Weekly Green Report

Slow Food Group Plans Major Year-Long Event in 2008

Slow Food Nation, a major event being planned by the groups Slow Food USA and Slow Food San Francisco, begins in the Spring of 2008 with the publication of a new book, Slow Food Nation, by Carlo Petrini, founder of the slow food movement and Slow Food International.

Slow Food Nation will be a year-long campaign designed to galvanize the slow food movement in the U.S. and raise American consumers' consciousness on how food is raised and distributed, according to the organizers.

The campaign will bring together the related messages of organic food, local food, animal welfare, school food, children's health and the environment. Slow Food Nation planners say they will publish a "State of Slow Food 2008" catalog modeled in concept after the famous "Whole Earth Catalog" first published in 1968 as a guide and "tool for living" blueprint for people wanting to live a more environmentally-friendly lifestyle.

From May 1-4, 2008 Slow Food Nation will hold a four-day long exposition at San Francisco's Fort Mason facility located next to the San Francisco Bay. The planners say they are expecting at least 50,000 participants for the exhibition including farmers, food producers, chefs and many others.

Among the events already planned for the exibition include lectures and discussion forums, tastings and demonstrations, an international film festival and a market featuring American artisanal foods. Sustainable food growing, production and distribution paractices along with green, or environmental consciousness is the overiding theme of the campaign and exhibition.

The Slow Food Nation exhibition also will include green design by architects and artists, a green book and product faire, a slow food schoolyard for kids, a wine bar featuring American wines produced using sustainable farming and production methods, a slow food world forum and many other events and activities.

Following the May exihibition in San Francisco the planners say the campaign will then move on to other parts of the U.S. on a regional basis to address the specific challenges facing sustainable agriculture and related issues in various parts of the country.

To learn more:

The Slow Food Nation Website is here

The Slow Food USA Website is here

The Slow Food San Francisco Website is here

A Green Bus Tour Across America

A group of Americans are taking a 38-day journey across the country in an environmentally-friendly green bus to promote healthy eating, sustainable farming practices and environmentalism.

The guided bus tour is called the "Eat Well Guided Tour of America." The 38-day tour across the U.S. will end up at this year's Farm Aid Concert on September 9 at Randall's Island in New York City.

The tour is being organized and sponsored by a group called Sustainable Table, a non-profit organization which advocates for healthy eating, sustainable farming and food production, and the environment.

Thus far the folks on the bus have visited numerous farmers' markets, sustainable family farms and toured Oakland California's City Slicker Farms, an urban farming and distribution operation which sells fresh produce based upon a customer's ability to pay.

"So far we've seen that local, sustainable farms are not only alive and well but that a younger generation of American farmers are committed to sustainable ideals. I believe it's just a matter of time before the farming system will be changed," says Diane Hatz founder of Sustainable Table, who is leading the bus tour. "Sustainable is here to stay--it's better for our health, the environment and American tables."

The group has numerous theme-oriented events planned for the remainder of the bus tour in addition to events at Farm Aid on September 9 and numerous activities and programs throughout the year involving healthy eating, sustainability and the environment.

"This tour is about celebrating the positive and showing that sustainable food from small, family farms is more common than we realize," says Diane Hatz. "We are seeing that buying and eating locally is not just about the food it's about building community."

Sustainable Table has an interactive website where you can follow the rest of the bus tour, see where the folks on the bus have already been, and read all about the group's other programs and future plans. You also can see a picture of the green "Eat Well Bus" on the website. The site Sustainable Table website is here.

Green News Briefs, Info, Facts and Fun:

Wal-Mart supports sustainability with cash...Mega-retailer Wal-Mart is donating 1.5 million to the University of Arkansas' Applied Sustainability Center. The money will be used by the center to conduct advanced research on greehouse gas emissions, agriculture and environmental education. Wal-Mart's corporate headquarters is in Arkansas. You can read more here in the August 31, 2007 edition of the trade publication Retailing Today.

Reusable grocery grocery bags go "eco-chic...Here at Weekly Green Report we have an early-warning system for telling when something is no longer merely a fad but rather a full-fledged trend. That system is simple: When celebreties start jumping on the bandwagon in a big way we know the trend is in full bloom and generally here to stay.

This happens to be the case when it comes to resusable grocery shopping bags--be they made out of canvas or some other material. NSFM believes they are here to stay--and many celebreties and semi-celebreties are loving them, especially the chic bags.

Writing in the online Huffington Post Kerry Trueman has a fun piece which talks about the popular I Am Not a Plastic Bag reusable grocery shopping bag, which unfortunately comes wrapped for sale in...a plastic bag.

The I Am Not a Plastic Bag which sells for $15.00 and up, has become an "eco-chic" item with Hollywood celebreties and others who want not just an environmentally-friendly alternative to paper or plastic but also a trendy, designer alternative. You can read Ms. Trueman's funny and witty piece from the Huffington Post here.

The resuable grocery shopping bag trend is creating jobs for smart entreprueners as well as saving U.S. landfills from paper and plastic bags that aren't recycled.

In Chico, California, home to California State University Chico, a number of business people and designers have started producing reusable grocery shopping bags. A feature article in the weekly Chico News & Review talks about how the trend is positively impacting a number of entreprueners in the community who are producing bags for numerous companies including the clothing design line Sweetface which is owned by actress Jennifer Lopez.

The article also discusses the irony that many of the current reusable grocery shopping bags being sold in the U.S. are manufactured in China. The piece further talks about California's new law which requires all retailers with stores over a certain square footage to sell reusable grocery shopping bags and to place recycling bins in their stores for plastic bags. You can read the full Chico News & Review feature article here.

The greening of religion...Readers of Weekly Green Report who are "eco-sinners" don't fret. Are you not recycling in the office or at home? Still not using a reusable grocery shopping bag? Are you not doing enough in your position in the industry to further green and environmentally-friendly practices? You can still change your environmental--and the Roman Catholic Church is here to help.

A story in the London Times (Aug. 30, 2007) reports that the church has started "green confessions" to help eco-sinners find forgiveness. This Sunday in Suffolk, England Dom Anthony Such, a Benedictine Monk and local parish priest, will start hearing "eco-confessions" at a local Greenpeace festival in what is believed to be the first confessional booth dedicated to such a use.

"I've had one or two comments about abuse of the confessional," Father Such told the Times. "One or two people have said, 'Father is this quite right?' Luckily more people see it as an excellent idea. As with all these things, we have to look in the mirror and see what we could stop consuming ourselves, says the Father. You can read the entire London Times article here.

Bottled Water Companies Making Efforts to Stem Backlash

Natural~Specialty Foods Memo (NSFM) wrote about the bottled water backlash organized by consumer and environmental groups chefs, concerned citizens, water-filteration manufacturers and others a couple weeks ago here in NSFM. (Click on NSFM's archives link and you can find our piece titled " The Bottled Water Backlash" .)

The Wall Street Journal (Aug. 30, 2007 edition) has a comprehensive article that reviews the bottled water market, the industry's use of plastics, and what some leading bottled water producing and marketing companies like Coca Cola, Pepsico and others, are doing to increase plastics recycling and reduce the use of plastic in their bottled water packaging.

The article's author, Betsy Mckay, suggests in the piece that the bottled water backlash is spurring innovation at these companies in terms of recycling, reduction and overall environmentally-friendlier behaviors and programs.

Among the topics she discusses are how these companies are increasing their research spending on finding ways to use less plastic in bottle production. She also sights efforts by some of the companies in sponsoring plastic bottle corporate and community recycling programs. Further, she details how some of these companies are beginning to use more previously recycled plastic in the production of the plastic water bottles for their various brands. You can read the full Wall Street Journal article by clicking here.

End-of-Week NSFM Roundup

Safeway Planning A Whole Foods-Style Store in its Hometown

Safeway Stores, Inc. is planning to built a 65,000 square-foot upscale "Whole Foods style" natural and organic foods supermarket in Pleasanton, California. Safeway's corporate headquarters is located in Pleasanton.

