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?

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.

Retail Memo: The Small Format Revolution Continues to Heat Up

German food retailer ALDI is planning a major expansion of its small format, no-frills, price-impact supermarket chain in the U.S. The small format food retailing revolution in the USA is growing fast at both ends (low and high) of the food retailing spectrum, as well as in the middle. Where is it going? How fast will it get there?

ALDI USA's small format, limited assortment supermarkets (above) have about 15,000 square feet of retail selling space. The small format grocery stores are attractive but basic in design.

As our regular readers are aware, we've been writing about what we believe is nothing short of a small format food retailing revolution taking place in the U.S. It's not that small, neighborhood-style grocery stores haven't existed in the U.S. forever--they have. Rather, the reason we're calling it a small-format food retailing revolution is do to the scale of what's occurring, how fast it's happening, and the involvement of two large international retailers--Tesco and ALDI--who are leading the charge.

The catalyst for this so called small-format food retailing revolution is British grocer Tesco, which launched it's first Fresh & Easy Neighborhood Markets stores in Southern California and Las Vegas, Nevada in mid-November, and in Arizona three weeks ago. Tesco has opened nearly 30 of the small format grocery markets in just a little over a month. The retailer plans to have 200 of the stores open by the end of 2008, and up to 500 stores in the U.S. in five years.

In addition to Southern California, Nevada and Arizona, Tesco will begin opening Fresh & Easy grocery markets in Northern California next year. Further, as we've reported and written about here, the grocer is looking for store sights in New York, Florida and Chicago, along with land to built a distribution center on near Chicago.

Fresh & Easy grocery markets average about 10,000 to 13,000 square feet. They're a hybrid basic neighborhood grocery store and semi-upscale prepared, fresh food retailer. We describe the store format as low-price leader, limited format grocery store meets Trader Joe's.

Price-point is a big focus on the basic grocery side of the operation. The stores' thus far opened have lower retails on national brand (a limited selection though) grocery items than traditional supermarkets like Ralph's, Von's, Stater Bros. and others in their trading regions. In fact, the prices are more in-line with the deep-discount limited assortment and warehouse format stores in Fresh & Easy's current operating areas.

On the fresh, prepared foods side of the business, Fresh & Easy offers a wide variety of ready-to-eat, ready-to-heat and grab-and-go prepared foods. These range from basics like mac n' cheese and meat loaf, to more high-end offerings like Beef Tips in Burgundy Sauce and upscale, ethnic prepared foods featuring Indian, Asian and other cuisines. The stores' even sell fully-prepared complete meals that come with dessert and a bottle of wine. The prices on the prepared foods, which are all branded under the Fresh & Easy private label, are very reasonable.

In addition to the basic grocery items and prepared foods, the stores' offer fresh produce, fresh meats, other perishables and a selection of specialty and natural grocery items. About 65% of the items in the grocery markets' are private label, including fresh milk and eggs, and about 35% are national brands.

Aldi to expand its small format, no frills, limited assortment supermarkets

German food retailer ALDI was operating in the U.S. long before Tesco even thought about and created its Fresh & Easy Neighborhood Markets concept and venture. Unlike the big splash--and rapid store opening strategy--Tesco made in the U.S. with Fresh & Easy, ALDI USA's venture has followed a low-key, low-publicity, gradual-growth model.

The international food retailer first entered the U.S. market in 1976 with a handful of stores in southeastern Iowa. Today, nearly 32 years later, the international grocer with stores in 18 countries, is a major player in U.S. food retailing.

ALDI USA currently operates over 850 stores in 26 states, and is ranked as the country's 24th highest grossing (sales) supermarket chain. The stores' are located from the Midwestern USA (Kansas, Iowa, Illinois) to the Eastern Seaboard. (you can view a map of all 26 states ALDI USA has stores in here. When you get to the linked page, go to "What is ALDI and click where it says "view a map of where we operate and divisional offices."

The German grocer's U.S. supermarkets not only are small format (they average about 15,000 square feet), limited product assortment, and price-impact focused, they're also totally no-frills. The stores' design is attractive but bare bones. If customers want to use a shopping cart they have to pay 25-cents to do so. Aldi USA stores also charge for paper and plastic grocery bags, and encourage shoppers to bring their own reusable grocery carriers. The chain's retail positioning can be summed up as "Less is More."

The small format stores' sell their own branded private label grocery items almost exclusively; with the exception of a handful of national brands, which they primarily offer only on an in-and-out basis. The grocer uses sku rationalization to its fullest, constantly evaluating categories and items and adjusting store category and item assortments. The no-frills markets offer fresh produce, fresh meats, perishables, frozen foods and non-food items, all based on that same limited-assortment merchandising philosophy.

The no-frills markets carry a total of slightly over 1,000 items across all categories. Low-price is the prime category-wide focus of the small format stores. In their trading areas, the stores' generally undercut all food retailing formats on price, including Wal-Mart, warehouse stores, and other deep discounters. ALDI supermarkets have the reputation as being the low-price leader stores in the communities they operate in.

Bring on the revolution: ALDI USA's slow growth model is about to change

With 850 stores in the USA, ALDI is considered a major food retailing player based on any score card one uses. That it is 24th in the U.S. in gross sales is impressive considering its stores are a third or more smaller than today's average American supermarket.

