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.]

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.

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

Whole Foods Market, Inc. - FTC Settlement Agreement: Post-Mortem Analysis

As we reported in this piece [Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge] on March 6, 2009, the settlement agreement reached between Whole Foods Market, Inc. and the U.S. Federal Trade Commission (FTC) over the FTC's antitrust legal challenge to Whole Foods' 2007 acquisition of Wild Oats Markets, Inc. included three elements or terms. Those terms are:

>The selling of 13 (12 former Wild Oats' units, one existing Whole Food's unit) stores currently being operated by Whole Foods Market, Inc.;

>The selling of 19 closed stores; 10 closed by Wild Oats before the acquisition and nine closed by Whole Foods Market, Inc. post-acquisition and;

>The selling by Whole Foods Market, Inc. of the "Wild Oats" brand and all related intellectual property.

As part of the settlement agreement, a third-party receiver is handling the sale of the 32 stores and the "Wild Oats" brand and intellectual property.

It is the third element of the settlement agreement -- the selling of the brand -- that we focus on in this piece today.

It's our analysis that having to sell the brand is something that hurts Whole Foods Market not at all.

In fact, since acquiring Wild Oats Markets, Inc. in 2007, Whole Foods' has done pretty much all buried the brand by design and strategy. Therefore, we see no downside -- nor do we believe Whole Foods Market, Inc. does -- in the natural grocery chain's selling of the "Wild Oats" brand.
If Whole Foods Market gets a decent price for the brand and related intellectual property, it's our analysis and opinion that the retailer probably will view that aspect of the settlement deal as pure blue sky. [We don't think the selling of the stores hurts Whole Foods in anyway either, as we mentioned in our March 6 story. It's all blue sky for Whole Foods.]

Natural~Specialty Foods Memo (NSFM) does see some value in the "Wild Oats" brand -- not particularly to Whole Foods Market, especially at this point in time since the natural grocery chain already made a strategic decision not to use the brand long before the FTC settlement requirement to sell it -- but to a handful of other retailers.

In this vein, we offer an analysis below of three very different retail chains -- natural foods grocery chain Sunflower Farmers Market, mega-retailer Wal-Mart, and online retailer Amazon.com -- that could benefit from buying and using the Wild Oats brand.

Sunflower Farmers Market

The fast-growing Boulder, Colorado-based natural foods chain, which was founded by and is run by Mike Gilliland (CEO), who also founded Wild Oats in 1984 in Boulder, might want to take a look at buying the "Wild Oats" brand from Whole Foods Market, Inc.

This is not just because of the nostalgic fact that Gilliland founded and named the grocery chain Wild Oats, although that aspect has a heart warming aspect to it, but rather because the brand name could offer some merchandising and marketing advantages to Sunflower Farmers Market.

The Texas connection: First, probably because an existing health food store in Texas has the name "Sunflower," Sunflower Farmers Market has chosen to name its stores in the Longhorn state "Newflower." Might it not be interesting if Sunflower Farmers Market buys the "Wild Oats" brand from Whole Foods and then changes the name of those Texas stores to "Wild Oats," using the old Wild Oats logo (which is attractive) and related intellectual and brand properties?

We think doing so could offer benefits to Sunflower in its Texas stores. The "Wild Oats" brand name still has brand equity, in our analysis, particularly among primary natural foods shoppers, and particularly in the Western U.S.

It would also be an ironic development were this to happen since Whole Foods Market is based in Texas. Sunflower just opened its first "Netflower" store in Austin, where Whole Foods' corporate headquarters is located, a couple weeks ago.

Additionally, brand "Wild Oats" might also offer Sunflower Farmers Market some additional options and benefits.

For example, the natural grocer could use "Wild Oats" as a private label brand. Wild Oats Markets, Inc. had a full line of natural and organic products under the brand, even selling the brand and line at Kroger stores throughout the U.S. for a few years, in addition to in the Wild Oats Market stores.

Whole Foods Market, Inc. has now sold off most of the "Wild Oats" brand items, replacing them in the converted former Wild Oats Market banner stores with Whole Foods Market store brands. But the recipes, graphic design for the labels and all of the other intellectual and material property still exists for the brand's product line. All Sunflower, or any other grocer, need do if they acquire the brand is to decide what products they want to put under it and hire vendors to produce the products.

Perhaps brand "Wild Oats" would make a good premium natural products brand for Sunflower Farmers Market, featuring either just organic or both natural and organic items, for example.

Further, owning the brand would allow Sunflower Farmers Market and Gilliland to use it on any stores it desired at any time. For example, Perhaps as the chain grows it creates a second retail format, branding it "Wild Oats." We could see a higher-end format from Sunflower (after the recession), for example, that used the Wild Oats retail brand on it. This would fit with the positioning of the brand on products being of a more premium natural and/or organic nature, under that scenario.

Lastly, imagine the marketing-oriented public relations attention buying the "Wild Oats" brand would have for Sunflower Farmers Market and Mike Gilliland.

We can see the headlines now: (1) "Wild Oats' brand returns to founder." (2) Mike Gilliland sows his 'Wild Oats': plans Texas stores under the Wild Oats Market banner." (3) It's 'Back to the Future' for Sunflower Farmers Market founder and CEO Mike Gilliland, as he prepares to launch a new line of private label natural and organic products in the Sunflower stores under the 'Wild Oats' label."