Safeway would build the store on a 35 acre site near their corporate headquarters according to the Pleasanton Weekly News, a weekly community publication. The site is being developed to include several large office buildings.

Safeway isn't discussing the proposed project but the Pleasanton Weekly obtained a copy of the proposed site plan.

The proposed new Safeway would have a major focus on natural and organic products and look much like a new Whole Foods store according to the proposed plans. For Safeway this would be a major step in taking their current focus on natural, organic and specialty foods in their top-tier "Lifestyle" format stores and extending it considerably in a full-blown natural foods retail format.

NSFM expects Safeway to also include a deep selection of specialty, ethnic and gourmet foods in this store if the chain does build it. This would build on Safeway's expertise honed over the last 10 years by the retailer's in-house specialty and natural foods department. This would include specialty and natural/organic foods across all store categories, including perishables and well as produce, meat, seafood, nonfoods, prepared foods and grocery.

Pleasanton would be a good location for such a store for Safeway. Safeway's corporate headquarters is in Pleasanton and the supermarket chain is one of the city's largest employers.

Second, Whole Foods currently doesn't have a store in Pleasanton or the immediate surrounding area. The natural grocer's nearest store is about 25-30 miles away.

Third, Pleasanton is a urban area in that there are 4-5 cities within a few minutes drive from the community. There are about 500,000 people within a 25 minute drive from Pleasanton.

Lastly, Pleasanton and the surrounding area has a high percentage of the population with college degrees and many with graduate and professional degrees. Whole Foods says this is the number one criteria they use in selecting a retail store site/location.

Currently the only retailer (other than an existing Safeway Lifestyle store) doing significant specialty and natural foods merchandising in Pleasanton is an independent, Gene's Fine Foods. The independent does a good job but the store is relatively small and the natural and organic selection limited.

A 65,000 square-foot Safeway, similar in look and merchandising philosophy to a Whole Foods, would likely draw from Pleasanton (about 100,000 population), next door Dublin, and nearby Livermore, San Ramon and Danville, as well as other areas close by.

Safeway has conventional and "Lifestyle" format stores in all of these areas. But a Safeway Natural Foods Supermarket shouldn't hurt these stores as it's likely many shoppers in these communities would still shop their local Safeway primarily but also shop the nearby natural Safeway secondarily. Better that for Safeway than to have these consumers shop at Whole Foods or another natural foods store in the area.

In an article earlier this week titled "Will the Big 3 Supermarket Chains Challenge Whole Foods in its Niche" Natural!Specialty Foods Memo (NSFM) posed the question asked in that title. (you can find the our article in NSFM's Tuesday Talking Points Memo.)

In our Tuesday piece we concluded that one or more of these big 3 chains would. If Safeway goes through with this proposal it could be the beginning of that challenge for one of the Big 3.

NSFM is looking further into Safeway's proposed natural foods store and will bring our readers more as things develop.

More Retailer News, Information & Analysis:

Tesco's Fresh & Easy...NSFM has written much about Tesco's development of it Fresh & Easy Neighborhood Market format which the UK-based retailer is launching in the U.S. The first
stores are slated to open beginning in November, 2007 in California, Arizona and Nevada. Writing in the online publication the Huffington Post, writer Al Norman offers an interesting take on Tesco's new convenience format and compares it to Wal-Mart's new small format developments (which we have written about on NSFM). You can read his story from the August 29, 2007 Huffington Post here: http://www.huffingtonpost.com/al-norman/british-invader-forces-wa_b_62357.html In the story Norman mentions how Tesco carried out a stealth campaign in the U.S. as they developed the Fresh & Easy format.

Coffee king to invade Russia...Starbucks is opening its first Starbuck's Coffee Shop in Russia next month (Sept., 2007). The first Russian Starbucks will be opened in a popular mall near Moscow. The mall already has 5 cafes located in it. You can read more here: http://seattletimes.nwsource.com/html/businesstechnology/2003859960_russia30.html

Starbucks inks Deal with A&P...Starbucks also is increasing its partnerships with supermarket retailers, placing a growing number of Starbucks cafes, coffee bars and kiosks inside stores. The latest retailer to ink a deal with Starbucks is the Great Atlantic & Pacific Tea Co., Inc., otherwise know as A&P. A&P said it will begin placing Starbucks cafes in some of its stores beginning in November with a store located in New Jersey. You can read more here: http://www.reuters.com/article/bondsNews/idUSWNAS318420070830

Starbucks has been growing it's in-store cafe partnerships with retailers at a fairly rapid pace. Supermarket chains like the idea of having the Starbucks brand inside their stores as a drawing card. And Starbucks likes the foot traffic avaliable inside a supermarket location.

All Aboard...
Whole Foods' Market Express Format: A Brief Analysis

On Thursday NSFM reported on Whole Foods Market, Inc.'s decision to turn an existing 18,500 square-foot Wild Oats banner store in Boulder, Colorado into a convenience-type format called "Whole Foods Market Express" as part of the supernatural grocer's post-merger plan.

Whole Foods says the "Express" market will offer a "value-oriented product mix, grab-and-go offerings and will be a practical fit for its neighborhood." The store will be located in the current Baseline Road Wild Oats store in Boulder. The neighborhood includes a high concentration of University of Colorado at Boulder students.

Whole Foods' decision is very interesting in light of Tesco's current roll out of its Fresh & Easy Neighborhood Market format (stores scheduled to open starting in November in California, Arizona and Neveda) and Wal-Mart's development (in the planning stages) of a small footprint upscale convenience-type store.

In the case of Whole Foods and Wal-Mart (relative retailing David's and Goliath's) their paths seem to be crossing more and more these days despite the retailers' significant size and sales differences. Wal-Mart's major natural and organic grocery sales initiative ("organics for less") for its stores has the potential to strike at the heart of some of Whole Foods' bread and butter business. Whether or not intended, Whole Foods is a target of this initiative in terms of taking category market share away from the top natural and organic products retailers.

In turn, no sooner had it been reported (about a week ago) that Wal-Mart is in the planning stages for development of an upscale, convenience-type store, we not only see Whole Foods announcing it will test one but also preparing to open it very soon. This just shows how all retail players and formats are converging when it comes to the natural, organic and specialty foods categories.

In the case of Tesco they are the first mover of the three in terms of this upscale, fresh food-oriented convenience format. (It's important here to note that a C-store chain, Wawa Food Markets based in Pennsylvania, has being operating numerous fairly upscale convenience stores which feature lots of prepared foods and specialty items for well over a decade. There are some significant differences to the Tesco, Wal-Mart and Whole Foods concepts but Wawa has been a leader in this segment on a regional basis in the eastern U.S. for over a decade.)

NSFM has no doubt that UK-based Tesco played a major role in both Wal-Mart and Whole Foods' wanting to test this format. Tesco is the world's third largest retailer and put lots of research and study into the Fresh & Easy format before breaking ground. The chain conducted much of this research in a stealth mode and suprised the industry when their plans came out in the media. Tesco also has put much research in the convenience chain's product mix--and since Tesco is considered one of the world's retail leaders in prepared foods merchandising the "fresh" concept comes naturally to them.

It's too early to tell if a small footprint convenience-oriented format will work in the U.S. on a national basis. Wawa Food Markets has proven it can on a regional basis, although they also retain many traditional C-store merchandising aspects in their stores.

It's good though to see Tesco, Wal-Mart and now Whole Foods experimenting with this concept. Many American consumers are looking for alternatives to "big box" shopping and that fact could spell success for the retailer(s) who can come up with the right format and product mix--at the right retails--to draw these shoppers.

Thursday Talking Points Memo

What Wal-Mart Should Do With its Neighborhood Market Format

Wal-Mart introduced it's Neighborhood Market format almost 10 years ago in 1998. The format was designed in part to be the opposite of the mega-retailer's supercenters. Ranging from 42,000 to 55,000 square-feet the stores have easier parking, less crowded aisles and quicker checkout than a Wal-Mart Supercenter.

