Can natural home stores expand co-op services—outside the co-op?
Along with the successful growth of our food co-ops, in what direction can we expand beyond groceries? Looking for a sustainable avenue to grow our businesses while maintaining our existing values, two Midwest co-ops recently opened separate nonfood storefronts providing shoppers with earth-friendly products for their homes, children, and gardens. Subsequently, the strategy of separate facilities was changed in favor of integration with the food store. Our hope is that, while addressing the immediate needs of our own communities, we are responding to market trends and consumer demand.
The natural home store concept is not completely new to co-ops in this area. Lakewinds opened a natural home store in 1998 in a space adjacent to its Minnetonka natural foods grocery. In March of 2005, Linden Hills Co-op in Minneapolis opened its natural home store after a property across the street became available. The operational benefits were carefully studied, and these included added offices, storage space, and improved meeting room along with on-site backup space for the new store. In a highly desirable retail area, this building had become available for the first time in 14 years, and the Linden Hills team knew it was the only chance to secure this valuable property for expansion.
In July of 2005, following the success of our natural foods grocery store opening in December of 2004, Just Food Co-op of Northfield opened its doors to the Northfield Community Mercantile natural home store. When a space adjacent to the grocery store became available, Just Food sought to secure that space for future expansion, and the Mercantile seemed like a way to offset costs while providing member-requested products to support a more sustainable lifestyle.
For grocery stores looking at expansion into green mercantile, the start-up capital in such a venture includes your cost to build out or rehab your physical space; your inventory investment; and your labor costs. Feasibility studies need to be thorough. Supporting data in several categories include: a 69 percent increase in sales of natural and organic pet food from 2003 to 2004; natural housecleaning products growing 18–27 percent in recent years; and sales of organic cotton in the U.S. growing 233 percent from 2001 to 2003.
According to the 2004 Lifestyles of Health and Sustainability (LOHAS) consumer study conducted by the Natural Marketing Institute, while the segment of LOHAS consumers has not increased in size, their use of specific products and services has increased dramatically. The use of energy-efficient light bulbs increased 20 percent in 2003, and use of recycled goods increased 17 percent in this group. Seventy percent of LOHAS consumers currently own energy-efficient electronics and appliances, and 45 percent have purchased natural household cleaning products. Thirty percent say they are willing to spend up to 20 percent more for environmentally responsible products.
The Linden Hills store is approximately 500 square feet and is located inside a quaint older home across the street from the grocery. Northfield Community Mercantile occupies 1,350 square feet of a new space, allowing us to model some of the products, including low-voc paint, natural linoleum flooring, full spectrum lighting, and pine shelving along with pine tables for central displays.
How are we doing?
In 2006, Lakewinds closed its natural home store when its expanded Minnetonka grocery opened, and integrated nonfood merchandise within several departments in addition to a “natural home” department. Recently I visited the Lakewinds store and learned that the conversion of “the store within a store” has gone very well.
Given the change in format, comparisons are complex. General manager Kris Nelson illustrated by noting that current general merchandise sales are $4,300 per week, while natural home department sales are $4,500 per week. These figures combined surpass the former independent natural home store sales, which averaged $7,692 per week. In addition, sales of natural cleaning and pet supplies, now in the grocery department, have increased; and paint supplies, water supplies, and many other items are now folded into wellness. While Lakewinds’ new store in Chanhassen has also captured 25 percent of Minnetonka’s natural home sales, the principal difference is the daily 1,000+ customers in the grocery store compared to 50–60 daily in the home store.
The Linden Hills home store originally had a full-time manager and buyer and a secondary experienced associate and buyer. Currently the store has all part-time staff, and Steve Cobbs, the co-op’s human resources supervisor, is overseeing most of the managerial duties. This has reduced home store labor expenses from 26 percent of sales to 13 percent. Steve cautions, however, this is not a true picture of labor costs because his salary is coming out of administrative expenses.
Linden Hills has met its projected sales in the home store, with a slow but steady growth. Recently they decided to move all pet products back into the grocery store. Although this category has provided $10,000 in annual sales for the home store, Cobbs projects it will yield $15,000 in the grocery store.
Most recently, the Northfield Mercantile has changed also. In July of 2006, one year after opening the mercantile operation, the Just Food board of directors approved a plan to integrate the mercantile product lines into the natural foods store. Increased visibility in the grocery aisles also is being achieved by working with local businesses such as ReNew Energy. Echoing the success of Lakewinds, this change is designed to more fully meet the needs of customers and the needs of the co-op business as a whole.
What products to carry?
Each of these co-ops has seen a fundamental challenge to providing items such as pet products and cleaning items in a separate store site. Every customer is a destination shopper in a food store—a guaranteed sale, if you will. But in a natural mercantile or home store, to achieve success you must educate and promote even more strongly. You will have groups of people browsing—dictating a well-educated and aggressive sales staff—and yet only a handful of these folks will become your repeat shoppers. It is getting folks into the store on a regular basis that will sustain us. The added shopping hours and traffic at your grocery store points to where these items will receive more customer attention.
Lakewinds and Linden Hills carry low-voc paints, a very high performing category. In Northfield, we chose not to start with this inventory, and the members surveyed stated they would be willing to travel to Linden Hills (about 35 miles) to purchase paints. We invested our inventory dollars in lines such as natural cleaning, natural gardening, recycled glassware, bamboo kitchenware, polycarbonate water bottles and accessories—all strong performers. Organic cotton socks, baby clothing, and bedding are doing well in select SKUS. Recycled billboard bags and hemp products also have done very well.
Here are other things that have worked well:
- Be prepared for holidays and gardening season—timing is everything.
- Hire an experienced buyer—vendors and products dictate much labor and change often.
- Run reports frequently, eliminate categories that do not work for you, build on the ones that do.
- You can special order high ticket items—such as juicers and expensive organic sheet sets—from a floor model.
- Pay attention to where your merchandise is coming from, and buy locally whenever possible; fuel surcharges for heavy goods that travel far must be absorbed into your cost of goods.
- Again, merchandise often and creatively. Your customers want to see fresh merchandise weekly. Have event-driven sales, participate as a business in community events, and offer appropriate e-classes and demos.
Stay tuned for the evolving story of the natural home store!