This could be publicity no amount of money can buy, particularly timed with the launch of the rebranded "Newflower" stores under the Wild Oats' retail banner in Texas, or the launch of a new proprietary natural product line under the "Wild Oats" brand for Sunflower. Just some food for thought.

And, since the settlement with the FTC requires a third-party receiver to sell brand "Wild Oats," Whole Foods Market, Inc. can't veto a sale of the brand and its assets to Gilliland and Sunflower Farmers Market (or to any other competitor), should the natural grocer decide to acquire it.

Wal-Mart Stores, Inc.

We go from small but fast-sprouting Sunflower Farmers Market to global giant Wal-Mart in this journey.

We think buying the "Wild Oats" brand from Whole Foods has some merit for Wal-Mart. For example, Wal-Mart brands its fast-growing line of natural and organic products under the "Sam's Choice" brand. While it's nice that this brand honors Wal-Mart founder Sam Walton, it really has very little resonance in consumers' minds when it comes to natural or organic food. In fact, since Sam Walton was a very frugal man, we doubt he would have spent the extra money that natural and organic food and grocery items cost anyway.

Wal-Mart could use brand "Wild Oats" for private label brand natural-organic products in a few ways.

First, it could brand all of its natural and organic products under the brand, including changing existing "Sam's" items to brand "Wild Oats."

Second, it could create a two-tier brand system. "Sam's" would be used for lower price-point natural and organic items, "Wild Oats" for higher-end, premium natural-organic items.

Lastly, Wal-Mart could use the "Wild Oats" brand name strictly for organic food and grocery items, then use "Sam's" or something else for "natural" only.

We think Wal-Mart needs a better brand for natural-organic using one of the above three product scenarios

Wild Oats' is a good brand name, still has equity, and is for sale. Therefore, although we know this is way down on the list of Wal-Mart Stores, Inc.'s priorities list, we think acquiring the brand from Whole Foods Market would offers a nice opportunity in the natural-organic products categories for Wal-Mart, which continues to move deeper into the categories, and will move much faster once again in the natural-organic private label and retailing spaces once the recession ends.

Wal-Mart also now operates four (soon to be five when it opens a new store in Peoria, Arizona later this year) of its small-format Marketside grocery and fresh foods stores. (Wal-Mart also has two Marketside stores under construction in San Diego County, California, with three more planned in California.) The 15,000 -to- 20,000 square foot markets feature a limited assortment of basic food and grocery items, including natural, organic and specialty items, fresh meats and produce, perishables and in-store prepared foods.

The Marketside stores are more upscale than any of Wal-Mart's other formats. A selection of natural and organic items in the stores under the "Wild Oats" brand could be a nice addition to the natural and organic item selection-segment in those stores for Wal-Mart.

Amazon.com

In 2007 the online retailer Amazon.com started selling shelf-stable food, grocery, household item, health and body care and related packaged goods. Today the online mega-store's inventory in these respective categories is vast and extensive, including offering lots of natural, organic and specialty food and grocery items for sale.

Shoppers order the food and groceries online just as they do everything else that Amazon merchandises. The orders are then delivered to shoppers' homes via Federal Express, UPS or other basic delivery service.

In a little over two years, Amazon has gone from merely experimenting with selling food and groceries to actually selling a considerable volume of product, including a decent amount of natural and organic food and grocery products.

We think Amazon should take the logical next step in its progression as an online grocer and start offering its own brand products. Since the web retailer doesn't have the volume needed to really yet have a store brand everyday or discount grocery brand, we suggest a good place to start would be with a natural and organic products store brand.

Therefore, why not brand "Wild Oats"? The brand still has consumer awareness and equity. Everything is there to rapidly start producing whatever products are desired; all that's needed are vendors. And, the brand is for sale.

Amazon could create its own natural and organic food and grocery proprietary brand under the "Wild Oats" brand. It could start small, say with about 45-75 items in a half dozen -to- a dozen categories to start. We would suggest all the products be consumables and health and body care to start. Then it could go from there with the brand.

Amazon also could extend the brand "Wild Oats" across the numerous categories it sells products from. For example, how about "Wild Oats'" proprietary brand organic cotton clothing? What about body care, vitamins, supplements? How about a line of "green" cleaning products under the brand."

In other words, brand "Wild Oats" could allow Amazon to have a proprietary brand that it could use to create it's own "brand" in the numerous categories -- from food and drink to clothing and health and body care -- that avail themselves of a natural-organic products focus.

Amazon is without a doubt big enough to do this. We think it would be a very positive development for the online mega-retailer. It also, in our analysis, would help build better product brand equity for the online retailer.

Amazon.com is a major player in natural products retailing across numerous categories. The Wild Oats brand could allow it to become a much bigger category player in many mainstream and niche natural and organic products segments, from consumables to clothing, and much more.

Conclusion: Brand 'Wild Oats' - will any retailers bite?