The Neighborhood Markets are complete supermarkets which offer a full selection of groceries and perishables, fresh meats and produce, non foods and all the other supermarket selections. The stores also have drive-through pharmacies and some have in-store restaurants as well.

Currently Wal-Mart as 118 Neighborhood Markets in the U.S. The stores merchandise about 28,000 items.

Neighborhood market history
Wal-Mart started off rather aggressively building Neighborhood Markets in the late 1990's to the early 2000's but has slowed down the pace considerably in the last several years. The format has been mildly successful--more successful in some regions and far less successful in others. Wal-Mart recognizes this fact, which is in part why they haven't been building very many new stores of late.

The Neighborhood Market is a small supermarket by today's standards. Wal-Mart designed it to be a niche format between their supercenters and their competitor's superstores. But the format really hasn't found itself. It's too big to be a true "convenience" format but too small in most cases to compete with the larger 65,000-90,000 square-foot new stores that most supermarket chains are building today.

Re-invigerating the Neighborhood Market format
This fact is partly why Wal-Mart is now looking at another new format, an approx. 10,000 square-foot upscale convenience-style store. It's also partly why the retailer continues to put its major focus on the supercenters which include a large supermarket in them. As such the Neighborhood Market is a relatively to not so successful format and its further development is receiving only minor attention from Wal-Mart.

This doesn't have to be the case for Wal-Mart and its Neighborhood Market format however. NSFM has an idea and positioning direction which we believe would not only re-invigerate the format at Wal-Mart but also allow the chain to express some of its more recent corporate and retail eithics and merchandising philosophies.

What we suggest is that Wal-Mart divide the Neighborhood Market format into two parts. In other words keep the basic Neighborhood Market concept (the store format) but create a two-part format out of it with the second format targeted to a specific retail category--natural and organic foods--and given its own banner (name). We call the current Neighborhood Market format one and the new Neighborhood Market format format two.

Format one would essentially be what the Neighborhood Market is today, with some additions and changes. First we suggest increasing the store footprint size. The current stores range from about 42,000 square-feet to about 55,000 square-feet. We would expand that to a range of about 55,000 square-feet (the smallest size) to a high-end size of about 80,000 square-feet. The smallest stores would be no smaller than 55,000 square-feet and the largest stores up to 80,000 square feet.

This increased store footprint is more in-line with what chain supermarket operators like Kroger, Safeway, Supervalu and others are building today. The larger stores would allow the Neighborhood Markets (format one) to better compete with these chains. With this larger footprint we suggest Wal-Mart expand the stores' produce departments, make an in-store eating place a standard feature, add an in-store cafe/coffee bar to all stores, make service meat and seafood a standard feature (along with self-service cases) and expand the stores' perishables offerings.

We also suggest they add more natural, organic and specialty groceries and integrate the items in these categories in-line with conventional and corporate/private label groceries throughout the core of the store.

Further, we suggest adding small but comprehensive health and wellness centers in each Neighborhood Market (format one). These centers would feature nurse practitioners who can provide minor medical treatment for a discount cost. They also would sell a complete selection of health products including vitamins, nutritional supplements, small medical equipment (especially for seniors) and related heath and wellness items.

This department can be tied-in with the format's current in-store pharmacies. The focus would be on health and wellness with minor medical care, professionals offering health advise and selling the products to supplement that advise. In addition to the upscale, convenience-style format Wal-Mart is currently developing the retailer also is developing a small footprint, stand-alone health and wellness stores Having the health and wellness departments in the Neighborhood Markets would create excellent synergies with the new stand-alone health and wellness stores once they are created and rolled out.

NSFM believes the changes and additions to the current Neighborhood Market format (format one) would dramatically improve the viability and shopping experience of the current and future Neighborhood Market stores

In our analysis we also think Wal-Mart might consider dropping the Wal-Mart name from the Neighborhood Markets. Instead of "Wal-Mart Neighborhood Market" the stores would simply be called "Neighborhood Market." This has a more community-oriented feel to it. It also takes the Wal-Mart brand off of what is designed to be an alternative to big box shopping which most consumers associate with Wal-Mart. We aren't 100 percent convinced this is needed at his point but strongly believe it should be seriously considered.

Format Two: A second Neighborhood Market format
It's format two though that has NSFM excited, and we believe offers excellent potential for Wal-Mart to re-invigerate and make successful its Neighborhood Market format.

Neighborhood Market format two is a medium-size footprint natural and organic products "category killer" grocery store. NSFM suggests Wal-Mart take the basic Neighborhood Market store footprint and shrink it a bit for the new format. The stores would be about 35,000 square-feet. They would feature a complete selection of natural and organic groceries, produce, meats and seafood, and perishables. The stores also would have an extensive selection of natural and organic nutritional supplements, skin care products and non-foods. A combination in-store restaurant/cafe/smoothie-type bar would be part of the format. A good way to look at the format is Whole Foods (with a few differences and limitations) in a smaller box.

The format's focus (or mission statement) would be "Natural and Organic Foods For Less" or something similar. The format would be a "category killer" for these products, beating Whole Foods and other natural foods stores and supermarkets significantly on the retail price points of organic groceries, perishables and non-foods.

The stores could be built in such a "less frills" but still upscale way as to keep operating costs down. And with Wal-Mart's buying, distribution and logistics systemt he chain would be able to beat the best retails currently out there while still making decent margins. After all being the price leader is Wal-Mart's strategy in terms of dramatically increasing its natural and organic product offerings in its supercenters.

The stores need to be upscale and attractive but also have the look of a "lower frills" retailer at the same time. This is important for the "category killer" positioning. A too upscale store suggests higher prices. However, a too bare-bones store isn't inviting and would discourage shoppers, as well as not keeping them in the store for as long a period of time as possible which is key for impulse buying.

The chain also can build the stores in such an environmentally sound manner that things likes energy use will be dramatically reduced compared to a typical supermarket. For example, lots of use of skylights for lighting, ceiling fans, top-grade insulation and other green building and energy-reducing principles. This is good for the stores positioning in addition to cost-reduction as environmentalism will be a big part of the format's draw along with it natural and organic product offerings.

This Neighborhood Market natural foods "category killer" format will need a name. And the Wal-Mart brand name should not be part of it. The name must evoke natural products retailing as does Whole Foods, Wild Oats or Supervalu's Sunflower Market stores. In fact Supervalu's Sunflower Market format is somewhat a model for what we are calling Wal-Mart's Neighborhood Market format two. There are major qualitative differences between our concept for Wal-Mart and the current Sunflower Market format however. Chief among these differences is size. Sunflower Market stores are only 15,000 square-feet. (See Tuesday's Talking Points Memo for a discussion about Sunflower Market.)

Why the category killer format will work
Why do we think this format would work for Wal-Mart? There are 4 basic reasons. First, the natural and organic products categories are moving from a niche market to a near-mainstream one. They aren't there yet but moving in that direction fairly rapidly. Wal-Mart knows this which is why they have launched a major natural and organic grocery initiative in their supercenters. Kroger Co., Safeway Stores and other retail chains, including Target, know this as well.

Second, Wal-Mart needs a way to re-invigerate its Neighborhood Market format as well as to be able to break out of its big box format in order to serve regions and neighborhoods where community members do not want--and fight against--supercenter stores. Format two allows for both these things in conjunction with our first point above.

Third, the natural and organic categories allow for higher margins even if the products are sold for a discount provided the retailer has the buying and logistics systems to make it work, which Wal-Mart does. The "category killer" natural foods stores for example can sell organics at substantially lower retails than Whole Foods or supermarkets can and do and Wal-Mart can still make a higher overall gross margin in these stores than they can make selling conventional groceries in a supercenter. (I'm not suggesting the gross sales between the two would be anything close to similar, merely that the margins would be higher on albeit significantly lower overall volume in the natural foods format stores vs. the supercenters.)

