, siting problems with the building it had panned to convert into one of its 10,000 -to- 13,000 square foot Fresh & Easy markets. It does have two other stores thus far planned for Oakland however.

We think Smart & Final could open as many as 25-35 new "Extra" stores, many of them conversions of existing non-membership warehouse format stores, mostly in California, but also in Arizona, Nevada and the other western states, in 2009.

Smart & Final becoming a multi-format food and grocery retailer

In addition to its now six month month old "Extra" format, the first store of which opened in August of this year in Southern California, Smart & Final owns the Henry's Farmers Market natural and organic foods stores in Southern California and the Sun Harvest Markets natural foods stores in Texas, which it operates as a separate division from Smart & Final, with its own headquarters in San Diego, but also has integrated into the company where synergies makes sense.

There are currently 36 total stores, about 26 Henry's banner stores (all located in Southern California) and about 10 Sun Harvest banner natural and organic foods markets, which are all located in Texas.

Smart & Final acquired the Henry's-Sun Harvest stores from Whole Foods Market, Inc in 2007. The stores were part of Whole Foods' acquisition of Wild Oats Markets, Inc. Wild Oats operated the Henry's and Sun Harvest stores, which were sort of a hybrid natural and specialty foods format, separate from its flagship Wild Oats' banner natural and organic foods stores.

The Henry's and Sun Harvest markets didn't fit into Whole Foods Market's strategic plans for Wild Oats, plus it wanted to raise some cash to aid in its acquisition, so the natural foods grocery chain sold the stores to Smart & Final, which itself is owned by investment firm Apollo Management LLC, which bought Smart & Final in May, 2007. Apollo/Smart & Final acquired Henry's and Sun Harvest from Whole Foods just a couple months later.

The Henry's Farmers Market and Sun Harvest stores were rather run down by the time Wild Oats sold to Whole Foods. However, since acquiring the stores from Whole Foods last year, Smart & Final has invested money in them and improved them dramatically, focusing the stores back into a more focused natural and organic foods format and vastly improving how the stores look, along with their merchandising, product selection and pricing.

Smart & Final is in the processes of remodeling a number of the Henry's and Sun Harvest stores and plans to open a few new Henry's Farmers Market units in Southern California next year.

With its flagship 200-plus Smart & Final smaller-format non-membership warehouse type stores, its Henry's and Sun Harvest natural foods division, and now its Extra format, Smart & Final LLC is strategically branching out into a multi-format and multi-category food and grocery retailer, and is clearly indicating a big part of its future involves being as individual consumer-focuses as it's been institutional customer-focused throughout its history.

Smart & Final is well capitalized in terms of its ability to grow the Henry's and Sun Harvest chains in the natural and organic grocery retailing segment. In fact, it has the ability if it desires to become a major player in the sector, in our analysis.

Retail Memo: Henry's Farmers Market to Open New Store in Santee, CA On November 12; More New Store's and Remodels On the Way

Retail Rebirth: A New Henry's chain is Being Born

Natural foods retailing chain Henry's Farmers Market, which was bought from Whole Foods Markets, Inc. by Southern California-based Smart & Final, Inc. last year, will open the doors of its newest store, a new, larger and upgraded location on Mission Gorge Road in Santee, California, on Wednesday, November 12. Santee is in San Diego County.

The new Henry's, which replaces an older, smaller store nearby, has been in the works for over one year and will be the first tenant of The Marketplace at Santee, a new shopping center on Mission Gorge Road in the city, according to the retailer, which operates 36 natural foods stores in Southern California and Texas under the Henry Farmers Market and Sun Harvest banners.

There are 28 Henry's stores, located in San Diego, Orange, Riverside, San Bernardino and Los Angeles Counties in Southern California. The eight Sun Harvest natural foods stores are located in Texas.

The Henry's and Sun Harvest natural foods stores were acquired in June, 2007 by Whole Foods when it merged with rival Wild Oats. Shortly after the deal went through, Whole Foods Market, Inc. sold the Henry's and Sun Harvest stores to the investment group which owns Southern California-headquartered Smart & Final.

Smart is Final is a chain of 235 non-membership food and grocery-focused club format-style stores. It has stores located in California, Oregon, Washington State, Nevada, Arizona, Idaho and in the northern region of the country of Mexico.

Smart & Final also recently introduced a new format called Smart & Final Extra. The first store opened in Southern California.

The Extra stores are about 30,000 -to- 35,000 square feet and are sort of a hybrid discount and food-focused store. They carry a larger selection of fresh produce, including some organics, for example than the Smart & Final club-style stores, along with offering a larger variety of single pack food and grocery items than those stores do. The club-style Smart & Final stores carry some single-items but focus on multi-packs and larger sized products.

The larger, modernized Henry's Farmers Market store opening next week in Santee, California will feature expanded product selections in all departments as well as an increased organic produce selection, according to the natural grocer.