There are other retailers besides the three we offer that could benefit from acquiring the brand from Whole Foods Market, Inc. Most interesting to us will be if a competitor -- like Sunflower Farmers Market, Sprouts Farmers Market or Natural Grocers by Vitamin Cottage -- buys brand "Wild Oats" with the design of using it as the name for a chain of stores.

Or, if another format retailer, say Target or Wal-Mart, were to buy it with the idea of someday using "Wild Oats" for a chain of natural foods markets. We doubt this scenario -- but that doesn't make it any less interesting.

It's our analysis that the FTC hopes something like the first scenario above happens -- that some competitor of Whole Foods Market buys the brand and uses it to compete against Whole Foods.' That's the key reason the FTC required there be a third party receiver appointed to handle the sale of the brand and the store sales: It wanted to make sure that Whole Foods Market, Inc. couldn't veto the sale of brand "Wild Oats" or the sale of any of the stores on the block to a competitor.

It will be interesting to see if any retailers bite and make an offer to buy the brand. Readers: Which retailers do you think could benefit from buying brand "Wild Oats" from Whole Foods Market, Inc? Offer your idea(s) and opinion(s) by using the "comments" link below. Just click and type.

[Related posts: March 8, 2009: Retail Memo: The FTC-Whole Foods Market Settlement Agreement Looks Much Like Our January 'Blueprint-Template For A Settlement Deal' Proposal ... March 6, 2008: Retail Memo: The 'Whole Bibliography' - FTC v. Whole Foods Market Antitrust Case & Issue ... March 6, 2008: Daily Memo: It's A Done Deal: Whole Foods Market and the FTC Reach A Settlement Agreement On Wild Oats' Acquisition Antitrust Challenge ... March 5, 2008: Daily Memo: Whole Foods Market - FTC - Settlement Deal Watch - Countdown to March 6]

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

Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information

The FTC, Whole Foods Market and 96 Natural Products Retailers

Boulder, Colorado-based Sunflower Farmers Market, one of the fastest-growing natural foods retailing chains in the U.S., has submitted a response to the subpoena it received from Whole Foods Market, Inc. asking the natural products retailer for three years' worth of sales data, its strategic plans, market analysis reports and other related documents, including any that might discuss its plans to compete with Whole Foods, according to CEO Mike Gilliland, who just happens to be the founder of Wild Oats Markets, Inc., which Whole Foods acquired last year.

The U.S. Federal Trade Commission (FTC) continues to dispute the Whole Foods-Wild Oats merger, which is now pretty much completed, which is the reason Whole Foods Market, Inc. says it had to subpoena the sales and related information from 96 natural products retailers, including Sunflower Farmers Market.

The FTC is holding a hearing on the Whole Foods-Wild Oats merger in February of next year in order to determine the combined company's fate post-merger. Whole Foods' legal council has subpoenaed the records of these retailers in order to build and prove its case that the combined Whole Foods-Wild Oats does not represent an anti-competitive natural segment retailing force in about 18-29 markets where the FTC says that is the case.

Sunflower Farmers Market received the same subpoena that Portland, Oregon-based nine-store New Seasons Market and 94 other natural products retailers received from Whole Foods Market, Inc.'s lawyers.

As we've been writing about in a series of pieces over the last week, New Seasons Market CEO Brian Rohter is disputing the Whole Foods subpoena for his company's proprietary sales, financial and related records, and took the issue public on the natural grocer's company Blog.

See these posts from Natural~Specialty Foods Memo:

>December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC

>December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog

>December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady

>December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing

Sunflower Farmers Market CEO Mike Gilliland did not describe the content of the natural foods retailer's response to Whole Foods Market, Inc.'s subpoena.

It is well known within the natural products industry that Gilliland and Whole Foods Market CEO John Mackey don't like each other. They even avoid one another at industry trade shows and related functions.

Gilliland, the founder of Wild Oats, left the company long before it was acquired by Whole Foods last year.

A few years ago he founded Sunflower Farmers Market in Boulder, Colorado, the same city in the same state where he started Wild Oats, and where its corporate headquarters remained until merging with Whole Foods last year.

Gilliland is competing head-to-head in a number of markets against Whole Foods Market with Sunflower. He recently has opened stores in Whole Foods' home state of Texas, for example. Last year Sunflower Farmers Markets received a $30 million investment to expand the chain by opening numerous new stores over the next five years.

The Sunflower Farmers Market stores are much smaller than Whole Foods' natural foods stores are. They average about 15,000 or so square feet and are relatively no frills in design. They operate on an everyday low-price model which Sunflower says offers everyday low prices across all natural and organic products categories that are at least 15% less than Whole Foods'

The Sunflower format, which reminds us a bit of Gilliland's original model for the Henry's stores which Whole Foods sold to Southern California-based Smart & Final, Inc. after it acquired Wild Oats last year, puts a major emphasis on fresh produce, including organic, at low prices. The large produce departments are located in the center of the store like a farmers market in order to draw attention to the "fresh" aspect of the Sunflower stores.

New Season's Market CEO Brian Rohter says his company has been forced into the "crossfire" of the FTC's continued legal challenge to the Whole Foods-Wild Oats merger, the result being the subpoena for the natural grocer's sales, financial and related proprietary information.