The last reason is "first-mover advantage." It might be in five years, ten years or perhaps a little longer, but a retail chain (or even a start up) is going to launch a "category killer" retail format focused on the natural and organic categories. We've seen this with specialty and gourmet foods, wine, beer and spirits and other categories. The natural and organic category is ripe for the picking at retail for this--and getting riper. (NSFM believes it will be closer to five years or less rather than ten for a "category killer" natural and organic foods retail format to emerge and begin to position its stores nationally on a selective basis.)

With it's buying and logistics advantages, corporate philosophy embracing natural and organic products along with environmentalism and sustainability--and its need to break out of the big retail box--Wal-Mart might just be the perfect candidate to be first in creating this "category killer" natural foods store Neighborhood Market format.

The existing retailer or start up that decides to become the "first mover" in this category in a significant way is going to have all the advantages. NSFM thinks it is worth further analysis, study, thinking and discussion by Wal-Mart.

NSFM Whole Foods Merger Update

Whole Foods Market, Inc. is moving rapidly to integrate Wild Oats' corporate operations and the retail stores into its Whole Foods system and philosophy. As we (NSFM) reported earlier today Will Paradise, Rocky Mountain Regional President for Whole Foods, announced the grocer's plans for the Boulder, Colorado region, Wild Oats' home territory.

Whole Foods now has a news release detailing these plans in full. You can read the full news release by clicking here: http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20070830005229&newsLang=en

There's much discussion in the media today about various aspects of the merger. Natural~Specialty Foods Memo (NSFM) thought we would bring our readers a few of the most interesting of today's articles about Whole Foods, Wild Oats, the merger and the personalities and issues behind it.

First, two articles, one in the Wall Street Journal and the other in the magazine the Nation, take different points of view on Whole Foods' CEO John Mackey and his memo writing and online chat room postings prior to the consumation of the merger. Holman Jenkins, writing in the Wall Street Journal, doesn't believe Mackey's postings are relevant. On the other hand Matthew Blake in the Nation argues they are relevant and more.

You can read the Wall Street Journal story by clicking below: http://online.wsj.com/article/SB118835512038911889.html?mod=googlenews_wsj

The story from the Nation is here: http://www.thenation.com/doc/20070910/blake

Next, this article from today's Tennessean.com talks about a trip Whole Foods' executives made to Nashville yesterday to ask workers at a Wild Oats store to stick with the company. Whole Foods is getting ready to open their first store in Nashville. The Wild Oats store in Nashville is slated to close in October--but yesterday Whole Foods' executives offered all of the Wild Oats store's workers jobs at the new, larger Whole Foods store which is set to open soon. Click the link below to read the full article: http://www.ashlandcitytimes.com/apps/pbcs.dll/article?AID=/20070830/BUSINESS01/708300375/1291/MTCN01

Lastly, this story in today's Philadelphia Inquirer newspaper profiles the legal team who won the Whole Foods Market, Inc. acquisition case from the Federal Trade Commission . Among other things the law firm says in the story that the case will be a guide for future merger law in all industries and provides a clear road map for how to handle similar cases in the future. Click on the link below to read the full story from today's issue of the Philadelphia Inquirer: http://www.philly.com/inquirer/business/20070830_Dechert_lawyers_tout_Whole_Foods_ruling.html

Whole Foods Merger News

Whole Foods to Keep Some Wild Oats Retail Banners: Convert One Store to New Format Called Whole Foods' Market Express

By: NSFM, Aug. 30, 2007

Will Paradise, Whole Foods Market, Inc.'s Rocky Mountain Regional President, today told the Boulder, Colorado Daily Camera newspaper that the supernatural grocer will keep some traditional Wild Oats retail banners, at least in Wild Oat's home county.

Paradise also said Whole Foods will convert the Wild Oats store in Boulder's Basemar Shopping Center to an experimental format called "Whole Foods Market Express." He said the express format is focused on convenience and is expected to have a "value-oriented product mix" and more grab-and-go prepared food offerings.

In terms of keeping some of the Wild Oats retail banners Paradise told the Daily Camera the intent is to operate all the Wild Oats stores currently open in Boulder County and to pay homage to history in the process.

For example Paradise said the current Wild Oats store at Broadway and Arapahoe Avenue in Boulder will be remodeled and renamed Alfalfa's Market as a homage to the former Boulder-based natural foods grocer of that same name. The Alfalfa's chain merged with Wild Oats in 1996.

Another Wild Oats store named Ideal Market, which was acquired by Wild Oats in 1998, will be remodeled but the Ideal Market name will be kept according to Paradise. The Ideal Market name goes back nearly 70 years in Boulder. Paradise said the idea is to keep the moniker and "make sure the personality" (of the store) is preserved.

Paradise also said two existing Wild Oats in Boulder County--a store in Boulder on Pearl Street and another store in the nearby town of Superior--will be renamed Whole Foods. The Pearl Street store will also undergo a remodeling, which will expand it from its present size to 73,000 square-feet, according to Paradise.

Paradise told the Daily Camera Whole Foods won't close any of the Boulder County Wild Oats stores, even those close to each other. That's why the grocer is keeping the Ideal Market name and changing on Wild Oats banner store to Alfalfa's Market.

Wild Oats built but never opened a 40,000 square-foot store in Boulder which was to become the retailers flagship store. Wild Oats sited various reasons for never opening the store. Paradise said Whole Foods won't open the store but rather will lease the space to a non-food-oriented retailer.

Paradise also said Whole Foods hasn't decided what to do with Wild Oats' corporate headquarters building in Boulder. He said if Whole Foods does decide to use it as the grocer's Rocky Mountain region offices they would need to lease a large part of the building because the 82,500 square-foot building is too large for his division's needs. The Rocky Mountain Division becomes Whole Foods largest regional division after the merger.

The conversions Paradise discussed should take between 12-18 months he said. However he told the Daily Camera there will be a push for price reductions and weekly discounts at all the Wild Oats stores Whole Foods will be operating nationwide.

NSFM Retail Profile

The photograph at left is of Supervalu Inc.'s Sunflower Market in Columbus, Ohio. Sunflower Market is a 15,000 square-foot natural foods store. The format puts a focus on selling natural and organic products at discount prices.

Today marks the beginning of a new, occasional feature here at Natural~Specialty Foods Memo (NSFM). On a regular basis NSFM will bring you profiles of various retail formats--supermarkets, natural foods stores, mass merchandisers, convenience-style stores, farmers' markets and other types of stores and retail outlets--where natural and specialty foods and related products are merchandised and sold.

We will bring you retail profiles written by NSFM and profiles written by others and originally published elsewhere. Our goal is to bring our readers a variety of in-depth, well written profiles of retail formats, providing you with a bounty of information you can learn from and use in your everyday pursuit of better natural and specialty foods retail merchandising, sales, marketing and related endeavors.

Today we are bringing you three profiles of three very different retail formats. Each of these retailers merchandises specialty and natural foods and offers different--but also similar--opportunities for industry buyers and sellers--as well as consumers.

The first retail profile is of Supervalu Inc.'s new Sunflower Market. Sunflower Market is a 15,000 square-foot natural foods store which puts an emphasis on low prices for natural and organic groceries, produce and other categories and items. There are currently five stores in operation in the mid west and eastern U.S.

NSFM wrote about Sunflower Market yesterday in its Tuesday Talking Points Memo. We suggested that Sunflower Market might have the potential to become part of a supernatural retail category one-two punch for Supervalu against Whole Foods Markets, Inc. if the 30-billion dollar a year in sales Supervalu decides it wants to get into the supernatural retail category in a big way. (See Will the Big 3 Supermarket Chains Challenge Whole Foods in its Niche. Tuesday, Aug. 28 in NSFM.)

This feature profile of Sunflower Market is by Denise Purcell, managing editor of Specialty Food Magazine and focuses on the Sunflower Market in Columbus, Ohio. The article was originally published in this month's (Aug. 2007 issue of Specialty Food Magazine.

