Retail Memo: Newest Texas 'Newflower Farmers Market,' Which Sprouted From Parent 'Sunflower Farmers Market,' Blooms in Dallas, Texas

What's a "Newflower?"

Well, for purposes of this piece, it's a seedling that sprouts from a Sunflower, in this case Boulder, Colorado-based Sunflower Farmers Market, the fast-growing, fighting tiger chain of natural foods grocery stores founded and run by Mike Gilliland, who's first crack at the natural foods retailing game was Wild Oats Markets, which he founded in Boulder and ran for many years, and which today exists only as a now near-fully integrated part of Austin, Texas-based Whole Foods Market, Inc., which acquired Wild Oats in 2007 and finally gained full control of it on March 6 of this year, when it reached a settlement agreement with the U.S. Federal Trade Commission (FTC) over the regulator's nearly two year antitrust legal challenge against the acquisition. [See a linked bibliography on FTC v. Whole Foods here: Retail Memo: David Wales, Who Headed Up the FTC's Nearly Two Year Legal Challenge Against Whole Foods' Acquisition of Wild Oats is Leaving the Agency.]

Sunflower Farmers Market opened its third and newest "Newflower Farmers Market," banner store in Dallas (pictured at top), deep in the heart of Whole Foods Market country in Texas on March 18, less than a month ago. Whole Foods was founded in the 1970's and is headquartered in Austin, Texas.

Sunflower Farmers Market opened its first Texas store in November 2008 in Plano. It's second "Newflower Farmers Market" store bloomed in February 2009 in Austin, Whole Foods Market's hometown.

Why "Newflower" and not "Sunflower" in Texas?

When Sunflower Farmers Market opened its first store in Plano, Texas in November 2008 it went by the Sunflower Farmers Market banner.

However, the name "Sunflower Market" for natural foods stores happens to be owned by the supermarket chain Supervalu, Inc. Supervalu used to operate a handful of natural foods markets in the Midwest named Sunflower Market. The chain closed the stores in 2008, ending what was a new format test for Supervalu. However, the company retained the ownership of the Sunflower brand as it pertains to retail natural foods stores. [See our January 25, 2008 piece here: Breaking Retail News: SuperValu, Inc. to Close Sunflower Market Stores.]

Boulder, Colorado-based Sunflower Farmers Market, which currently operates 23 stores has a license from Supervalu to use the "Sunflower" name in the states of Colorado, Arizona, New Mexico and Utah, where it operates 20 of its 23 stores.

But Sunflower Farmers Market doesn't have a license from Supervalu, Inc. to use the "Sunflower" name in Texas, as well as in numerous other U.S. states, hence why the natural foods grocer changed the name of its then one store in Texas to "Newflower," and why the newest two Texas stores, and the all the other stores in the Lone Star State it will open, are and will be named "Newflower."

There's been some speculation that the reason Sunflower Farmers Market is using the "Newflower" name for its Texas stores is because there is an independent heath foods store in Texas named Sunflower. That's true, there is such a store. But the reason for the Newflower rather than Sunflower Farmers Market banner in Texas is because of the Supervalu ownership of the Sunflower name in the state.

Newflower Market, Inc. (the business name Sunflower Farmers Market uses) has a license from Supervalu, Inc. for the name Sunflower for certain states, but not for Texas," Bennett Bertoli, vice president of real estate for Sunflower Farmers Market, told Natural~Specialty Foods Memo (NSFM).

Additionally, Supervalu, Inc. confirmed to us that is owns the Sunflower Market name and currently licenses it to Sunflower Farmers Market only in Colorado, Arizona, New Mexico and Utah at present.

Supervalu, Inc. has no plans to bring back its small-format Sunflower Market natural foods format or stores anytime in the near future. The stores were a test of a standalone natural foods retailing format for the supermarket chain, and Supervalu decided to close the stores and beef up the natural and organic foods item selections in its over 2,000 U.S. supermarkets, including creating a new natural and organic store brand, rather than go forward with opening more Sunflower stores and creating a natural foods store chain.

Although from a retail marketing standpoint being able to use the Sunflower Farmers Market name in Texas and in other new states the natural grocer enters is a plus, there is a certain delight in the fact it is using "Newflower" in its newest state and market -- Texas. After all, sunflowers are plants that shed lots of seeds. And for Sunflower Farmers Market, other than being able to use its flagship "Sunflower" banner in Texas, which it obviously wanted to do, "Newflower," which sprouted from the "Sunflower" banner, seems to us to be about the next best thing. And to take the metaphor to a further extreme, more Newflower Farmers Market stores will "bloom" in Texas over the next couple years.

Dallas Newflower Farmers Market blooms

The grand opening on March 18 of the Dallas "Newflower Farmers Marke"t store, which is located at 1800 North Henderson Avenue at Lewis Street in the city, was jam-packed. The Sunflower-Newflower format (the store formats are the same, just the names are different) focuses on offering natural and organic groceries and fresh foods at discount prices. In fact, it's slogan is "Serious Food...Silly Prices."

Dallas residents aware of the discount pricing focus of the stores, along with hearing about it via the pre-Dallas store opening press attention and advertising in the city, turned out in large numbers for the store's grand opening, many with reusable shopping bags in hand, looking for natural and organic food and grocery bargains.

Newflower didn't let the shoppers down. The natural grocer offered hot grand opening deals in every department of the store. Sunflower-Newflower puts a major emphasis on offering fresh produce at everyday low prices, and the Dallas store's produce department was packed with opening day shoppers grabbing up cart fulls of low-priced fruits and vegetables.

The store's grand opening began at 6:30am with a free breakfast served in the store's parking lot to opening day early birds courtesy of the natural grocer.

The Dallas "Newflower Farmers Marke"t store's doors were opened at 7am on March 18. And the first 200 shoppers to enter the store and make a purchase were given a nice surprise -- each was presented with a free reusable shopping bag filled with $50 worth of free groceries courtesy of the Newflower store team.

Day-long grand opening activities included lots of food sampling throughout the store, a free beef bbq and even free chair massages for the bargain hunting grand opening day shoppers.

Sunflower-Newflower founder and CEO Mike Gilliland, who attends every new store grand opening, was at the Dallas store event on March 18, spotted throughout the store, and often in the produce department, which some say is his favorite part of the stores.

Sunflower Farmers Market founder and CEO Mike Gilliland stationed in the Dallas "Newflower Farmers Market" store's produce department on grand opening day. The word is that the produce department is the grocer's favorite of all. In fact, a Dallas Newflower store employee says that on the March 18 grand opening day that the CEO, who also bagged customers grocery as part of the opening, kept running off from the store front end to spend more time in the produce department.