New Season's lawyers filed a brief with the FTC last week to kill or limit Whole Foods' subpoena, saying in the legal brief it will cost New Seasons Market over $250,000 to comply with the subpoena's demands, along with arguing that disclosing the proprietary sales and related information will open the door for Whole Foods to engage in anti-competitive conduct against the Portland-based retailer because it will have this inside information.

Whole Foods Market, Inc. says the law does not allow its outside counsel to share any of the proprietress information obtained from the retailers via the subpoena with operational employees of Whole Foods at any level. It says the information is strictly for the lawyers use in arguing the retailer's case against the FTC.

The brief filed by New Seasons Market's lawyers also contains quotes it says have been made by Whole Foods Market, Inc. CEO John Mackey and other executives referring to its wanting to "crush," "punish" and "eliminate" competitors such as Wild Oats and Earth Fare, a 15-store chain on the East Coast.

As a result of this behavior... "New Seasons has no reason to believe that Whole Foods would not relish the opportunity to do to New Seasons what it did to Wild Oats and what it does to other competitors such as Earth Fare ..." the lawyers wrote in the brief to the FTC to stop the subpoena.

CEO Rohter also says the numerous postings Whole Foods CEO Mackey made using a fictitious screen name in various Yahoo Finance online message boards during the run up to the Wild Oats acquisition, postings in which he made comments about the incompetence of the then Wild Oats CEO for example, demonstrate a pattern of behavior in which Whole Foods is willing to do whatever it takes to crush and eliminate its competition.

Mackey was investigated by the U.S. Securities and Exchange Commission for the postings and was cleared of any illegal activity. However, numerous ethical and judgement questions have been raised about the behavior.

Whole Foods Market's social media director Paige Brady posted a company response to New Seasons Market's position in Natural~Specialty Foods Memo on December 2, following our publication the day before about the issue. [See the December 2 link above.]

Whole Foods spokeswoman Kate Lowery says Whole Foods was put in the position of having to issue the subpoenas by the FTC because the agency lumped it, Wild Oats, Earth Fare and New Seasons into the four-member class of groceries called "premium natural and organic supermarkets" during federal court proceedings last year.

It is in this natural products retailing market segment (which doesn't really exist in the minds of most people in the food and grocery retailing industry. The lines are far to blurred.) the FTC continues to argue the merged Whole Foods-Wild Oats presents a monopolistic and anti-competitive force in.

A federal court in Washington D.C. has twice ruled against this claim being made by the FTC and in Whole Foods' favor. Despite the ruling, the FTC reopened its administrative case on the merger after getting a green light from a court to do so. That is the hearing scheduled for February 16, 2009 in Washington, D.C.

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

Fast-growing Lakewood, Colorado-based Natural Grocers by Vitamin College plans to open its first natural foods and products store in Austin, Texas USA, the city where Whole Foods Market, Inc. was founded, is headquartered, and operates numerous natural foods supermarkets. The store will be located at 39th and Guadalupe streets in the hip Texas city who's residents have a strong appetite for natural foods.

The Austin, Texas store, which Natural Grocers says is scheduled to open in January, 2009, will be the natural grocer's first Austin unit and its third store in Texas. Currently there is one Natural Grocers store in Dallas, at 7515 Campbell Road, which opened just last month. A second store is scheduled to open next month in Amarillo.

At about 11,000 square feet, the Austin Natural Grocers market is far smaller than the typical new Whole Foods Market store.

However, it's not much smaller than the small-format natural foods stores being opened by two other fast-growing chain's -- Sunflower Farmers Market and Sprouts Farmers Market. The stores of these two natural products retailers average about 15,000 -to- 20,000 square feet. The Dallas Natural Grocers store that opened last month is about 14,000 square feet.

Sunflower Farmers Market also plans to soon open a store in Whole Foods Market's home city of Austin, joining Natural Grocers in its backyard invasion of Whole Foods' home turf. In June of this year, as we reported, Sunflower Farmers Market announced plans to open its first store at 1901 W. William Cannon Drive near the intersection of Manchaca Road. We also reported Sunflower said at the time it plans at least three stores in the Austin area.

Natural Grocers also says it plans to open at least two more stores in Austin if the first store performs well. Those stores would be in the city's Arboretum area and in South Austin, according to Kemper Isley, who is the co-president of Natural Grocers by Vitamin Cottage.

Asked why the retailer is going to locate a store right in the heart of Whole Foods country, Isley says "Austin's demographics fit well with the company's model of a traditional natural foods store." He also says he's not concerned about going into the backyard of Austin-based Whole Foods Market, Inc.

The Austin Natural Grocers' store will be located across the street from Central Market, the upscale natural-specialty format banner of 310-store Texas-based food and grocery chain H.E. Butt (H-E-B). Central Market stores are popular in Texas. The markets feature lots of natural, organic, specialty, gourmet, international and fresh, prepared foods in an upscale setting.

"We've always considered ourselves synergistic with Whole Foods and I think we’ll be the same way with Central Market," says Isely.

In other words, Natural Grocers by Vitamin Cottage believes being located across the street from the Central Market and not to far away from a Whole Foods Market unit in Austin will actually help the store's sales rather than hurt them. At least the Colorado-based natural retailer is betting on that premise.