Click below to read the profile: Sunflower Market: Taking the Bite Out of Organics, by Denise Purcell: http://www.specialtyfood.com/do/news/ViewNewsArticle?id=2525

The second retail profile is from the St. Louis Post-Dispatch newspaper in St. Louis Missouri. The piece, by staff writer Gail Appleson, profiles Wal-Mart Stores Inc. and its plans to strike at the heart of the area's retail grocery business by building more of its huge Supercenter stores and converting smaller Wal-Mart stores to the Supercenter format.

The piece profiles Wal-Mart in general, especially as the chain relates to food marketing, and also talks about the effects the mega-retailer is having on the region's supermarket chains and independent grocers.

The profile also talks about Wal-Mart's aggressive move into upscale specialty and natural/organic foods and related products as well as the overall upscaling of its supercenter format.

Read the Wal-Mart profile by Ms Appleson from the Aug. 21, 2007 St. Louis Post Dispatch here: http://www.stltoday.com/stltoday/business/stories.nsf/developmenteconomy/story/EA3B573D4152FA648625733E000ECA14?OpenDocument

The third and last retail profile is about a unique retail market in a unique, unconventional setting. The Fresno State Farm Market on the campus of Fresno State University in Fresno California is a completely student-run and operated farmer's market-type store which did $1 million in sales last year.

The store sells everything from fresh produce to award winning wine and specialty foods all produced on the campus farm and processed and packaged on campus by students. Specialty products include jams and jellies, condiments, sausages and other items in addition to the bounty of fresh produce and wine selection.

Fresno State University has long had award winning agricultural and food science programs. And the campus' location, in the heart of California's Central Valley which is the number one agricultural producing region in the world, lends itself well to these programs and the related ted farm market operation. The University also recently added a culinary arts curriculum to its food science program. This curriculum puts a major focus on sustainable farming and the production and marketing of specialty, artisan, natural and organic foods.

The profile describes the retail enterprise, its evolving format, how it serves the University's teaching and research mission as well as serving the Fresno community with fresh and specialty-oriented foods at a reasonable price.

The profile, "Expanding in its Fields: Fresno State's farm market adds products, displays while plowing profits back into operations," is written by Dennis Pollock and originally published in the Aug. 26, 2007 Fresno Bee. Dennis Pollock is a staff writer for the Fresno Bee. You can read the profile here: http://www.fresnobee.com/business/story/122026.html

These three profiles represent just a portion of the myriad types of retail formats available for the merchandising and sales of natural, specialty and artisan products. NSFM looks forward to exploring more retail formats here for our readers soon.

Mid-Week Natural~Specialty Foods Roundup

Natural~Specialty Foods Promotions of Note




Upscale department store retailer Macy*s is holding a buy local, organic and sustainable specialty and natural foods promotion on September 5, 2007 in its Cellar Specialty Foods department at the retailer's Union Square store in San Francisco.

Although Macy*s is an upscale general department store retailer it also offers a large selection on specialty, gourmet and natural foods in its Cellar departments in stores in major cities like San Francisco, New York and other U.S. metro regions.

The September 5 promotion is called "Local farmers and chefs help you go beyond the buzzwords and get green: Sustainable, organic, seasonal. Delicious."

Among the local farmers and artisan food producers participating in the promotion are Devoto Gardens located in Sebastopol, California, which is located about 35 miles north of San Francisco. Devoto Gardens produces 50 varieties of apples (many of them heirloom varieties), persimmons, vegetable greens and over 60 varieties of flowers.

Devoto uses sustainable farming practices on their farm and many of the crops they raise are organic. In addition to offering tastings of many of their locally produced crops, members of the Devoto family will talk with shoppers about sustainable farming practices and describe how they raise their crops in an environmentally-friendly manner.

Local winery Binziger Family Winery will be tasting some of its wines at the promotion. All of the wines offered are grown by the family winery using sustainable and biodynamic growing methods. Members of the local grape-growing and wine-making Benziger family will be on hand to discuss their farming and wine producing methods with shoppers.

Lastly, chef Greg Dunmore of the well-know San Francisco restaurant Acme will be part of the promotion. He will prepare dishes using the Devoto Family produce in addition to using other locally produced, sustainable products featured in Macy*s Cellar specialty foods department.

Macy*s is co-sponsoring in the promotion with a Northern California organization called "The Center for Urban Agriculture and Sustainable Farming." The promotional event cost shoppers $10.00 to get in-100% of which Macy*s is donating to the non-profit urban agricultural and sustainable farming center. For their $10.00 donation shoppers also will receive a reusable canvas grocery tote bag from San Francisco's popular Ferry Plaza Farmers' Market plus a sample kit from Origins Organic Skincare, a company which makes organic skin care products sold at Macy*s

The promotion ties a number of current industry hot-button trends together: buying local, green or environmental farming and food production, sustainable farming and organic products.

Another natural~specialty promotion of note...Also picking up on the buy local, sustainable agriculture theme, Stew Leonard's, a Connecticut-based four store independent retailer, is holding a promotion called "It's All Native." The promotional event, to be held throughout September and October at all four stores, will feature fresh produce and artisan foods produced by local area farmers.

The farmers will be on hand at the stores to talk about their crops, how they produce them, and offer tastings of the local bounty. The promotion has a farmers' market-style theme with an emphasis on buying local, food origins, and sustainable growing and production methods. All four stores will set up a "farmers' market" in front of each store entrance area where the promotional events will take place.

The retailer is creating a festival atmosphere during the promotion with free balloons for kids, face painting and a visit by local TV personality Produce Pete, in addition to the tastings and discussions with the farmers.

Speaking of buying local as well as organic...A new survey conducted by natural foods researcher Mambo Sprouts suggests consumers are torn when it comes to choosing between buying local foods and non-local organic products. The survey, by the firm's MamboTrack Research Service based in New Jersey, found 36.1 % of natural products consumers said they would choose local-grown produce over non-local organically grown. Another 33.3% said the opposite, and the other approx. 31% weren't sure which they would choose. This of course was a bit of a forced-choice question. However researchers probed the natural products consumers and did find the majority of them preferred produce that is both locally-grown and organic if it is available. You can read more about the Mambo Sprouts' survey and its other findings here: http://www.progressivegrocer.com/progressivegrocer/headlines/article_display.jsp?vnu_content_id=1003628332

Natural~Specialty New Product News

Kid-friendly healthy meals and snacks...Two pioneer industry companies, Amy's Kitchen and Clif Bar, have both introduced lines of "kid healthy" meals and snacks. Amy's "Kids Meals" is introducing two noodle entrees for kids--macaroni & cheese and ziti. The meals are organic and have all natural ingredients. The entrees include broccoli, foccacia bread and a fruit desert.
Clif Bar is introducing "Clif Kid," a new line of organic kid-friendly snacks made with whole grains and natural sweeteners. The bars, called Clif kid Zbars, come in a variety of flavors including chocolate chip, twisted fruit rope and honey graham.

Boulder, Colorado-based Celestial Seasonings is undergoing the most comprehensive packaging change in the company's history as well introducing a new tea line and entering the coffee category... Celestial Seasonings, a division of Hain Food Group, is revamping its basic line of tea boxes. The boxes will emphasis the "Celestial" name more so than the Seasons" name. Celestial is also introducing a new line of organic tea in a pyramid-shaped bag. The new high-end tea line will sell for about $7.99, about twice as much as the company's regular tea bag line.

Celestial is getting into the coffee business as well. The company's new line of organic, Fair Trade coffee will borrow names from their well-known tea line. Names such as Morning Thunder Coffee and the like. Celestial says increased competition in the tea category is prompting them to make the design changes as well as introduce the new, upper-end pyramid-shaped tea bag line. The coffee line they feel is a natural extension for them as they can capitalize on their brand equity in the tea category. You can read a feature story from the August 28, 2007 Rocky Mountain News for more details on the company's efforts. Click here: http://www.rockymountainnews.com/drmn/other_business/article/0,2777,DRMN_23916_5683705,00.html

Supermarket chain Winn-Dixie to introduce new corporate specialty foods brand...Winn-Dixie, which operates 520 stores in Florida, Georgia, Alabama, Louisiana and Mississippi, is introducing a premium line of specialty and gourmet grocery products. The line is called Winn & Lovett. The premium Winn & Lovett brand will include coffee, olives, olive oil flavored oils, fresh bakery products and other items such as condiments and other grocery items. The creation of the new premium line comes as the retailer is revamping the chain's entire corporate/private label program. Winn-Dixie says they plan to promote the premium line with in-store tastings, ads in their weekly circulars and other promotional vehicles.