Never the shy entrepreneur and grocer, Gillian said at the grand opening: " We're thrilled to bring our grocery store concept to Dallas, especially with today’s hard economic times. Newflower is the most cost-effective grocery choice, by offering fresh produce and all-natural meats from local vendors at down-home prices. We make healthy cooking easy, with in-store recipe cards, nutritional programs and the lowest prices around."

The Sunflower-Newflower markets are a bit of what we call a hybrid natural foods store, reminiscent of what Gilliland did with the Henry's (Southern California) and Sun Harvest (Texas) banners when he was at Wild Oats and the banners were a part of the chain. By this we mean they aren't orthodox natural-organic foods stores. The stores feature more mainstream-type and specialty items, along with natural and organic products.

Whole Foods Market, Inc. sold off the 35 Henry's and Sun Harvest stores in Southern California and Texas to Los Angeles-based Smart & Final shortly after acquiring Wild Oats in 2007. Gilliland had left Wild Oats long before the Whole Foods acquisition.

The format

The Sunflower-Newflower stores are no frills markets in terms of their design; attractive but basic. This allows the natural grocer to have less overhead, which allows it to achieve cost savings, and in-turn offer natural and organic food and grocery items at generally everyday lower prices than Whole Foods market and most supermarket chains do.

In a sense, Gilliland and team are attempting a natural-organic foods retail natural-organic category killer format, while at the same time trying to make sure sure the markets are both destination as well as neighborhood-oriented markets. The format seems to be working so far in all three regards, from our observations and analysis.

The new Dallas "Newflower Farmers Market" store also has a number of "green" features, according to the retailer. These include: energy efficient light fixtures, the use of recycled and refurbished equipment, cases and fixtures whenever possible, and cash registers that use double sided receipts to reduce paper waste by 40%.

The front of the store also features a skylight-style awning designed to let natural light into the front of the store, as the photograph at the very top of this piece shows.

One of the fighting tigers

Natural~Specialty Foods Memo (NSFM) has termed Colorado-based Sunflower Farmers Market one of what we call the three fighting tiger natural grocery chains. The other two fighting tigers are Arizona-based Sprouts Farmers Market and Colorado-based Natural Grocers.

All three of the Western U.S.-based natural grocers are fast-growing, and all three fear not to take on Whole Foods Market head-to-head in various markets, hence the fighting tiger name. All three, for example, are taking on or plan to take on Whole Foods right in its very own backyard of Texas, as they are in Colorado, Arizona, Southern California (Sprouts only so far there), New Mexico and Utah.

All three of the fighting tigers are using a similar, no frills everyday low-price formula as well, although each does so in its own unique way. It's not an accident that Whole Foods is focusing much more on value and pricing these days in its stores. The competition from these three fast growing natural grocery chains, along with the bad economy, has and is forcing Whole Foods to become much more price competitive, both on everyday prices and in its promotions. And Whole Foods is doing so.

Competition good

This competition, along with the competition from supermarkets and discounters that are getting deeper and deeper into the natural and organic foods categories, is good for the industry overall because it will lead to a greater democratization of healthy, natural and organic foods.

The better the prices on the category items the more consumers can buy them, changing the industry from a niche (and some might say even elitist) enterprise to one aimed more at the masses. That's good for retailers and suppliers as well. More shoppers equals more sales. And more sales equals more efficiencies, which translates into higher profits.

That's a prescription both Dr. Natural and Dr. Organic would love to write.

Below are photographs from the grand opening of the new Dallas Newflower Farmers Market that sprouted in Dallas, Texas on March 18, 2009:

Shoppers check out and get "checked out" at the Dallas "Newflower Farmers Market" store on grand opening day, March 18, 2009.

The produce department is a central departmental feature in the Sunflower-Newflower stores. Although the stores average about 15,000 -to- 25,000 thousand square feet, the produce department in the stores is much larger than an average store of that size would have. This is by design. Sunflower-Newflower prices both conventional and organic fresh produce at low everyday prices. This serves not only as a way to draw shoppers to the store but helps grow market basket sizes in the stores as well. Notice the no frills, farmers' market-style design of the produce department above in the new Dallas Newflower store. Doing so provides cost savings which allows for the everyday low produce pricing practice. It obviously also fits in with the chain's overall theme and name.

Inside the Newflower Farmers Market store that opened in Dallas, Texas on March 19, 2009. Notice the basic, no frills product refrigerated cases and the painted cement floors. This is part of the chain's no frills store design which allows it to offer natural and organic products at lower everyday prices than many of its competitors. The focus is on the the product and its price rather than on the store's design. The balloon the happy little girl is holding were given out to children, along with other treats, all day at the store's March 19 grand opening event. The balloon is doing a great job of holding her attention so that mom can concentrate on her shopping.

Below is a selection of related, past stories and posts from NSFM:

~March 12, 2009: Retail Memo: Whole Foods Market is Selling Brand 'Wild Oats'- We Offer Three Retailers We Suggest Could Benefit From Buying the Brand

~December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas

~October 27, 2008: Retail Memo: Sprouts Farmers Market Store Number Eight 'Sprouts' in Texas; Deep in the Heart of Whole Foods Market Country

~October 21, 2008: Retail Memo: Natural Grocers Joining Sunflower Farmers Market in Opening First Stores in Whole Foods Market's Home City of Austin, Texas USA

~October 21, 2008: Retail Memo: H-E-B Set to Open 127,900 Square Foot Hybrid Mega-Store in Houston, Texas Suburb; Miles and Aisles of Organic and Premium Delights

~August 15, 2008: Retail Memo: 'Business Week' Discovers Sunflower Farmers Market, Just As Many Shoppers Are Doing Daily

~June 19, 2008: Retail Memo: Two Food Retailing Chains (Among the Growing Legions) Who Fear Not the Whole Foods Market, Inc.-Wild Oats Juggernaut

~July 8, 2008: Retail Memo: Former Raley's CEO Michael Teel and Partner Developing New Prepared Foods, Natural-Specialty Foods Chain in Sacramento, California

~May 18, 2008: Small Format Food Retailing Special Report: Raising (the stakes in) Arizona: Wal-Mart On-Track to Open First Marketside Stores in Arizona This Summer

~May 13, 2008: Small Format Food Retailing Special Report: Sprout's Farmers Market Gets $22 Million in New Financing; Will 'Sprout' 100 New Stores Over Next 5 Years

~April 29, 2008: Independent Grocer Memo: Utah's 75 Year Old Harmons Combats the Big Chains With Low-Prices; Gets Ready For Whole Foods' By Going Upscale & Natural

~February 24, 2008: Retail Memo: The Whole Foods Mrkt., Inc. as Monopolist Fallacy: How Sprouts Farmers Mrkts. and Others Are Growing Into the Heart of Whole Foods Country

~December 20, 2007: Retail Memo: Natural-Born Category Killers

[You can follow Natural~Specialty Foods Memo (NSFM) on Twitter.com at www.twitter.com/nsfoodsmemo.]