The Natural Grocers' stores are a bit more traditional or orthodox natural foods markets.

For example, the stores offer only organic produce items, no conventionally grown. Additionally, The company's product ingredient standards tend to be stricter than those of Whole Foods Market and other chain natural products retailers. The stores also put a heavy emphasis on selling natural supplements, devoting about 20% of the store's square footage to the category.

Natural Grocers' stores are modern though. In addition to selling natural and organic food, grocery and non-foods products, the stores also offer specialty and gourmet items as long as those products meet its standards, for example. The store design also is modernistic in look and approach.

Like Sunflower Farmers Market and Sprouts Farmers Market, Natural Grocers puts an emphasise on price, trying to offer everyday retail prices lower than those at Whole Foods' stores and other competitors.

Natural Grocers by Vitamin Cottage currently has 28 stores. All but three of the stores -- the current Texas store open in Dallas and stores in Santa Fe and Albuquerque, New Mexico, -- are in Colorado.

But like Sunflower Farmers Market and Sprouts Farmers Market, Natural Grocers is in a fast-growth mode. Company co-president Isely says the natural products retailer is looking at four locations in North Texas beyond its existing Dallas store and will look at other locations elsewhere around the state.

Additionally, he says the retailer is looking to potentially open stores in Utah, Wyoming, Arizona and Oklahoma. All four of these states would be brand new markets for Natural Grocers.

The retailer first ventured outside of its home base of Colorado in 2003, opening the two stores in nearby New Mexico. It wasn't until five years later that it opened its first store in a third state outside of Colorado, opening the Dallas last month. Now another store follows in Austin in January, 2009 -- and Natural Grocers' store count and new market growth appears to be in rapid-development gear.

Related Stories from Natural~Specialty Foods Memo:

>October 19, 2008: Retail Memo: First Two Sprouts Farmers Market Stores Sprout in Colorado; Another Challenge to What The FTC Says is Whole Foods' Category Hegemony

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

>Click here to read a selection of past posts about the FTC/Whole Foods-Wild Oats acquisition issue.

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

Sunflower Farmers Market founder and CEO Mike Gilliland in the produce department of one of his natural foods stores. The Sunflower Farmers Market stores are built around the produce department, which is generally located in the center of the store, and features conventional, organic and locally-grown fresh produce at prices considerably lower than Whole Foods Market, Inc. stores and most upscale supermarkets. With six stores coming to Texas and a new store in Boulder, Colorado, will Gilliland, already not a freind of John (Mackey), and his fast-growing Sunflower Farmers market chain become the new thorn in John Mackey and Whole Foods' side?

Claims by the U.S. Federal Trade Commission (FTC)--which continues to argue and appeal to the U.S. Federal Appeals Court in Washington D.C. that the Whole Foods Market, Inc.-Wild Oats Markets, Inc. merger has created a natural foods retailing monopoly and should be broken up--aside, two food retailers, among the many, are taking on the combined Whole Foods-Wild Oats juggernaut in two U.S. markets: Whole Foods' backyard home state of Texas, where it got its start and which it protects closely, and in Hawaii, where the supernatural retailer is launching four new stores as its entry for the first time into the multi-island-state market.

Natural~Specialty Foods Memo has argued that the FTC, along with retailers and suppliers who share its position vis-a-vis Whole Foods, are with all due respect plain wrong. In fact, we've been arguing and writing since last year when the acquisition-merger of Wild Oats by Whole Foods Market, Inc. was announced, that it would actually stimulate and increase natural foods category retailing rather than decrease competition.

Our argument is simple: Wild Oats was basically no longer an innovative (or for that matter very good) natural foods retailer. However, it's position as the number two supernatural foods retailer after Whole Foods tended to suppress innovation by other retailers to a certain extent because they viewed the category in many ways as a two retailer contest.

Certain retailers like Sunflower Farmers Market, Sprouts Farmers Market, Trader Joe's and some others were well on their way to competing in the category in their own unique ways. However, we've watched what in our analysis is a floodgate of players willing to take on Whole Foods Market, regardless of if they are natural foods retailers or supermarket companies, emerge since just late last year.

The joining of Wild Oats into Whole Foods provided some creative deconstruction in the retailing category. After the dust settled a bit, numerous retailers realized it wasn't such a mega-deal after all; that in fact there was plenty of competitive space available to them in the natural foods retailing space--be they natural foods format food retailers, hybrids or supermarket operators--to take on Whole Foods in regional markets throughout the U.S.

Sunflower Farmers Market: Texas bound by way of Boulder

One of the most aggressive post-merger competitors in the natural foods retailing space, albeit much smaller than Whole Foods, is Colorado-based Sunflower Farmers Market. Late last year the "fighting tiger" natural foods retailer, which operates natural foods supermarkets which range from 15,000 -to about 30,000 square feet with a focus on fresh produce and natural products for less (retail price), raised $30 million in new financing and announced it would more than triple the number of stores it has (currently 14) over the next three -to- four years. Plans call for having 21 stores open by the end of this year alone and 30 or more by the end of 2009.

Sunflower, which was founded and is headed by Mike Gilliland, the founder of Wild Oats, not only is expanding the number of stores it has in the Western U.S., but also is going right at Whole Foods with plans to open six stores in Texas, Whole Foods Market, Inc's home state, where it was founded and has its corporate headquarters.