Whole Foods/Wild Oats Deal Update

The graphic above is an advertisement in today's Orange Country Register, a Southern California daily newspaper, Whole Foods placed for the grand opening today of its market in Tustin, California. The store has been completely remodeled and enlarged, including the addition of expanded takeout food areas, a sitdown tea bar, and fresh meat and seafood grilling stations, among other upscale features. Whole Foods nearly tripled the store's size. You can read a feature article in today's Register about the store, shoppers reactions to the remodeling and related topics here: http://www.ocregister.com/money/natural-organic-market-1834071-grocery-store

Natural~Specialty Foods Memo (NSFM) has been keeping our readers up to date on the Whole Foods acquisition of Wild Oats Markets, Inc. Below are today's key developments.

Whole Foods has Deal Financing Lined Up

Whole Foods Markets announced today it has the financing lined up to complete its acquisition of Wild Oats Markets, Inc. The grocer says it has taken out a $700 million loan to complete the buyout. Whole Foods paid $565 million for Wild Oats in addition to assuming $137 million of Wild Oats debt as part of the deal. The $700 million loan will allow Whole Foods to move forward with purchasing the 90% of Wild Oats' stock which has been already tendered to be bought by the grocer.

Whole Foods/Wild Oats Begin Integration

The integration of Wild Oats Markets, Inc. into Whole Foods Market, Inc. has already started according to both companies.

Whole Foods says it should complete all the details of the acquisition by the end of this week.

Whole Foods also says it is evaluating each of the Wild Oats stores and is likely to close or relocate some of them. The grocer has already announced it will sell 35 Wild Oats stores under the Henry's Farmers Market and Sun Harvest banners to a subsidiary of Southern California-based Smart and Final, Inc. Whole Foods also confirmed that eventually all of the Wild Oats' banner stores they keep will be changed to the Whole Foods store banner.

Sonja Tuitele, a Wild Oats spokeswoman, says Whole Foods has already began holding meetings with Wild Oats store-level employees. She also says Whole Foods has guaranteed all retail store employees they will have jobs after the merger in complete.

Tuesday Talking Points Memo

Will the Big 3 Supermarket Chains Challenge Whole Foods in its Niche?

Now that Whole Foods Market, Inc. has cleared it's last hurdle in acquiring Wild Oats Markets, Inc., and is in the process of assimilating Wild Oats Inc. and its stores into the Whole Foods corporate structure and culture, Natural~Specialty Foods Memo (NSFM) is thinking into the future of the supernatural retail grocery niche.

With the Wild Oats acquisition this is a niche Whole Foods now has pretty much to itself. By no means does this mean the grocer has anything close to a monopoly in terms of selling natural and organic products. To the contrary the category is competitive--and getting more competitive-- at retail with Wal-Mart, Target Stores, major national supermarket chains, and regional chains and independents, all increasing their merchandising and sales of natural and organic products. Additionally there still remain numerous regional natural foods retailers who are extremely competitive in their respective markets.

What the Wild Oats' acquisition does mean to Whole Foods, as well as to the industry and consumers, is that it leaves the grocer pretty much alone in what has come to be know as the supernatural retail supermarket category.

This category essentially refers to retailers who operate large, full-service supermarket style stores (Whole Foods' new stores range from about 55,000 square-feet to 80,000 square-feet) which contain all the departments (and often more) that a modern supermarket has. These departments include groceries, perishables, food service, produce, non-foods and more. The premise of these stores is based on natural rather than general product merchandising across all departments. And in Whole Foods' case (and others) they have a "bible" which dictates what types of products can and can't be included in the retail product mix.

Whole Foods is actually much more today however than just a supernatural grocer. (but the term fits well so we will use it.) It really has become an upscale retailer where consumers can do their primary shopping as long as they are willing to keep their shopping within the confines of Whole Foods' product philosophy, which is rather broad today.

Whole Foods also is a specialty retailer which offers an extensive variety of specialty, gourmet and ethnic products all selected within its natural product guidelines. As such it also serves as a secondary retail store for many people who may shop for example at Costco, a major conventional supermarket, and also Whole Foods. It's meats, seafood, produce, perishable and in-store food service selections are a major draw for these shoppers along with its extensive natural and organic product selections.

Last but far from least Whole Foods' stores offer "experiencial" shopping. Shoppers love the retail store environment the grocer creates, it's in-store restaurants and bakeries, and the retail theater the grocer conducts on a daily basis in-store.

All three of these aspects of what Whole Foods is make it the retailing success it has become. They also help explain the value of being in the supernatural retailing category. It is a space in which a retailer can draw both primary and secondary shoppers. Mass Merchandisers, conventional supermarkets and most other retail formats, can't make that claim or have that advantage in most cases.

The Big 3 Chains and Supernatural Retailing

This gets us to what NSFM believes is a major question for the near to medium-term future. Will the big three supermarket retailers: Kroger, Safeway Stores, Inc. and Supervalu decide to challenge Whole Foods in the supernatural niche either by growing existing store formats, creating new ones, or acquiring smaller existing natural foods retailers? (I know it sounds like gloliaths challenging David but it is the retailing niche that's important rather than the realtive size of the retailers.)

The short answer is maybe. But probably not anytime soon. However lets examine the potentials and possibilities a bit.

Kroger, the largest U.S. supermarket chain, had 2006 sales of $66 billion dollars. It is a multiple banner supermarket chain ( 20 supermarket banners) and also owns convenience stores (5 banners) and jewelery stores (3 banners). It's 20 supermarket banners range from upscale--QFC and City Market are two upscale examples--to mid-range and discount. Kroger has the grocery retailing landscape pretty well covered.

Kroger also is getting into natural and organic foods in a very big way. Not only are they increasing the selections of fresh produce, perishables and branded natural/organic groceries in many of their banners, they also have created a major natural and organic grocery corporate/private label program and are agressively growing it with new skus. Kroger's CEO has said he wants the chain to be the retailer who brings organic groceries to the masses at reasonable prices. (Wal-Mart CEo Lee Scott has said essentially the same thing.)

One of Kroger's banners, Fred Meyer, has been an innovator in natural grocery merchandising. It was one of the first supermarket chains to place large, comprehensive natural foods store-within-a-store centers in its stores, doing so in the 1980's. Today new Fred Meyer stores have multi-thousand square-foot natural products centers inside them.

NSFM doesn't believe its likely Kroger will create a new supernatural retail grocery banner and enter the category against Whole Foods. Rather we believe the chain will continue to add depth in natural and organics retailing to its existing relevant banners and expand the natural category dramatically in it's new stores under these relevant banners. NSFM also doesn't think it likely Kroger will acquire one of the few remaining multi-store regional natural foods retailers in the U.S. and use that acquisition as a springboard into the supernatural retail category.

In fact Kroger looked closely at buying Wild Oats and decided not to make a bid for the natural grocer. Kroger had a pre-Whole Foods acquisition relationship with Wild Oats. Supermarket industry investor Ron Burkle, who owned 15% of Wild Oats' stock, was a member of Kroger's board of directors. Burkle sold Ralph's Grocery Co., Fred Meyer and some other banners to Kroger in the 1990's.

A number of Kroger stores also merchandised Wild Oats' corporate/private label natural and organic grocery products for the last couple years, although this was most likely a way for the chain to learn what sold well in the categories prior the roll out of their own line of natural and organic grocery products.

Therefore, NSFM suggests Kroger's natural and organic strategy for the future will be to grow the chains presence in the natural and organic business via their existing store banners, remodeling existing stores, adding items in the categories and creating an expanded presence in new stores.

