Knowing Your Mass Market Competition

The nearby mass market grocer will be the most prevalent competitor for most natural food stores. Natural foods chains with large stores (20,000+ sq. ft.), such as Whole Foods, have limited applicability due to their need for certain demographics and population density to be profitable. The slightly smaller Wild Oats format probably is applicable in a wider range of markets.

Five development stages

In order to compete with mass markets, natural foods retailers need to understand the strengths and weaknesses of each stage of development that mass market retailers go through when they expand their product mix to include natural products and organics. The presence ofthese products in mass market grocery store formats has five stages of development. The five stages of development could be characterized by the following statements:

1) "My customers are asking for these products. I know nothing about them. I guess I will have to carry the products because it is all I read about and my competition is beginning to/does carry natural products."

Generally, the store wants to add the products to the dietetic set. Training and education of staff to hand sell the product is nonexistent. The product set might include 100 to 200 products. This seldom works.

2) "I understand the value that these products have to differentiate my store from the store down the street and attract new customers as well as retain my good customers."

The store does not have the knowledge nor the inclination to select, merchandise, or hand sell the natural products. It prefers a separate set such as 12 to 24 linear feet of shelving in a prominent location in the store. All support, marketing, merchandising, pricing, and advertising is determined by or supplied by the distributor/supplier. Training and education of staff to hand sell the product is minimal to nonexistent. The product set might have between 200 and 600 products. This is the current stage of development for most of the mass market grocery stores.

3) "I now understand and have the appropriate customer demographics that cause me to want to use natural products and their brand attributes to co-market with my store (which is my brand name) to reposition my store in the marketplace."

The store hires dedicated staff to train and educate, to begin to hand sell natural products. It begins to consider integrating natural products into some of the corresponding sections. For example, natural food cereals would have a 4-foot section next to the regular cereal section, or be directly cut into the section. The store also might decide to expand the produce section, include more organic produce, and have a natural foods section that is right after the produce section in a high traffic area of the store. The store begins to have natural products in the regular store flyer. Support, marketing, merchandising, pricing, and advertising tends to be determined by the distributor/supplier, but with much more input and participation from the store staff. The set might have between 400 and 2500 products. This stage is the most successful for stores. It is probably the stage that most stores should not go beyond, given the current development of the natural products industry and its share of the total U.S. food market.

4) "We compete in a dense, urban, metropolitan, or large university setting. We need to attract many of the shoppers that currently patronize category killers such as natural food stores. We have the demographics to support a large natural products program as shown over the last several years with the expansion of the natural products we carry." The store hires the staff to seize control from the distributor, custom tailor, and precisely manage the store's natural foods program to the individual store's needs. The store still utilizes the information and support from the distributor's marketing and volume purchase programs. The store is committed to incorporating the values and attributes of natural products into the store image and repositioning effort in the marketplace. Often the store sets up a store within a store format such as Fred Meyer (self distributing), Larry's of Seattle, or Carr's of Alaska.

5) "We now have a great deal of opportunity to generate additional revenue through the sale of natural products. The marketplace we compete in is fully developed with greatly heightened and developed consumer expectations surrounding superb presentation, quality of shopping experience, expanded selection, and excellent, knowledgeable customer service. We have 10,000 to 30,000 sq. ft. natural food stores in our area."

In this emerging but still rare occurrence, the mass market retail decides to develop a stand alone format or natural products store that emulates stores such as Bread and Circus of Boston. An example is Star Market's Wild Harvest Stores.

I want to stress that these are archetypes. Each store could be different and might have attributes of two to three of the stages of development. Stores may also skip certain stages, especially the first stage. Most mass market grocery stores never reach the fourth or fifth stage. Their customer demographics are not appropriate to attempt or support a deep involvement in, or increased cost structure surrounding, a program as described in stages four and five.

Our greatest weapons: ownership and education

For the most part, the challenge of strategy formation will center around mass market price versus natural foods co-ops' knowledge, hand sell and super service. We should not fear the coming of this challenge. The natural food product co-op stores' challenge is to fully complete the transition and capture for their stores those transition shoppers the mass market stores bring to the category. Remember, to the mass market you are what they term a "category killer." Your greatest weapon, besides ownership, is education surrounding product, its use and the industry behind it.

An example I have heard: One of the large drug store chains picked up many natural products seven years ago. The national sales manager for one of the largest supplement lines was in one of the stores and asked the store manager how the line was doing. He replied not well. The manager then went on to indicate that the staff actually would walk the other way if they saw a customer in the aisles looking at the product, since the staff had no idea what the product was used for or any real knowledge about the category. They hated to stand there and not be able to answer the customer's question. That chain has subsequently dropped over 100 items of that line and now only carries the top 10.

If you are situated very near a mass market store carrying natural foods, remember you may be the destination shopping point/category killer with 6,000 items, versus they are convenience with 28,000. The average distance traveled by a grocery shopper to a store is only 3.5 miles. We compete by utilizing a concept called theater of food: presentation, merchandising and promotions, pricing and food service/meal replacement are to generate excitement, enjoyment and amusement. Look at any Bread and Circus or Nature's Fresh Northwest or the new Lebanon store of the Hanover Consumer Cooperative, and one will realize what the concept is. John Higgins, formerly of New Pioneer Co-op and now the first Northeast Cooperatives' manager on contract with Harvest Co-op Supermarkets, and Tim O'Connor of Nature's Fresh Northwest, promote and understand this concept.

A natural foods store with, say, 6000+ items can compete successfully situated next to a category killer such as Trader Joe's (400 natural foods items). Trader Joe's is the destination shopping point versus you are the convenience shopping point. You need to match the pricing on those 400 items and make your money on the other 5,600 items and focus on perishables, meal replacement, bakery, deli and other convenience areas. You have become a complementary draw to Trader Joe's in attracting customers, serving the marketplace and helping it grow.

You can compete successfully with bigger organizations such as Wild Oats through an appropriate mixture of these and other cooperative, ownership-based strategies. Community Mercantile and Puget Consumers Co-op are co-ops that recently succeeded.

Again, the issue is to develop appropriate strategies to compete alongside mass market stores with natural foods products/programs. Both mass market and natural foods store formats can coexist and become mutually complementary in serving a growing marketplace.

George Southworth originally formulated and presented a version of this article in a speech at the May l997 Consumer Cooperative Management Association (CCMA) conference. The five mass market stages but not the strategy portion subsequently appeared in Nutrition Business Journal. The Food Marketing institute (FMI), in collaboration with Mothers and Others for a Livable Planet, used it in a briefing publication for mass market retailers contemplating an expansion into the category of natural products and organic produce. FMI's overview and suggestions for a strategic approach to the category are very thorough. You may find the briefing publication useful as an educational tool for new members of your board and staff: the cost is $45 for FMI members. Contact:

Kai Robertson, Manager
Research Committee Staff Coordinator
Food Marketing Institute
800 Connecticut Av. NW
Washington, DC 20006
See other articles from this issue: #074 January - February - 1998