Sunflower Farmers Market also plans to open its first store in Boulder, Colorado where it is headquartered. Boulder also is where Gilliland founded Wild Oats and has lived for decades. Boulder also is now Whole Foods' second hometown, having acquired Wild Oats which was based in Boulder, and the numerous stores it operated in the city. Gilliland left Wild Oats well before the acquisition-merger with Whole Foods Market, Inc.

Sunflower Farmers market founder and CEO Gilliland and John Mackey, Whole Foods Market founder and CEO, had a falling out many years ago, and to this day don't speak socially at industry events and other functions. Let's say Mike Gilliland isn't on the "friend's of John" email buddy list; nor is Mackey on Gilliland's Yahoo messenger "buddies" list in turn.

The Austin-American Statesman, based in Whole Foods' Texas hometown of Austin, has a recent (June 3, 2008) piece about Sunflower Farmers Market's decision to move into Texas with an initial six stores, including a 30,000 square feet natural foods supermarket in Austin, which Gilliland says will beat Whole Foods Market retail prices by 15% or more everyday in all categories, and even more in fresh produce.

Of course, Natural~Specialty Foods Memo is certain Whole Foods will fight back against that price undercutting on its home turf. Despite that, Sunflower is a serious competitor despite being so much smaller. It's good at what it does, and fears not Whole Foods Market post the Wild Oats' acquisition.

Hawaii: Defending the home turf with a new format and chain

Hawaii is a state in which Whole Foods Market is making a major new store opening effort in an attempt to become a major player in food retailing on the islands. Whole Foods has never had a store in Hawaii. But its changing that by having four stores in development at the same time: two in Honolulu (a huge 67,000 square foot unit and a smaller 27,000 square foot store); a store on the island of Maui (26,366 square feet), and a 40,000 square foot Whole Foods superstore on the island of Kailua. There also are future plans for even more Whole Foods stores in Hawaii.

Most Hawaii food retailers, especially those with upscale and natural foods offerings, have been extremely concerned and worried about the competitive impact Whole Foods Market's arrival on the islands will have on their businesses and the market, and fear a significant loss of business from the successful every place it goes natural foods grocery chain.

However, that's not the case with all of Hawaii's food retailers. Hawaii-based The Sullivan Family of Companies, which operates the Foodland, Sack-N-Save and Food Pantry chains, which are conventional supermarkets and discount supermarkets, has created a brand new format designed to compete in the natural and specialty foods space with Whole Foods Market on the islands.

The new chain or banner, called Lahaina Farms, gets its start next Wednesday when the first small-format (14,000 square feet) Lehaina Farms natural foods supermarket opens in the Lahaina Gateway Lifestyle Center in Lahaina, which is on the island of Maui, where one of the four Whole Foods stores will open possibly as soon as later this year.

The first Lehaina Farms store (not all of the new natural-specialty format stores will necessarily be called Lehaina Farms by the way, according to the company) is a combination natural, organic, specialty and fresh foods store with an upscale but price-conscious focus.

The Maui News, the Island's main newspaper, has a feature article in today's issue about the venture by the company best known in Hawaii for its Foodland chain, which is a longtime fixture on the islands.

Although the retailer's experience is primarily with conventional and discount supermarkets, it apparently hasn't heard about the Whole Foods monopoly as it's creating a natural foods chain of its own at a time in which Whole Foods Market, Inc. is making a major play in the Hawaii food and grocery retailing market.

The cup runith over: Lots of competition for Whole Foods

These two food retailers are just the tip of the iceberg in terms of grocers who don't buy the now tired argument by the FTC and some retailers and vendors that Whole Foods has achieved monopoly status by virtue of its acquisition of Wild Oats. In fact, one wonders if it had it all to do over again if Whole Foods Market, Inc. would have even bothered doing the deal, since it's caused lots of distraction for the retailer. But yes, they would do it again no doubt.

Additionally, although the retailer isn't talking about it, Whole Foods has found many of the former Wild Oats stores to be lacking in many ways, both physically in size and in condition, as well as the poor locations of many of the stores.

While John Mackey recently said the integration and conversion of the Wild Oats stores to the Whole Foods banner and system is going well, we've talked to a number of Whole Foods employees who've told us numerous aspects of the process have been a pain in the portion of the hog that sells for the cheapest price per pound. Chief among these pains being the condition of many of the former Wild Oats stores, as we mentioned above, along with some of the poor locations.

We've written about numerous other retailers that are putting a competitive challenge to Whole Foods in the natural products retailing category. These include smaller natural foods retailers like Sunflower Farmers Market and Sprouts Farmers Markets, Trader Joe's, and numerous independent natural foods retailers.

It also includes mega-supermarket chains like Safeway Stores, Inc. with it's upscale Lifestyle format supermarkets, the newer versions of which keep looking more and more like a Whole Foods store, but with the added benefit of selling basic groceries as well.

Additionally, in Texas there's HEB, which continues to build mega-upscale stores that rival Whole Foods in look and product selection. There's also Market Street in Texas, which is building and opening some of the most interesting upscale supermarkets full of natural and organic products in the U.S.