But the small-format, price-impact grocer is about to explode on the American food retailing scene in an even bigger way. ALDI USA just announced it is going to excelerate its new store building program in the U.S. from about 20-30 stores per year, which is it's current rate, to as many as 100 stores a year beginning next year. Additionally, the small-format grocer is going to enter Florida and Rhode Island for the first time next year, and is planning a major new expansion into Texas in 2009.

With stores in Texas and Florida, the grocer will be entering two of the most competitive and lucrative states for food retailing in the U.S., as well as establishing a retail presence in the number two and three largest states in the country respectively.

It might be televised, but the small format revolution is real

ALDI USA's rapid growth plan is predicated on the huge success the grocer has had with its 850-plus store chain. It, along with others like Supervalu Inc.'s Save-A-Lot small format, price-impact chain, have proven not only the viability but success of the format at the lower-end of the food retailing spectrum.

Of course, the international grocer isn't a stranger to high-end, small store format food retailing in the U.S. either. It owns the fabulously successful Trader Joe's specialty grocery chain, which is expanding rapidly into new markets in the U.S. as well.

We don't think it's an accident Tesco positioned it's Fresh & Easy grocery markets as a combination price-impact, specialty and prepared foods hybrid market. They saw the success of no-frills, small format operations like ALDI USA , Save-A-Lot and others--as well as the success of Trader Joe's on the higher, specialty end. In part, this influenced Tesco to craft a format they believe can serve both customer demographics--price-conscious, basic grocery shoppers tired of huge superstores, and time-pressed consumers who are looking for specialty-oriented and convenient prepared foods at not out of this world prices. Like we said earlier, it's low-price, limited assortment grocery market meets Trader Joe's.

Of course the jury is still out on Fresh & Easy. They just opened their first stores last month after all. However, Tesco's plans are to have as many as 500 stores operating in the U.S. in five years. As such, Fresh & Easy isn't an experiment. Rather, it's a full-fledged venture.

Onward small format food retailing revolution

We see what we are calling the small format food retailing revolution going full-steam ahead. As we've reported recently, Safeway Stores, Inc. is currently negotiating with real estate interests in the San Jose, California area of the San Francisco Bay Area for locations to build five stores of a new and yet unnamed small format food retailing venture. The stores will be about 20,000 square feet, and it's believed will offer a wide variety of fresh, prepared foods in addition to groceries and other offerings.

We've also written much about Wal-Mart's research into two small store formats--one a small footprint grocery/food market and the other a small format health and wellness-oriented store, which would include a health clinic in-store. The mega-retailer had a team of executives working on the concepts in the San Francisco Bay Area for a number of months earlier this year. We expect some announcements as to what they might--or might not--do in terms of their small format retailing plans by early next year.

Other retailers like supermarket chain Giant Eagle are testing the small format food retailing waters. The chain, which operates primarily superstores and conventional supermarkets, has opened two Giant Eagle Express stores. The grocery markets are about 15,000 square feet and feature a mix of basic groceries, fresh produce and meats, and upscale offerings, including prepared foods, along with specialty, natural and organic groceries. The express markets also offer some standard convenience store items and have fueling pumps next door.

Further, supernatural grocer Whole Foods Market, Inc. plans to open a small format, convenience-oriented prototype store early next year in a former Wild Oats store in Boulder, Colorado. The grocer is currently remodeling the store into its Whole Foods Express prototype format. The express store will offer lots of prepared foods, especially convenient grab-and-go items. It's also expected to have a limited assortment of natural and organic groceries, fresh produce and meats. An in-store cafe also is likely.

Other food retailers are looking closely at the small format concept and thinking about whether or not it's something they should experiment with. And of course, the original small format food retailer, the neighborhood independent grocer, is smiling and thinking perhaps he was right all along.

We also must mention Pennsylvania-based Wawa Food Markets, which is the prime chain store innovator in the U.S. in terms of mixing convenience store-type retailing and more upscale grocery and specialty store merchandising into a single format.

For decades, Wawa has been successful in building a large chain of such hybrid stores throughout the eastern U.S. The retailer also is one of the early pioneers in offering quality prepared foods offerings in a convenience store setting. Its also one of the first chains to include larger than average grocery and perishables sections in its convenience stores, offering basic groceries at a decent price, compared to the normal convenience store retail prices in the category.

Hold on to your shopping carts folks. We're just seeing the beginnings of a small format food retailing revolution. The format's success on the no-frills, price-impact end is proven--and growing. Success stories like Wawa Food Markets and Trader Joe's--and the initial popularity of Tesco's first Fresh & Easy stores--are beginning to suggest that the small format hybrid food store concept also could become a big success at the middle-to-higher end of the spectrum as well.

Which retailer will be next to test the small format store retail waters; be it low-end, high-end, in the middle, or some combination of all three? We'll let you know. And, if you know of one--do let us know.

[To read numerous stories on the small format food retailing revolution search the blog using key words: Fresh and Easy, Fresh & Easy Neighborhood Markets, Small Marts, The Invasion of the Small Marts, Whole Foods Express, Whole Foods Market, Giant Eagle Express, Wawa Food Markets, Safeway Stores, Inc. and Small Format Food Retailing.]