Independent Grocer Memo: From Mrs. Gooch's to the Auto Body Business, Then Back to Retail, Chris Kysar is On A Healthy Organic Foods Retailing Roll

Natural-Organic Foods Retailing USA

One of the early and most successful natural and organic food retailing pioneers was Southern California-based Mrs. Gooch's Natural Foods Market, which started with one store founded by a former teacher who suffered from food allergies. She became frustrated about not being able to find the types of chemical-free and additive-free "clean" and healthy foods she needed as a shopper in other natural food stores, so started her own -- Mrs. Gooch's.

Over a number of years, Mrs. Gooch's grew into a multi-store natural and organic foods mini-chain in Southern California. In 1993 it was acquired by Whole Foods Market, Inc., which at that time was a fairly small, fledgling natural foods retailer itself. In fact, the acquisition of Mrs. Gooch's really was the start of Whole Foods' rapid expansion program, which finds it today with about 280 stores and $8 billion in annual sales, as well as being the subject of an antitrust legal case by the FTC regarding its acquisition last year of Wild Oats Market, Inc.

From 1983 -to- 1992 Chris Kysar was the director of purchasing for the original, pre-Whole Foods acquired Mrs. Gooch's Natural Foods Market chain.

After that, Kysar (pictured at left) made a career change, opening up his own auto body shop. But natural and organic foods retailing was still in his blood, so he closed the body shop and took a job as a bagger at a natural foods store, starting back at the bottom of the healthy foods chain, so to speak.

He then moved to Sonoma, in Northern California, where he operated his own natural foods store for five years, until it burned down in 2000.

In 2001, Kysar heard about a small natural foods store, Earth Song, for sale in the small Gold Rush city of Nevada City, which is not far from Sacramento. He bought the store in August, 2001.

After operating Earth Song for about a year as it was, Kysar changed the store's name to California Organics in 2002 and began converting the store's product mix to 100% organic food items and to near 100% other organic products.

Today the store boasts of having the only 100% certified organic service meat counter in the nation. All of the fresh produce sold in the store is organic and is certified by a third-party inspection and testing firm as being so.

Additionally, California Organics' in-store grill and prepared foods operation (which includes eating inside the market) uses 100% organic ingredients for its made-from-scratch meals, side dishes and desserts.

The independent natural-organic grocer has operated California Organics successfully since 2001, incorporating many of the ideas and the buying and merchandising experience he gained all those years heading up purchasing for Mrs. Gooch's, along with applying the single-store entrepreneurial skills he developed operating his store in Sonoma, growing the business significantly.

Kysar's grown the business at California Organics so much in fact that he's ran out of room, and wants not only a bigger but a more visible location for the independent organic foods market.

And the organic products grocer has big plans to do just that. Those plans start with relocating the store into a much larger building, a former furniture store in the city, which he plans to remodel and have open by the middle of next year.

The Union newspaper, which serves the Nevada City area, has a profile today about Chris Kysar and his California Organics independent organic foods market.

Read the profile, "California Organics looks to expand on Broad Street," here.

Chris Kysar and his California Organics market is another example of how numerous independent grocers of all formats -- be they natural-organic, upscale, specialty or discount -- find a niche in the U.S. food and grocery retailing industry and not only survive but thrive against the giant chain operators. It's all about combining the fundamentals of food retailing with the creation of points of differentiation, and then executing each and every day.

[Photo credit: John Hart/The Union]

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: Sprouts Farmers Market Store Number Eight Sprouts in Texas; Deep in the Heart of Whole Foods Market Country

Fast-growing, Arizona USA-based natural products retailing chain Sprouts Farmers Market opened its newest store in Whole Foods Market, Inc.'s home state of Texas on Friday (October 24) in a new 570,000 square foot shopping complex, Murphy Marketplace, in Murphy, Texas. Murphy is a suburb of Dallas.

The new Murphy Marketplace Sprouts is the natural grocer's eighth Texas store. It has additional natural markets set to open in the Lone Star State, where supernatural foods retailer Whole Foods was founded and is headquartered, in Austin. The national and international natural grocery chain currently operates 15 stores in its home state of Texas. Sprouts Farmers Market currently has stores in Arizona, California, Colorado and Texas.

The new Murphy, Texas Sprouts Farmers Market unit opened on Friday. But a big grand opening celebration by the grocer and the developer of the shopping center is planned for this Wednesday, October 29.

The $90-million Murphy Marketplace shopping and lifestyle destination center of which the new Sprouts natural market is a part is owed and was developed by Langford Property Company. The center is located at the intersection of FM 544 and Murphy Road in Murphy, which is in East Collin County. The Sprouts' store is the first natural-specialty market in the county, according to Eric Langford, president of the development company.

Langford says the joint Sprouts-Murphy Marketplace grand opening event will kick off with a ribbon-cutting ceremony at 10:30am at the Sprouts natural market. In conjunction with the ribbon-cutting ceremony, Langford says the center will dedicate a special clock tower, which was donated for the shopping center by the area Chamber of Commerce. The tower cost $10,000 and adds a historic flair to the lifestyle shopping center, Langford says.

The new Sprouts' store will hold all sorts of grand opening activities on Wednesday, including food tastings, special promotions and events tied-in with the clock tower dedication ceremony.

Like its other natural products markets, the new Murphy Marketplace Sprouts Farmers Market store specializes in farm fresh produce, purchased from local growers when possible. Sprouts also offers a large selection of vitamins and supplements, all natural meats, fresh seafood, bins full of bulk foods, an extensive selection of natural, organic and specialty grocery items, imported cheeses, deli meats, prepared foods and more.

Sprouts Farmers Market stores average about 15,000 square feet.