On the east coast there's Wegman's, which of late has been opening 100,000 square foot supermarkets that combine basic groceries, specialty and organic products, fresh, prepared foods and non-foods items in a format that losing nothing to a Whole Foods superstore.

Southern California alone has Sprouts Farmers Markets, Henry's (which Whole Foods sold as part of the Wild Oats acquisition) SuperValu-owned Bristol Farms, upscale Gelson's, Trader Joe's, Vons' upscale Pavilions stores, numerous independents, and now Tesco's Fresh & Easy Neighborhood Market, which sells lots of organic foods at discount prices, all as key competitors to Whole Foods in that market in the natural products' niche

There are many more; we could use another four thousand words and still just be getting warmed up. But we will same that for next time; as we plan on featuring these and many more retail players in the days and weeks to come here on Natural~Specialty Foods Memo.

Meanwhile, we suggest the FTC move on. Might there be some monopolistic or price-fixing issues in the oil industry that could warrant a closer look. After all, the top three U.S. oil companies' senior executives have bigger combined expense accounts than Whole Foods Market, Inc. has annual sales. Well, almost as much.

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

Sunflower Farmers Market founder and CEO Mike Gilliland in the produce department of the natural foods retailer's new store in Plano, Texas, its first natural market in the state. The store opened in late November. [Photo credit: Amy Gutierrez, American-Statesman.]

Earlier today we wrote and published this piece, "Fast-Growing Natural Foods Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information," about Boulder, Colorado-based Sunflower Farmers Market's responding to a subpoena it received, along with 95 other natural products retailers, from Whole Foods Market, Inc. for its sales, financial and related records. Whole Foods Market has issued the subpoenas to these retailers as part of its battle with the U.S. Federal Trade Commission (FTC) over last years' acquisition of Wild Oats Market, Inc.

In the piece, we mentioned that Sunflower Farmers Market, which was founded by Mike Gilliand, who is the company CEO and who also happens to be the founder and former CEO of Wild Oats, is going head-to-head against Whole Foods Market, Inc. in a number of markets, including in its home state and headquarters city of Austin, Texas.

Below is a recent story by Lily Rockwell, a staff writer for the American-Statesman newspaper based in Austin, Texas where Whole Foods Market, Inc. is headquartered. Ms. Rockwell covers the Texas food retailing scene closely and does so well. Below is the story:

Sunflower makes a bid for Austin's organic food shoppers
Colorado chain making inroads on low-cost premise

By Lilly Rockwell
American-Stateman Staff Writer
Sunday, November 23, 2008

Plano, Texas — At 6:30 a.m., the sun hasn't risen yet, and the streets in this Dallas suburb are deserted. But in a beige strip mall surrounded by newly built homes, hundreds of people are waiting in line, shuffling their feet in the cold air.

They are here for the grand opening of natural foods chain Sunflower Farmers Market's first store in Texas . With stores that are smaller than those of traditional grocers, Colorado-based Sunflower touts its rock-bottom prices, convenience and wide selection of produce.

Sunflower is expanding into Texas. In addition to the Plano store, which opened Nov. 12, the first of several planned Austin-area stores — at William Cannon Drive and Manchaca Road —is scheduled to open in January, followed by a second Dallas-area store later in the year.

Sunflower will be the first significant new grocery player to enter the Austin market in years, and it aims to be a major competitor among organic food stores such as Whole Foods Market, Central Market, Sun Harvest and Wheatsville Co-op.

Customers who had lined up for Sunflower's Plano opening said they were lured by advertisements offering grapefruit at 10 for $1 or natural lean ground beef for $1.57 a pound.

But the real attraction was the free bag of groceries the first 200 customers received, a popular draw for shoppers who said they are watching every penny as the economic downturn continues.

"We stayed up all night," said Angela Wendt, who arrived at 6:15 a.m. to check out the store. She said she normally shops at stores such as Wal-Mart, Kroger or Sprouts Farmers Market, another natural foods store in the Dallas area.

But what about Whole Foods, which has a 62,000-square-foot store little more than a mile away?

"I can't afford it," Wendt said. "They are too pricey."

Sunflower wants to lure customers who, like Wendt, are as concerned about price as about organic and natural foods. Sunflower offers a mix of organic and conventional foods, and hopes to undercut even Wal-Mart on its produce prices.

"They do have an excellent selection, really good pricing, and they've done extraordinarily well in the markets they have gone into — and they have gone into some competitive markets," said Mary Mulry, a food consultant who once worked for Central Market and Wild Oats Markets.

In Austin, Sunflower will go up against market leader H.E. Butt Grocery Co., which owns Central Market and stocks some organic and natural foods in its H-E-B stores, as do Wal-Mart and Randall's.

"There is definitely a depth in the market for organic similar to Boulder," said Steven Hoffman, the director of the Boulder, Colo.-based Organic Center. Whole Foods spokeswoman Libba Letton said about Sunflower: "More competition is healthy for the marketplace."

Sunflower was started by Mike Gilliland, who in 1987 co-founded Wild Oats Markets Inc., long considered one of Whole Foods' biggest rivals. He left Wild Oats in 2001.