The new and larger Henry's store is approximately 25,000 square feet.

"We believe our customers will respond quite favorably to this beautiful new site," says Santee Henry’s Store Director Mark Montejano. "With the added square footage, we are able to offer expanded selections of the fresh and healthy foods Henry's shoppers count on. Plus, the bright, airy space makes the entire shopping experience more enjoyable," he adds.

The previous store was about 15,000 square feet or so.

The re-opening of the Santee Henry's Farmers Market (it's a new store though) is the first of a series of Henry’s new and remodeled store openings throughout Southern California over the next few months.

The Escondido (also in San Diego County), California Henry's Farmers Market store remodel and expansion project is slated to be complete this December and a new Henry’s Farmers Market store in Woodland Hills, California is scheduled to open in early spring of 2009, for example.

Henry's Farmers Market is holding a grand opening celebration at the new Santee replacement store, called "Henry’s Barn Stormin’ Bash," on Wednesday, November 12. The event will offer numerous special festivities at the store from 7 a.m. to 3 p.m. on opening day, according to a company spokesperson.

Among the free to the public activities on Wednesday will be food sampling throughout the store, a pumpkin pie recipe contest and live entertainment, including local bands and dance performances. There will be face painting and balloons for children (of all ages) as well.

The first 100 shoppers on Wednesday will receive a free Henry's reusable canvas bag full of healthy snacks., according to the retailer.

The mayor of Santee will appear at the store for a ribbon cutting ceremony, and there will be a community pancake breakfast held there, with the proceeds to be donated to Connor's Cause for Children, a local charity.

Additionally, Henry’s Farmers Market will match pre-tax sales from its "Grab & Give Food Drive" at the new Santee store on Wednesday (part of the grand opening) to donate to its annual holiday partnership with Father Joe's Villages, which provides meals for needy families in Southern California.

The old Henry’s store in Santee will be closing its doors at 6 p.m. on Tuesday, Nov. 11 to prepare for the new store’s grand opening event the following morning.

We're rather impressed with the extent, variety and comprehensive nature of the Santee store grand opening. Most retailers do about half the amount and variety of activities Henry's is doing for the grand opening next week. We call it good marketing. We particularly like the various tie-ins with the local community and charity groups. Doing good for community while doing good for sales is a winning combination in our analysis and opinion.

As we wrote in this this June 2, 2008 piece, "Retail Memo: Analysis: Free of Wild Oats Markets, Inc.'s Ownership, Henry's Farmers Markets Seems to Be Starting to Get its Groove On," since Henry's has become a part of the Smart & Final ownership group, the existing stores have been dramatically improved, as has the overall operation.

In particular have been the improvements from Wild Oats' ownership of the store produce and meat departments and selections, which were looking rather sad during the last couple years of Wild Oats' ownership. (Whole Foods Market, Inc. didn't own the Henry's and Sun Harvest stores for long; they basically sold them as soon as acquiring them as part of the deal. Therefore they neither had the time or desire to do anything with them, except sell the stores.

We've also written about the fact Henry's new ownership and expanded management, merchandising and operations team plans to grow the natural foods chain considerably in Southern California, and perhaps outside of the region.

Henry's Farmers Market also has a few other upcoming changes and surprises in store.

With nearly 30 stores, the natural grocer already is a player in the parts of Southern California it has stores located in. As it adds new stores, and continues to improve the existing stores like it has been doing, Henry's could become a major player in the natural, organic and specialty foods retailing categories throughout the huge Southern California market region.

Retail Memo: Analysis: Free of Wild Oats Markets, Inc.'s Ownership, Henry's Farmers Markets Seems to Be Starting to Get its Groove On

Nearly one year after its acquisition from Whole Foods Market, Inc. by an independent but wholly-owned subsidiary of Southern California-based Smart & Final Inc., 30-store Henry's Farmers Market, which also is based in Southern California, seems to be getting its groove on as an independent identity despite not having the luxury of having the clout and buying power it previously had as a banner of Wild Oats Markets, Inc.

In fact, that independence seems to be liberating both in a innovation sense, as well as in an observational one, as Natural~Specialty Foods Memo recently toured some Southern California Henry's stores which looked far better than in the past, were better merchandised than under Wild Oats' ownership, and during the times we visited the stores had much higher customer counts than we observed in the same stores in the Wild Oats' ownership days.

Whole Foods acquired the 30-store Henry's Farmers Market banner as part of its all-stock acquisition/merger with Wild Oats last year. Soon after completing the merger, the supernatural food retailer sold Henry's to the subsidiary of Smart & Final, an operator of club-type food and grocery stores, created to buy it.

The Henry's stores are sort of a hybrid natural foods/basic grocery/specialty foods store and didn't fit Whole Foods' merchandising philosophy or plans about how it would integrate the Wild Oats' banner stores--plus it was a nice infusion of cash--so the grocer sold the operation to the Smart & Final subsidiary.