The Sprouts' natural market is the retail food anchor of the new Murphy Marketplace center which covers about 76 acres. Among the center's other retail tenants include: a Lowe's big box home improvement store, 24-Hour Fitness, Wachovia Bank, Saxby's, Massage Envy, Monarch Dental, Red Brick Pizza, Smoothie Factory, Planet Tan, Mattress Giant, Azura Nail Spa, Firehouse Subs, Cristina's Fine Mexican Restaurant, T-Mobile, Whataburger and more, according to the developer.

Being the only natural-specialty grocer in the county gives Sprouts a competitive advantage in this fast-growing and changing part of Texas. In fact, Sprouts has been locating a number of its Texas stores in regions in the state where no natural-specialty markets exist but where the emerging demographics and growth patterns offer good current and near term opportunity.

For example, According to the City of Murphy, the median household income for the city is $111,000-plus. Nearly 90 percent of the city's residents are college-educated. College-education is one of the key demographic variables that correlates to prime natural foods consumers. In fact, education-level is the top criteria Whole Foods Market uses in terms of locating one of its stores in a city or neighborhood.

Murphy's population has more than quadrupled since 2000, from 3,000 residents to more than 14,000 in early 2006. East Collin County, where the city is located, also is one of the fastest-growing counties in Texas. The new shopping center is regional in its scope, so the Sprouts' natural market is expected to draw from a much larger population base than just Murphy's 14,000 residents.

According to research conducted by the city, county and the developer of the new shopping center, FM 544 (the highway where the center is located) supports traffic of nearly 40,000 vehicles per day. In other words, at least 40,000 vehicles drive past the Murphy Marketplace daily.

The city of Murphy was established in the late 1800s during the time the railroad was extended into the area. It quickly became a shipping hub for the local farming and ranching families. As it did for other Texas towns, the railroad gave Murphy residents the opportunity to import building materials that were not locally available. Bricks that were mass-produced in Bedfordshire, United Kingdom and slates from North Wales were incorporated into the construction of new buildings.

Along with these new materials came the "Victorian" architectural style. The Victorians invented a way to make big panes of glass, called "sheet glass." So Victorian houses had bigger windows. Victorians also loved to decorate their houses by embellishing these large windows and by adding bay windows, iron railings, Flemish bonding and other decorative brickwork patterns. Early Murphy residents were quick to adopt this affluent style into their new homes.

Murphy Marketplace has blended many of these local design elements into the architectural design of the retail center. The center's -- and the new Sprouts natural market's -- design features include the use of soft earth tone colors, simple building lines, colorful canopies, decorative lighting and extensive landscaping in keeping with the community's design theme. Walking paths, shade trees, water features and gathering areas also provide a place to stroll, play and visit with friends, creating a strong sense of place in the center.

Memo to FTC: Whole Foods' Hegemony is baloney

In this October 21 piece, "Retail Memo: Natural Grocers Joining Sunflower Farmers Market in Opening First Stores in Whole Foods Market's Home City of Austin, Texas USA," we wrote about how two other fast-growing natural foods retail chains, Sunflower Farmers Market and Natural Grocers, are joining Sprouts Farmers Market in opening stores deep in the heart of Whole Foods Market, Inc. country -- Texas.

That Sprouts already has opened and currently operates eight natural foods markets in Whole Foods' home headquarters state, with more new stores on the way -- a new Sprouts store is planned to open in McKinney Texas in the summer of 2009 and another in Coppell, Texas in late 2009, for example -- demonstrates the marketplace (and Sprouts) disagrees with the argument by the U.S. Federal Trade Commission (FTC) that Whole Foods Market, Inc. has a monopolistic or hegemonic position in the natural and organic products retailing space as a result of its merger with Wild Oats last year.

Do smaller competitors really open stores in an aggressive manner in the home state of a retailer that has a monopoly in the natural and organic products retailing segment? Of course not. They do so because they see a niche and an opportunity to compete, which means competition exists.

Add to Sprouts the fact Sunflower and Natural Grocers are both opening stores in Texas and the FTC's argument becomes even more silly.

Further add the significant competition in Texas from supermarket chains like H-E-B and United Supermarkets' Market Street banner, Safeway-owned Randall's, Costco, Wal-Mart and a few others in the state (all retailers deep into the natural and organic foods categories) and the FTC's argument looks like pure folly.

And Texas is far from an isolated example. It's the same all over the U.S. Whole Foods Market is faced with stiff (and getting stiffer) natural and organic category competition from regional natural foods chains like Sprouts, Sunflower, Natural Grocers and others, including independents and Co-operatives in some places, and national and regional supermarket chains (and local independent grocers), as we wrote about in this October 19 piece focusing on the Colorado market.

Also toss in the national mass merchandisers and club chains: Wal-Mart; Target; Costco; BJ's Wholesale; and Wal-Mart's Sam's Club. All are deep in the natural and organic products categories -- and getting deeper. Then there is Trader Joe's. And we are just getting started. Tip of the iceberg stuff. There is no lack of category competition at retail for Whole Foods Market.

This competitive fact is true in California, Oregon and Washington State, the Midwest, the South, and the eastern U.S. In all U.S. regions natural foods retailers and supermarkets -- national, regional and independent -- all are challenging Whole Foods in the natural and organic products retailing segment in various ways. We can't find one region in the U.S. where a person with real knowledge of natural products retailing could say Whole Foods has a real monopolistic position. Rather, the supernatural retailer is actually fighting for its life nationally.

Despite this market reality, the FTC plans to hold a new hearing in February, 2009 to discuss what it says is Whole Foods Market, Inc.'s monopolistic position in the natural and organic category retailing segment. This despite the fact every shred of empirical evidence shows it isn't the case. We even wonder how many of the current members of the FTC will be around in 2009 when a new President has taken office following next week's election?

Perhaps it's time to have a Boston Tea Party in front of the FTC offices in Washington, DC as a symbol of how this government agency continues to waste resources and U.S. taxpayer money in its non-marketplace reality-based pursuit of a natural and organic products category retailing monopoly that doesn't exist. We suggest organic tea of course.

There are real monopolies out there after all. Whole Foods Market, Inc. just isn't one of them.

[Editor's note: Natural~Specialty Foods Memo owns no stock in Whole Foods Market, Inc. Nor does it have any sort of business or professional relationship with the company.]

Retail Memo: First Two Sprouts Farmers Market Stores Sprout in Colorado; Another Challenge to What The FTC Says is Whole Foods' Category Hegemony

When Whole Foods Market, Inc. acquired rival Wild Oats in a friendly merger last year, the Austin, Texas-based supernatural foods retailer became a major player in Colorado, the state where Wild Oats' was founded, headquartered and had its highest per capita store count.