Safeway Stores, Inc., the number two largest retailer in the U.S. with sales of about $41 billion in 2006, also has been getting into natural and organic retailing in a big way in the last 10 years. About 10 years ago the chain created an in-house specialty and natural foods department and has been growing its expertise since. Today this department, based at the chain's Pleasanton, California headquarters, is responsible for all national specialty and natural foods corporate marketing, direct purchasing by the chain nationally, and working with distributors.

Safeway also has used natural foods in a big way in its successful Lifestyle store format, which is now the dominant theme for it's new stores. This format is being deployed across all of Safeway's supermarket banners in all of the regions it does business. Currently about 50 percent of all Safeway and other banner stores has been converted to the Lifestyle format. This format is upscale, features extensive perishables departments, a strong selection of specialty and natural/organic products along with mainstream ones, and in-store prepared foods departments.

In fact, there are many similarities to a new Safeway Lifestyle format store and a new Whole Foods superstore. They are about the same size (55,000 to 80,000 square-feet) and have very similar departments, features and the like. Whole foods still merchandises considerably more natural and organic products than Safeway Lifestyle stores of course. And unlike Whole Foods Safeway doesn't put any restrictions on the types of products these stores sell. The point is though the new Safeway Lifestyle stores and new Whole Foods stores look more alike than they do disimilar with the caveats I mentioned and some significant other operational and merchandising differences.

Safeway currently operates seven retail banners. All seven of these banners have stores that range from having very extensive natural and organic foods selections to stores which have minimal selections. Like Kroger, Safeway also has created a comprehensive natural and organic grocery corporate/private label line. The chain also recently created a "healthy foods" corporate label brand called "Eating Right."

So where does Safeway stand in terms of entering the supernatural retail channel with a specific banner. NSFM thinks the possibility of the chain doing so is higher than Kroger but that the probability of Safeway doing so anytime soon is rather unlikely.

We believe this for a number of reasons. First, Safeway's current corporate merchandising philosophy is primarily upscale. Creating supermarkets under most of its banners which offer basic food and grocery products at decent retails but also place considerable focus on perishables, produce, meats and seafoods, prepared foods and specialty, ethnic and natural/organic product is the chain's focus/ This is in essence the Lifestyle format.

This acroos-banner Lifestyle format is so important to Safeway at present we doubt the chain has either the desire or strategic belief that entering the supernatural retail category either via an acquisition or by creating a new banner makes sense for them. Rather we see them continuing to focus their natural and organic products merchandising on the Lifestyle format across all of their supermarket banners.

Safeway believes this format competes with Whole Foods--although as a retailer that does $41 billion in sales annually competing with Whole Foods is hardly a top priority. The chain's primary goal vis-a-vis Whole Foods is to not lose any of its primary customers to the grocer. They also want to convert as many of Whole Foods' primary customers as they can to their Lifestyle format, which is part of the reason for their corporate label natural/organic line, which is priced at only about 10%-15% higher than conventional grocery products.

Supervalu, the number three largest U.S. grocery chain with 2006 sales of about 38 billion, might just be the most interesting of the three in terms of creating niche banners and growing it's natural and organics products business both that way and inside it's numerous other retail banner stores.

Supervalue operates 14 retail banners, ranging from super discount (Save-A-Lot) to super upscale (Bristol Farms). The chain also operates the Shaw's, Star Market and Shop N Save banners in the east coast. All three are well know for their natural products depth. The recently acquired Albertson's chain also has a history of extensive natural foods merchandising at its west coast stores; a tradition Supervalu is growing.

Supervalu recently created a stand alone natural foods store called Sunflower Market. The chain opened the first Sunflower Market in 2006 and plans to open at least 50 Sunflower Market stores over the next 5 years. The Sunflower Market retail philosophy is to provide natural and organic foods at the best prices possible (read cheaper than Whole Foods and some others). Sunflower Market stores are only 15,000 square feet but have all the standard supermarket departments, even an in-store restaurant and a wellness center/department.

Supervalu: Best Poised of the Big 3 Chains

NSFM believes Supervalu is the chain best poised of the top three to take a successful run at the supernatural retail category--and as such at Whole Foods. The two formats in which Supervalu can use to do this are Sunflower Markets and Bristol Farms.

Supervalu acquired Southern California-based Bristol Farms in its buyout of Albertson's, Inc. Albertson's had purchased Bristol Farms, at the time a multi-store independent, as a way of getting into the upscale specialty and natural foods retail niche.

There are currently 16 Bristol Farms stores in operation, 15 in Southern California, and one in San Francisco which just opened earlier this year. The stores are very upscale and have extensive specialty, gourmet, ethnic, natural and organic products selections. They have expansive perishables departments and in-store restaurants; usually more than one. Many industry observers consider Bristol Farms to be the finest upscale format operating in the U.S. This is arguable--but they are in the top five without question.

What does Supervalu need to do in order to use these two formats--Bristol Farms and Sunflower Market--as their entree into the supernatural retail category providing a competitive alternative to Whole Foods?

Bristol Farms

Regarding the Bristol Farms banner/format NSFM believes Supervalu needs to basically do three things. First, they need to enlarge the store footprint. Bristol Farms stores are relatively small compared to today's supercenters--and to Whole Foods' new stores. This has served Bristol Farms fine because of their merchandising focus. However to move into the supernatural category the stores need to be larger. NSFM suggests stores ranging from 50,000 square-feet to about 80,000 square-feet depending on the market.

Second, with this extra square-footage Bristol Farms can add expanded natural and organic groceries in the core of the store and increase their produce and perishables departments with a focus on natural and organic. They should keep their existing upscale, specialty-gourmet focus adding this expanded natural element to it.

Third, they will need to fine-tune their product and merchandising philosophy. The retailer already does many things similar to Whole Foods and other natural grocers but would need to look at things like product policies, environmental initiatives, buying local programs and related concepts. Much of the supermarket industry is moving in these directions anyway so it wouldn't be much of a stretch for them to do this, and doing so is essential under this strategy.

Whole Foods and Bristol Farms actually have much currently in common in terms of retail positioning. Whole Foods is essentially a natural products-based grocer which has in recent years also become a specialty and gourmet foods grocer. Bristol farms is at its heart (it was founded in 1982) a specialty-gourmet grocer which in recent years also has become a significant natural products grocer.

NSFM believes by expanding store size, marrying a natural products focus to its specialty one, and creating a more natural foods-oriented culture Bristol Farms (Supervalu) has the potential to be a major national player in the supernatural retail category, while at the same time keeping it's specialty focus.

Sunflower Market

The Sunflower Market banner also provides Supervalu with a vehicle to enter the supernatural retail category in a big way. First, the chain will need to expand the size of the stores from its current 15,000 square-feet to about 35,000 square feet for the strategy NSFM has in mind. This strategy positions Sunflower Market as a natural products "category killer." As such it isn't exactly a supernatural grocer but the category fits well enough at present.

The "category killer" Sunflower Market stores would be 35,000 square foot upscale, yet discount natural products grocery stores. The merchandising focus would be on national natural products brands and private label groceries (produce, perishables and meats as well) sold at retail prices 0f 10%-15% below Whole Foods for the national brands and at least 15% below Whole Foods' corporate brands for the private label items. (Sunflower already sells an extensive line of corporate/private label natural and organic groceries called "Natures Best," a brand Supervalu created for the chain.)

The Sunflower Market stores would have all they have now--natural and organic perishables departments, produce, an in-store restaurant and bakery. The extra square-footage would allow the retailer to expand it's produce department and a few other perishables areas which would be necessary for this positioning. And of course the additional square-footage would allow for the expanded "category killer" grocery core of the store. In essence Sunflower Market would be a full-service natural foods superstore, with the added feature of being a "category killer" on pricing.