One of the improved departments of the Henry's stores we observed is the produce department. Once the signature departments in the stores--hence the Farmers Market in the name--in recent years the departments had become fairly mediocre both in how they looked and in the variety and quality of the fresh produce in them.

That's changed considerably under the newly independent Henry's organization. For example, we observed much more organic produce, much more variety, better merchandising, and a much fresher look overall in the departments in the stores we visited.

We also noticed a major emphasis on "locally-grown" produce, designated by colorful signs. In fact, local and organic produce procurement and merchandising is now a major principle of the Henry's chain, according to Janet Little, the head nutritionist for Henry's

Little says under Wild Oats' ownership, Henry's Farmers Market had only a partial organic produce program. The retailer's local produce program was almost non-existent because Wild Oats focused on growers who could supply the chain nationally at the best price. Therefore, local growers were basically not in the game.

That's changed however. Little says Henry's is now in the process of building a full organic and locally-grown fresh produce program for its stores and will be putting a major marketing and merchandising push on the nutritional benefits of locally-grown organic produce.

Natural~Specialty Foods Memo noticed both the local and organic produce programs taking root in the stores we visited.

The local produce emphasis should be a good one for Henry's, as one of its strengths has always been a feeling by its customers that it was a local store. This goes back to Henry's founding by the Boney family, who were Southern California natives who always put a hometown emphasis into the stores. Members of the Boney family now own Sprouts Farmers Market, which has become a competitor of Henry's in many of the same Southern California markets. The family sold Henry's to Wild Oats Markets, Inc.

Wild Oats never really seemed to know what to do with the Henry's Farmers Market stores. Originally, when Wild Oats bought the chain from the Boney family, the stores were natural foods stores with an emphasis on produce, sort of like Sprouts today. However, Wild Oats toyed around with the format, at one time even making them more of a basic grocery store, selling Tide laundry detergent and Bounty paper towels alongside organic granola.

This type of merchandising can work with a big supermarket like Safeway's Lifestyle format, but is hard to do with a smaller format store like Henry's, especially when its history and past success was as a natural foods and specialty market.

Henry's is sourcing much of its local produce from the San Diego region, which has become a major growing region for organic produce despite its urbanization. According to San Diego County, there are currently about 320 local organic growers producing around 150 different crops--ranging from organic oranges and grapes to avocados.

Sourcing much of its local and organic local produce from the San Diego region allows Henry's, which has all of its 30 stores in Southern California, to be "super local." The local foods or Locavore movement defines a local food as one that comes from no farther than 200 miles from where a consumer lives. All of the Henry's stores are within a 100 mile or closer distance from San Diego.

Of course, not all of the grocer's produce--conventional or organic--comes from the San Diego region. Much of it comes from California's Central Valley, which isn't much more than 200 miles away, and elsewhere like Central America in the case of bananas of course. But the local area it's an increasing source for Henry's local produce program, according to nutritionist Little.

Look for Henry's Farmers Markets to play up its organic and local produce program demonstrably in the months to come, both in-store and in its weekly advertising flyer.

Nutritionist Little, who is currently in training for her first triathlon, also has started leading store tours for customers, in which she gives the groups of shoppers an aisle-by-aisle nutritional seminar as they walk together throughout the store, with a special focus on fresh organic and locally-grown fruits and vegetables and the importance of eating at least five servings a day of them. She also has a blog on the Henry's Farmers Markets website where she offers nutritional tips and other related information.

The retailer also is trying to keep the retail prices of its local, conventional and organic produce as low as possible, something the grocer was known for doing in its "salad days." That's more difficult to do without Wild Oats' buying power. But the retailer also is finding that with the high cost of diesel fuel and gasoline, locally-grown produce actually is becoming less expensive than much of the fresh produce grown much farther away is.

Meanwhile, based on what we observed during the store tours, Henry's new independence is playing well both in how the stores look and how the employees feel. We noticed more friendly, smiling store workers than in past visits under Wild Oats' ownership, for example.

There's still much to do to get the stores looking as good as they can and should look. For example, we think the fresh meat departments need some attention. Additionally, the overall dry grocery category mix needs some evaluating, with some deletions and additions made to create a better and stronger category mix.

However, there's been a marked improvement in what's been less than a year since the Smart & Final subsidiary acquired Henry's Farmers Markets from Whole Foods Market, Inc. Even more positive, there seems to be an overall plan being carried out, which was lacking under Wild Oats' ownership in our analysis. There also seems to be a renewed spirit of teamwork to improve the stores, which is essential in food retailing.

By selling Henry's, Whole Foods just might have created a new competitor for itself in the Southern California Market, in what is so far looking to be an improving Henry's in numerous ways. That's what's great about mergers and acquisitions in many cases--a little creative destruction can lead to fresh new roots being planted in the food retailing soil.