The Colorado market is in fact one example the U.S. Federal Trade Commission (FTC) sited in its arguments that post the Wild Oats' merger Whole Foods Market, Inc. is a monopolist in the natural foods retailing category. And despite every sign to the contrary -- Whole Foods' profits are down by 40%, its stock is at an historic low and it's been laying off headquarters employees just for starters -- the FTC continues to press its case, having set a hearing for February, 2009 to review the merger once again.

As we've argued, the FTC is not only wasting its resources and U.S. taxpayer money by persisting in this folly, it's demonstrating a total ignorance of one of the very industries it is supposed to regulate -- food and grocery retailing.

If the FTC wasn't ignorant of the market forces in the industry, it would drop its February, 2009 hearing immediately. Why? Because the facts are that rather than being in a monopolistic position vis-a-vis the retailing of natural and organic products, Whole Foods Market, Inc. is in reality fighting for its life. Of course, we've seen much ignorance, along with outright neglect, from U.S. Government regulatory agencies in the last eight years. The words "financial crisis" come top of mind.

Whole Foods, as we written about regularly, is being challenged on two retail format fronts throughout the U.S.

One the one front are the still small but fast-growing natural foods chains like Sunflower Farmers Market, Sprouts Farmers Market, Natural Grocers, Canada's Planet Organic (its Mrs. Green's Natural Market chain in the U.S.) and a couple others. These natural products retailers are rapidly opening new stores, including in Whole Foods Market's backyard market of Texas, where the grocer is headquartered.

The other format or sector front which Whole Foods is being attacked on is by the supermarket sector.

For example, mega-chains like Kroger with its Fresh Fare format and Safeway with its Lifestyle format are taking a bite out of Whole Foods' sales throughout the U.S. Both the Kroger Fresh Fare and Safeway Lifestyle formats put a major emphasis on offering expanded selections of natural, organic, specialty and gourmet food and grocery products, along with premium, in-store prepared foods offerings. These are Whole Foods' niches.

Along with the giants, regional supermarket chains such as H.E. Butt and United Supermarkets (its Market Street banner) in Texas, Publix in Florida, Wegmans in the east, Raley's in the west, as well as numerous others, all are stealing share from Whole Foods with their upscale supermarkets, which not only offer expanded assortments of natural, organic and fresh foods but sell basic groceries alongside them.

Instead of enjoying the luxury of a monopolistic position in the natural and organic products retailing sector post its Wild Oats' acquisition, Whole Foods finds itself challenged on multiple fronts. It's also being challenged by the sour U.S. economy in which even traditional natural foods choppers are trading down out of a need to do so rather than a choice.

In the case of the fast-growing natural products retailers mentioned earlier. Sunflower Farmers Market, which happens to be founded and run by Wild Oats' founder Mike Gilliland, as well as headquartered in Boulder, Colorado, is opening new stores throughout the Western U.S. Sunflower has thus far even opened two of its smaller-format discount natural products stores in Texas and plans to open more in the state where Whole Foods' is headquartered.

With its base in Boulder, Sunflower is becoming a natural foods retailing force in Colorado and the west; a force Whole Foods is having to take seriously. Sunflower Farmers Market currently has seven stores in the state. It opens Colorado store number 8 next week in the city of Arvada -- and more units are on the way.

Whole Foods market has 18 stores in Colorado. Four of those stores are in Boulder. The majority of the remaining 14 are in the Denver Metropolitan region.

Two of the four Boulder stores operate under the Whole Foods' banner. One operates under the Alfalfa's banner. The other goes under the Ideal Market name. Both of those stores are former Wild oats units, as is one of the two Boulder Whole Foods' banner stores.

Alfalfa's was a Boulder-based natural foods chain Wild Oats acquired. It kept that name on the one store, as has Whole Foods. Ideal Market was a popular independent store in Boulder that Wild Oats also acquired. It kept the historic name. Whole Foods plans to keep the name as well.

Lakewood, Colorado-based Natural Grocers by Vitamin Cottage also has become a serious player in the Colorado market, adding to Whole Foods' competition in the state. Natural Grocers now has 28 of its natural products stores in Colorado.

But another fast-growing natural products retailing force just hit Colorado as well. Arizona-based Sprouts Farmers Market opened its first two stores in the Rocky Mountain state on Friday of last week, in the Denver Metro region cities of Westminster and Parker. Sprouts says it plans to add at least eight more stores in the region by the end of 2010. It's next two units will be in Fort Collins and Aurora, Colorado.

Whole Foods Market has a store in Westminster which isn't located far from the new Sprouts Farmers market unit that opened Friday. Whole Foods also has a store in Fort Collins, which is where one of the next two Sprouts units will open. [Memo to the FTC: If Sprouts Farmers Market believed Whole Foods Market, Inc. was a monopolistic natural products retailer would it really be opening two of its first three Colorado stores in cities where Whole Foods Market has existing stores?]

Sprouts currently has 30 stores in Arizona, California, Texas and now Colorado. More Sprouts stores are planned in Texas, Whole Foods Market's base, as well. The retailer also says it will open additional stores in Southern California and Arizona (and of course in Colorado), along with perhaps entering additional states in the Western USA.

The two Sprouts stores that opened on Friday were jammed with opening day shoppers, according to the company's president and chief operating officer, Doug Sanders. Sanders said 6,000 opening day shoppers walked through the doors of the two new Colorado Sprouts Farmers Market stores during the first 6 hours they were open on Friday.

A Natural~Specialty Foods Memo reader who was at the Westminster store shortly after it opened on Friday says the aisles of the store were packed with shoppers looking to grab-up the numerous grand opening day bargains Sprouts' had advertised in advance for the two stores.

Among the bargains she says she picked up included some hot deals in the produce department: Bell Peppers at three-for-a $1.00; Cantaloupes for 88 cents each; and tomatoes for 69 cents a pound, along with numerous other grand opening specials in all store categories.

Like Sunflower Farmers Market, Sprouts operates on a discount price natural and organic category premise or philosophy. It claims overall prices across all food and grocery categories in its stores are at least 15% lower everyday than Whole Foods' prices, for example.

Sprouts also runs weekly ads in which it offers fresh produce, meats and natural and organic food and grocery products for deep discounts.

Sprouts like Sunflower also puts a major emphasis on offering an abundance of fresh produce items at affordable everyday prices.

Both Sprouts and Sunflower have been cutting into sales at Whole Foods stores in Arizona, Southern California, Colorado and elsewhere because of this price and value emphasis.