The stores are already somewhat "no frills" so the current basic design format would work well with just some minor adjustments. Since Supervalu is a grocery wholesaler as well as retailer, and thus has huge buying power, it would be able to make the buys necessary for this "category killer" price strategy to work. Additionally, since the stores would be smaller than say a new Whole Foods, and less fancy but still upscale, operating costs would be lower, thus providing another advantage when it comes to the pricing strategy.

NSFM believes if Supervalu decided to develop this one-two-punch--Bristol Farms as a national, upscale natural and specialty foods superstore, and Sunflower Market as a national, few-frills but fairly upscale natural foods/products "category killer"--the chain could become a major player in the supernatural retailing segment.

Imagine locating both a Bristol Farms and a Sunflower Market in an area where there is a large Whole Foods store. Since the Bristol Farms would also offer a large, tailored selection of basic groceries--as it currently does--plus a full natural products selection, as well as retaining its specialty focus, it could challenge Whole Foods for primary shoppers. It also would get secondary shoppers from Whole Foods who would want to shop Bristol Farms for their basics at times and for the specialty and gourmet selections they can't buy at Whole Foods do to the product ingredient restrictions.

Having a Sunflower Market fairly close also adds to the competitive mix. Natural Foods store primary shoppers (eg: Whole Foods) would likely shop as well at Sunflower because it would offer natural and organic national brand and private label groceries, produce, perishables and supplements at significantly lower prices than the competition. Also since it is an orthodox natural foods store these primary shoppers would feel at home with the retailer's product and related policies.

NSFM believes having either one or both of these banners near a Whole Foods store would change the complexion of regional markets considerably. On a selected national basis (just as Whole Foods is national but selectively so) this strategy could position Supervalu solidly in the supernatural retail category. Since this is a category where margins tend to be higher this would make since from that standpoint for the chain. Additionally, the consumer market for natural and organic products is the fastest growing of all grocery categories. Having a major position in the supernatural retail category would enable Supervalu to take advantage of this growth not only in terms of sales of natural and organic products in their existing banners but by becoming a major mainstream player with the categories' primary consumers and shoppers.

NSFM thinks this retail category is one to watch as Whole Foods consolidates Wild Oats into its corporate culture and retail merchandising philosophy in the coming months. In addition to the "big 3" we have discussed in this piece, their are obvious (maybe even more obvious) opportunities for smaller chains--and perhaps even startups--to enter the supernatural category. There also are a few regional natural foods retailers who might step up and grow their store counts rapidly like Whole Foods and Wild Oats did. NSFM will be looking at all these aspects of the supernatural category in future pieces.

Breaking News You Can Use

Monday, August 27, 2007

Last week Natural~Specialty Foods Memo (NSFM) wrote a piece about the Wall Street Journal first reporting that Wal-Mart was developing two small footprint store formats--one an upscale, convenience-style market and the other a similar-sized health & wellness format store. NSFM confirmed the Journal's report with San Francisco Bay Area trade sources who said they had heard about the team of Wal-Mart executives in the Bay Area working on the concept. Wal-Mart however wasn't confirming or talking about the development last week when we wrote our piece.

Today however Wal-Mart announced the mega-retailer is working on the two such formats, confiming the Journal and NSFM stories. Wal-Mart isn't saying much about the new format development at present. But perhaps there isn't much to say yet as it's very early in the development process. The Associated Press has the story today here: http://www.forbes.com/feeds/ap/2007/08/27/ap4057417.html

Whole Foods Markets, Inc./Wild Oats Deal News
Just in @ 5PM PT:
Whole Foods Market, Inc. announced it has support from enough shareholders of Wild Oats Markets, Inc. to complete its purchase of its rival supernatural grocery chain. You can read the just released Associated Press story here: http://www.forbes.com/feeds/ap/2007/08/27/ap4058293.html

NSFM Analysis:

Today's development puts an end to the Wild Oats acquisition/merger which was opposed by the Federal Trade Commission (FTC). It's time for Whole Foods to now began the process of consolidating the Wild Oats stores into the Whole Foods corporate and retail system.

Whole Foods has already sold in principal 35 Wild Oats' stores under the Henry's Farmers Market and Sun Harvest banners. The stores are being sold to a subsidiary of Southern California-based Smart and Final, Inc. Whole Foods also plans to sell or close some Wild Oats and Capers Community Markets banner stores which are either located to close to current Whole Foods banner stores or to small for the grocer to be able to express its merchandising philosophy in. Some say this could be as many as 30 additional stores. If so that would leave Whole Foods with only 45 Wild Oats banner stores to change to the Whole Foods banner and bring into their retail system.

This should be a relatively easy--although slightly time-consuming--process for Whole Foods, even if there are more like 65 stores versus 45. NSFM expects the supernatural retailer to do this rapidly so that they can gain the optimum sales and margin advantages from changing to the whole Foods banner as soon as possible.

NSFM will be watching the merger integration by Whole Foods closely for the next few weeks. It should be an interesting and instructive process. One which we think our readers have great interest in, as does the food industry in general.

Monday Marketing Memo

Monday Marketing Memo thought we would depart from our usual industry marketing piece for just this Monday and share this satirical piece with our readers from the Onion, a daily humor publication. We read the piece, "FDA Approves Seconds," over the weekend and had a good laugh. Like all good satire this piece contains many truths. It also has marketing messages (albeit pretend ones) in it which we like. We think you will enjoy a good Monday laugh after reading it as well. The Onion piece is below:

FDA Approves Seconds
August 22, 2007, The Onion

WASHINGTON, DC—In a surprising reversal of its longtime single-helping policy, the Food and Drug Administration announced its approval of seconds Tuesday, claiming that an additional plateful of food with every meal can greatly reduce the risk of hunger as well as provide an excellent source of deliciousness.

Addressing what it calls a "growing epidemic of cravings and hankerings," the federal agency recommended redesigning food labels to prominently display extra-serving sizes and pledged to better educate consumers on how to make informed additional-portion choices at home and in restaurants.

"There's plenty to go around," FDA commissioner Andrew von Eschenbach said between spoonfuls of mashed potatoes during a benefit luncheon at the Clean Plate Club in Washington. "We've found that eating seconds is essential for keeping up the country's strength."

"Besides, with people starving in other parts of the world, it would be an absolute shame to let our nice food supply all go to waste," the commissioner added.

Once restricted to the head of the household, on Thanksgiving, or to those who had been extra good, seconds will now be made available to the general public in over-the-kitchen-counter form. However, FDA officials warn that those with a history of health problems should consult their doctor first.

"Seconds may not be suitable for everyone," von Eschenbach said. "Especially those who suffer from heart disease, those at risk for diabetes, people trying to lose weight, and women."

The FDA also recommended moderation in consuming seconds. Researchers in the seconds field have noted occasional side effects, such as hardly being able to get up from the table, pants-loosening, drowsiness, and the feeling that one "might explode" if one eats just one more bite.

A report commissioned by the Las Vegas–based International Brotherhood of Buffet Owners revealed that 75 percent of undereating occurs in those afflicted by a rare disorder in which their eyes are smaller than their stomachs, preventing them from taking advantage of all-you-can-eat opportunites. Picky eating habits and an unwillingness to stuff oneself are considered the leading preventable causes of scrawniness among Americans.

"Growing boys represent the greatest at-risk group, as unprecedented numbers of them are wasting away," registered dietician and grandmother of six Irma Jacobs said. "They'll just turn into skin and bones before our very eyes unless we make a concerted effort to get them to eat, eat, eat up."

Other nutritionists suggest that the need for seconds could be eliminated by an initial very large, or "heaping," helping.

"Larger portions could entirely eliminate the need to reach over, pass dishes, or get out of a chair," said clinical nutritionist Gary Bergen of Los Angeles' Cedars-Sinai Medical Center, who estimates that millions of calories and thousands of hours of eating time are wasted annually by making unnecessary second-serving trips. "I find it ironic that the FDA has approved seconds, yet still hasn't standardized the dollop."

Despite months of work and the purchase of several new wardrobes, FDA researchers say their study of the consumption of thirds and fourths has been inconclusive, but they suggest a possible link between these additional servings and tummy aches.