Last year, Whole Foods purchased Wild Oats for $565 million, buying out its largest competitor. Although the sale was completed in August 2007, the Federal Trade Commission is still contesting the purchase on antitrust grounds.

Gilliland's inspiration for Sunflower came when he was chief executive for Wild Oats.

"Towards the end of my time, Whole Foods was just kicking our butt everywhere, and so we bought a chain of stores called Henry's Marketplace in the San Diego area. And they just seemed really, really different enough that they competed well against Whole Foods and against everyone, really," Gilliland said.

He recommended to the board that Wild Oats pursue the Henry's strategy of natural foods at low prices, he said, but they declined to pursue it.

"I essentially did it myself in 2002," Gilliland said, noting that the stores seek to appeal to a wider audience than a Wild Oats store.

"Instead of trying to concentrate on the top 5 or 10 percent of the market in terms of income or education, we are trying to grab that 60 percent of customers that are somewhat interested in natural foods but are price-sensitive or ... are almost part-time natural foods folks," Gilliland said.

Sunflower has emerged in a different era than Wild Oats did, Gilliland said.

"Twenty-five years ago, if you had the product and you were a big natural foods store, it was a big deal," Gilliland said. "All you had to do was open the door and people would pay whatever."

Now, Gilliland said, "it's more of a precision business than it used to be in terms of we don't work on a lot of margin, so we have had to adopt a lot of big-grocery-store practices in terms of ... just really watching the pennies."

Mulry said Gilliland is renowned for his frugality, making sure to buy the least expensive furnishings in a new store. "It doesn't cost him as much to open a store as, say, the equivalent size would be if it were a Whole Foods," Mulry said.

Although Sunflower's first store was in Albuquerque, N.M., it is based in Boulder, where Gilliland lives.

In 2007, Sunflower received a $30 million investment from PCG Capital Partners and began rapidly expanding into Arizona, Colorado, Utah, Nevada, New Mexico and Texas.

Gilliland said Sunflower has no plans to expand beyond those states and instead will focus on more stores in the states it already serves.

"It's a concept that really fits a large, unmet demand," said Tim Kelleher, a partner with PCG. "They offer tremendous value, fresh and natural foods in a farmer's market setting. While Whole Foods has done a great job over the last 10 years, it is not a store that everyone can shop because of the high prices."

Sunflower's motto is "Serious food. Silly prices," and through its own distribution and delivery system and local food sources, it aims to have the lowest-priced produce of any grocery competitor.

Industry experts say Sunflower is smart to position itself around the low-price theme.

"Sunflower is very appealing for a number of reasons," said Mulry. "The produce is very, very competitive, and they do have a good selection of organics. They will compete with Whole Foods, Central Market and H-E-B. It's a smaller store, and this is something that has been overlooked."

Sunflower's first big test came when it opened a store in Boulder this year.
Boulder has a large variety of organic food stores, including several Whole Foods locations, and Safeway's Lifestyle stores, which are similar to Central Markets.

"I know that here in Boulder, the Whole Foods store has a big bulletin board where they compare prices to show it is a good place to shop where you are being cost-conscious," Hoffman said. "Sunflower will try to come in at a niche where you can get healthy fare at lower costs. That is their marketing strategy, but it needs to play out in terms of whether that is true or not."

Gilliland said Whole Foods might struggle to convince customers that it is price-competitive.

"They are very intelligent pricers; they are smart guys," Gilliland said. "I don't know how you overcome the glitz image. At the end of the day, people impulse-shop. They have great prices on macaroni and cheese and canned soup and the commodity stuff, but people still go in and grab the $8 loaf of bread and the $15 cheese."

Whole Foods, which historically has performed well during recessions, is now watching its store sales growth slow and its profits fall. To shore up sales, Whole Foods began a national "Whole Deal" price promotion, which has included coupons and frequent-shopper cards.

Whole Foods and Wild Oats had a notoriously competitive relationship. Whole Foods CEO John Mackey once sent Gilliland a copy of the board game "Risk" with the note "Forewarned is forearmed" when Whole Foods was going to open a store in Boulder, which was Wild Oats' home base. Gilliland replied with the board game "Twister" and this note: " We are going to twist around you by being nimble."

Gilliland called their rivalry fun, but said he and Mackey no longer talk.

"In the old days, everybody was friends and knew each other and helped each other out. And then we became public companies and ... had investors, and everybody has to play it closer to the vest," Gilliland said. There are no hard feelings over the purchase of Wild Oats, Gilliland said, calling it a "logical outcome."

"When it becomes a public company, you don't have that ownership or the emotional investment that you had in the early days," Gilliland said.

When Whole Foods opened a store near Wild Oats in the past, the Wild Oats store would lose 40 to 50 percent of its business, Gilliland said.

In contrast, at Sunflower "that doesn't seem to be the case," he said. "In Colorado, they've come (within) a couple square miles of us, and it might get a little effect the first week, and then a week later it is back to normal."

[Natural~Specialty Foods Memo Editor's Note: Sunflower Farmers Market will open its first Texas store in Austin, where Whole Foods is headquartered, early next year. Click on the link to Watch video from the opening of the Sunflower Farmers Market in Plano, Texas.]

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.