In fact, Whole Foods has been fighting back -- not just against the two fast-growing natural foods' chains but against all competitors -- by offering discounts and promotions under its "The Whole Deal" value program. For example, right now Whole Foods is offering an online coupon good for $5-off any total order of $25 or more in its stores. That's a 20% discount on a $25 purchase.

Additionally, Whole Foods has had to get much more price-competitive, as have all food retailers, because of the sour U.S. economy.

Sprouts Farmers Market is making a significant impact in the Metropolitan Phoenix, Arizona market and in Southern California where it has numerous stores. There's no reason to believe it won't do the same in Colorado.

Meanwhile, when you combine Sprouts, Sunflower Farmers Market and Natural Grocers on the natural foods format retailing end in Colorado, then add Safeway, Trader Joe's, Wal-Mart, Costco, Target and others -- supermarkets and mass merchandisers deep into the natural and organic foods category in the market -- not only isn't Whole Foods Market, Inc. in a monopolistic position, it's being squeezed in various ways from three sides -- by natural foods format grocers, supermarket chains and independents, and deep discounters like Wal-Mart, Target and Costco.

Perhaps the FTC should hold that February, 2009 hearing about the Whole Foods/Wild Oats merger after all. But instead of the topic being the commission's ongoing argument that Whole Foods' is a monopolistic category retailer since acquiring Wild Oats, it could change the topic to how since the natural grocery chain acquired Wild Oats a little over a year ago it has had its most difficult time in history.

Retail Memo: Innovative Virginia Natural Grocer Ellwood Thompson's Local Market to Open New Store in Washington, DC USA in Fall 2009

Pictured above is an artist's rendering of the new Ellwood Thompson's Local Market natural grocery store to open next fall in Washington DC's Columbia Heights neighborhood. [Source: Elwood Thompson's Local market.]

Ellwood Thompson's Local Market, the largest independent natural grocery in Virginia, is expanding into the nearby Washington, DC market.

The currently single-store independent natural foods' retailer, which is now 20 years old, has signed a lease for a 15,000-square-foot store in the new DC USA development at 14th and Irving streets (the Columbia Heights neighborhood) in the U.S. capital city. The new store, the first in Washington, DC for the natural grocer, is scheduled to open next fall.

"We've been interested in the communities along (Washington D.C.'s) the 14th Street corridor as the home for our second store for quite some time," says Ryan Youngman of Ellwood Thompson's. "We walked the community and talked to the people. The overwhelming support we received from residents confirmed this is the perfect place to expand. Our commitment to environmental sustainability and conservation along with organics and clean local food is a perfect fit for these neighborhoods."

Putting an emphasis on locally-grown food and grocery products produced within a 100 miles of its current store in Richmond, Virginia has been a key point of competitive positioning and differentiation for the independent natural foods retailer. In fact Locavors, those consumers who try to purchase and eat only locally-produced foods, consider "local foods" those grown no more than 200 miles from where they live. Ellwood Thompson's does that official definition 100 miles better at its Richmond, Virginia store.

Natural and organic product offerings in the new Washington DC natural grocery store will include: naturopathic vitamins, supplements and personal care, products; local produce; bulk foods; fresh meats and seafood; wine; cheeses; and fresh baked goods, according to Ryan Youngman.

Prepared foods from "Ellwood's Kitchen" will be led by award-winning chef and vegan cookbook author, Jannequin Bennett, according to the retailer.

"The prepared foods offerings will cater to intentional eaters as well as provide a variety of natural, organic, and ethnically diverse dishes. Those who elect to eat vegetarian, vegan, gluten-free, and/or raw foods will find plenty of options in all departments," Ryan Youngman says. Additionally, the store will offer in-store and outdoor community seating with wireless Internet available so customers can use their laptop computers and other wireless devices while they sit at the indoor or outdoor tables having coffee or eating.

Ellwood Thompson's also plans to extend the "green" retailing practices it currently has at its Richmond, Virginia store to its second store in Washington, DC when it opens next fall.

Those pro-environmental practices include offering store employees and shoppers incentives for conservation and recycling in the form of monetary "envirocredits" for walking, biking and mass transit and for reusing shopping bags, water and food containers. The independent natural products' retailer isn't anti-automobile though. It will offer free parking in an underground parking deck located below the new store.

Ellwood Thompson's is an innovative, independent natural foods retailer. You can read about some of its innovations, as well as its prepared foods offerings and other merchandising and operational aspects, at its store Blog here.

Who says Whole Foods Market is a barrier to new retail entry?

Even though Whole Foods Market, Inc. plans to increase its store count in Washington, DC (although no new stores are set to open in the district next year) from its current three units, as well as Maryland-based 5-store My Organic Market (MOM) getting set to open a store in Washington DC (its sixth store and first in the district), Ellwood Thompson's decision to put its second store in DC shows there's still room in such competitive markets for natural products' retailers who create points of differentiation like the independent natural grocer does with its local foods program and numerous other unique merchandising and operations practices.

It also shows, as we argue regularly in Natural~Specialty Foods Memo, that despite the continued folly of the U.S. Federal Trade Commission (FTC)in claiming Whole Foods Market, Inc. is a monopolistic natural foods retailer (the FTC plans to hold a new hearing on the issue in February, 2009) post its acquisition of Wild Oats Markets, Inc. even though Whole Foods' stock took another beating last week and is now at least 55 -to- 60-% lower than it was when is acquired Wild Oats last year, reported a 40% drop in net income last quarter and laid off 42 headquarters employees last month, the marketplace says otherwise.

For example, Locally-based My Organic Market continues to expand in the market. Safeway Stores, Inc. plans to remodel its Georgetown neighborhood store, expanding it to about 60,000 square feet and adding thousands of new natural and organic products and numerous in-store prepared foods departments, using its expanded Lifestyle format which puts an emphasis on the natural, organic and specialty foods categories across all store departments. [One of Whole Foods' three DC stores is located in Georgetown.]

And of course innovative Ellwood Thompson's Local Market, which also offers specialty and gourmet food products along with natural and organic, now plans to build and open a brand new store in Washington DC. Rather than Whole Foods having a monopoly position in the Washington DC market, as well as is the case throughout the U.S., it's going to have to face even stiffer competition than it already has.

Washington DC is just one of the many examples of markets where independent multi-store natural products retailers such as Sprouts Farmers Market and Sunflower Farmers Market in the Western U.S., and other multi and single-store natural products retailers there and elsewhere, are challenging Whole Foods throughout the U.S. There's no Whole Foods Market, Inc. monopoly in the real world of main street.

Upscale supermarket chains are doing the same thing. Publix in Florida, Wegmans in New York, HEB and United Supermarkets' Market Street chain in Texas, Raley's in Northern California, Fresh Market in the South -- all of these supermarket chains and many more pose a competitive challenge to Whole Foods since their stores not only sell conventional groceries but put a major emphasis (and are designed similar to Whole Foods' stores) on natural, organic, specialty, gourmet and international food and grocery products, along with having a major focus on premium fresh, prepared foods.

Elwood Thompson's and DC's Columbia Heights

Ellwood Thompson's should find a warm reception when it opens its store in Washington DC's Columbia Heights neighborhood next fall. The neighborhood has lots of residents and the demographics are strong for natural and organic products retailing. [Whole Foods doesn't have a store in the neighborhood, nor is the DC My Organic Market store slated for the neighborhood.]

At 15,000 square feet the size and scale of the store also fits well into the neighborhood. It's big enough to be able to merchandise a strong multi-category offering but not so big so that it will look out of scale in the urban neighborhood.

The grocer's fresh, prepared foods offerings, along with the new store's indoor and outdoor seating with Wi-Fi, also should go over big in the neighborhood as it's residents like to spend time in neighborhood cafes and participate in urban street life.

Who knows, maybe even a U.S. Senator or two will stop by for some locally-produced fresh produce or one of Ellwood's ready-to-eat prepared foods dishes, along with offering a photo opportunity?

In fact, since it's true Michelle Obama likes buying natural and organic foods for her family, and has been known to shop at the Whole Foods Market store near where she and her husband, Democratic candidate for President Barack Obama, live in Chicago, Illinois, maybe if Senator Obama gets elected President in three weeks, he and the new first lady will do a little shopping at the new Washington DC Elwood Thompson's natural grocery store when it opens its doors next year in the capital city's Columbia Heights neighborhood?

The neighborhood isn't all that far from the White House -- especially if you have a car and driver at your disposal 24 hours a day and a secret service motorcade to speed up your trip to the store.

Retail Memo: 'Business Week' Discovers Sunflower Farmers Market, Just As Many Shoppers Are Doing Daily

From the Natural~Specialty Foods Memo Editor's Desk: As regular readers of Natural~Specialty Foods Memo (NSFM) are aware, we write often about fast-growing natural foods retail chain Sunflower Farmers Market, calling it one of the smaller-format, "fighting tiger" (the big tiger being Whole Foods Market, Inc.) natural grocers along with Sprouts Farmers Market. [Just type in Sunflower Farmers Market in the search box at the top of the blog and you can get a selection of those stories and posts.]

We first started writing about Sunflower Farmers Market, which was founded by former Wild Oats Market, Inc. founder Mike Gilliland (pictured above in a store produce department) who is the company's CEO or 'Head Sunflower,' last year (when NSFM was started) at a time when most publications devoted very little if any ink to the natural foods' grocer.

We've continued to regularly report on the retailer's developments and write about what we often call the natural foods retail space category-killer because of its discount prices on natural and organic products, especially fresh produce and shelf-stable food grocery items.

With the $30 million Sunflower Farmers Market raised early this year, it's embarked upon a fast-growth new store strategy, as we've written about. This growth strategy even includes opening stores in Whole Foods Market's home territory of Texas.

We often suggest that Sunflower and Sprouts Farmers Market combined offer much more of a competitive challenge today to Whole Foods Market, Inc. than Wild Oats did pre-acquisition. Of course, Sunflower and Sprouts don't have as many stores as Wild Oats had before merging with Whole Foods Market last year. (There were 110 Wild Oats-owned stores when Whole Foods acquired the chain last year.) However, both "fighting tiger" natural foods retailers are growing so fast it won't be too long until they reach that number between them.

Sunflower Farmers Market has started getting attention from both the mainstream supermarket industry trade press and the consumer business press in the last couple months. This is for two primary reasons: The natural grocer's raising of the $30 million in investment money earlier this year and its resulting rapid new store opening program, and because the editors and reporters for these publications now read blogs like Natural~Specialty Foods Memo and others regularly. We know this because we often get email communications from newspaper business section writers and others about stories we write about or news we break regarding the industry.

Business Week, arguably the mainstream media bible of business and industry in the United States, recently published a feature article on Sunflower Farmers Market and its founder Mike Gilliland--who by the way is no friend of John (Whole Foods' John Mackey that is). The two are the natural foods industry's version of the chemical reaction that results when you mix oil and water together if you've ever seen them in the same room together, even if that room is one of the two huge exhibit floors at the east or west coast Natural Foods Expo industry trade shows held annually.

We thought the Business Week article was pretty was well done and informative and therefore wanted to bring it to our readers in case you didn't see and read it in Business Week in late July. Plus, we are on vacation today--so we aren't writing an original piece or two like normal.

Sunflower Sprouts Fresh Stores and Consumers
Mike Gilliland, Wild Oats' founder, has big plans for his fast-growing Sunflower Farmers Market

by Jessie Scanlon

Page Morgan-Draper still shops at her local Albuquerque Whole Foods (WFMI). But, says the mother of two: "We're not made of money." That's one of the reasons she stops at a Sunflower Farmers Market on her way home from work three days a week. The fast-growing chain of grocery stores in five Western and Southwestern states specializes in produce, much of it organic, bought directly from farmers and sold at almost Wal-Mart (WMT) like prices—two pounds of organic broccoli for $3 and 99¢ for a pound of apples, to quote recent specials at Morgan-Draper's local store.

With its "Serious Food, Silly Prices" tag line, Sunflower targets consumers like Morgan-Draper who want to eat healthy, natural foods, but can't afford—or don't want to pay—gourmet prices. As Sunflower CEO and co-founder Mike Gilliland puts it: "We're a cost-conscious Whole Foods."

But Gilliland wants to do more than just pick off that high-end grocery's belt-tightening shoppers. His prices, and the weekly Sunflower sales advertised in the newspaper beside the local supermarket ads, are an attempt to lure consumers at the middle-to-low end of the market. The potential genius of Sunflower is its appeal to consumers at both ends of a market that's increasingly split between low-cost big-box stores and wholesale clubs on one end, and high-end retailers at the other.

Growing His Second Chain

It's an innovative strategy that's easier said than done. The relative newcomer is virtually surrounded by highly aggressive competitors, from Whole Foods to the increasingly organic Wal-Mart and its recent small-format spin-off, Wal-Mart Marketplace (NSFM Editor's note: it's Marketside not Marketplace), itself launched in response to British brand Tesco's U.S. effort, Fresh and Easy.

But higher food prices—up 5% nationally between April, 2007 and April, 2008, according to the most recent figures from the Bureau of Labor Statistics—could give Sunflower a boost, as even middle class consumers become more price-conscious. And Sunflower's emphasis on organic produce, much of it grown locally, should appeal to the consumers that spent a total of $1 billion at farmers markets in 2006. Buoyed by these trends—and by a $30 million investment by private equity firm PCG Capital Partners in December, 2007—Sunflower is in the midst of a rapid expansion, growing from its current 14 stores to some 21 locations by the end of 2008. Fifty stores are planned for five years from now.

Sunflower is almost a déjà vu for Gilliland, who founded Wild Oats with his wife, Libby Cook, in 1987. "Back then, most people couldn't spell 'tofu,'" says the natural-foods pioneer. Despite some missteps as a first-time entrepreneur, he built Wild Oats into a $2.2 billion company before stepping down as CEO in 2001. (The more successful Whole Foods bought Wild Oats in 2007 for $565 million.) He launched Sunflower in 2002.

Pricing, Pricing, Pricing

There's a reason Gilliland thinks Sunflower will do well against his longstanding rival. The company's farmers-market format is based on a California chain called Henry's Market, one of the many companies Gilliland had acquired when he was Wild Oats CEO. As his company and Whole Foods expanded, he increasingly found his stores under pressure. "A Whole Foods would open nearby and the typical Wild Oats would lose 30% to 40% of its business overnight," he says.

But stores based on the Henry's Market format competed well because they were less intimidating to the casual natural-foods shopper and appealed to the demographic that didn't want to pay for the glitz of a natural-foods superstore.

Pricing is key to Sunflower's strategy and its drive to undersell Wal-Mart. Gilliland claims that at least 80% of the store's produce beats the giant's prices. He and his team have been rethinking myriad aspects of their business, trying to "squeeze pennies out of everything," he says. Sunflower buys its produce by the truckload directly from farmers; local trucking is done by Sunflower staff, using company vehicles. Construction, too, is managed in-house by Gilliland's brother, who outsources some jobs to skilled workers. This allows Sunflower to build a new store for less than $2 million, or $70 a square foot, compared to the $150-per-square-foot industry average for a new supermarket.

In terms of design, the stores are no-frills. "They're nice stores, but not works of art," says Gilliland. "Whole Foods is like a museum!" Of course, it's "silly prices," not sleek design, that he's going for.

A natural surge?

At least in the short run, analysts aren't convinced that Sunflower's market-bridging strategy will succeed, especially when it comes to wooing low-end consumers. "Let's get real," says David Livingston of DJL Research. "[Sunflower] simply does not have the economies of scale in terms of labor, rent, and purchasing power [to beat Wal-Mart]." Apart from produce, Sunflower's prices are higher than the giant's, although they're competitive. While consumers who are tired of the big-box shopping experience may be willing to pay a bit more at a friendly, smaller-format store, it's far from certain they will.

Considering the other ends of the market, Paul Weitzel, a managing partner at Willard Bishop, says: "I don't think people who shop organic are as price sensitive as some." But with the economy tightening, more consumers are going to focus on value.

It's too early to call Sunflower a resounding success, but its strategy seems to be working. Same store year-over-year sales are up by double digits, according to Gilliland. Looking forward, the company will benefit from consumers' continued focus on fresh produce and on healthy foods. According to Progressive Grocer's 2008 Annual Report on the industry, retailers expect produce to be the most-shopped food category this year, followed by private-label products—double good news for Sunflower.

"We expect a surge over the next five years as naturals go from niche to mainstream," says Willard Bishop's Weitzel. "Sunflower will be well-positioned for that."

Jessie Scanlon is the senior writer for Innovation & Design on BusinessWeek.com.

Guest Retail Memo: Boston Globe: Whole Foods Market CEO John Mackey Tells the 'Whole Story'

Natural~Specialty Foods Memo (NSFM) Editor's Note: As regular readers are aware, NSFM has covered, reported on, written about and offered much analysis on the Whole Foods Market, Inc. acquisition of Wild Oats Markets since last year, including the still ongoing efforts by the U.S. Federal Trade Commission (FTC) to appeal the decision by the U.S. Federal Court, upheld once already by a federal court of appeals, which gave Whole Foods the green light to go forward in integrating the former Wild Oats operations and retail stores into its corporate culture and retail format, including closing some stores and eventually changing the Wild Oats banner into the Whole Foods Market banner.

As part of the drama surrounding the acquisiton/merger last year, it was discovered by the U.S. Securities and Exchange Commission (SEC), the regulatory body in the country over such acquisitions, that Whole Foods Market, Inc. CEO John Mackey had for some time been posting negative comments about Wild Oats' senior management and the grocer's overall operations, and favorable ones regarding how it would generally be a good idea for Whole Foods Market, Inc. to acquire and merge with Wild Oats.

Upon discovering that Mackey had been posting these online comments on various financial and business-related message boards under the handle "Rahodeb," the SEC launched an investigation to determine if the posts violated any laws regarding such communications by a CEO during the time in which a company is in the process of attempting to acquire a competitor. Wild Oats shareholders voted to merge with Whole Foods Market, Inc. The deal wasn't a hostile takeover of any sort.

Two weeks ago the SEC announced it had cleared Mackey of any wrong doing after the long investigation. Previous to that, Whole Foods' board of directors had launched its own internal investigation, resulting in the board saying in their opinion they could find nothing illegal in Mackey's online postings on the message boards under the "Rahodeb" handle. Whole Foods' did create a policy restricting future online postings by senior executives though.

Last weekend, a relieved Mackey gave the commencement address to the graduates of Bentley College in Waltham, Massachusetts. Before giving his commencement address, Mackey sat down with Boston Globe reporter Jenn Abelson for a Q&A interview about the Wild Oats acquisition/merger, his online posting life, the SEC investigation, and his personal life and life heading up Whole Foods, which are closely intertwined.

The interview with Mackey is published in today's edition of the Boston Globe.

You can read Ms. Abelson's interview with Whole Foods Market, Inc. CEO John Mackey here.

This is the first interview Mackey has given since the SEC cleared him of any wrongdoing regarding the online postings. As a result, it's well worth reading the full interview.