Wild Oats and Whole Foods to Become Neighbors
By George Anderson
Whole Foods will soon have a store operating in Portland, Maine that is right next to a Wild Oats location.
The country’s leading natural foods chain has agreed to buy Whole Grocer, an independent natural foods grocer that has served consumers in the city for over 20 years.
While it is not unusual for Whole Foods and Wild Oats to compete for customers, the situation in Portland where two stores are right next to one another is far afield of the norm.
The two retailers will only be neighbors for a short while. Whole Foods plans to operate in the current location until it opens a new unit, a few blocks away, sometime in 2007.
Sonja Tuitele, a spokesperson for Wild Oats, told The Associated Press that the chain is not worried about the impact of Whole Foods on its Portland business.
According to Ms. Tuitele, Whole Foods has stores in three-quarters of the markets where Wild Oats operates. While store sales generally decline when a new Whole Foods opens, she said, they rebound to previous levels after a few months.
In the natural foods market, said MS. Tuitele, the more the merrier.
“There was a lot of noise that we were going to put Whole Grocer out of business, but everything we’ve heard is that her (Whole Grocer owner Chandrika Sanyal) business has improved,” she said. “A rising tide lifts all boats. The whole industry really has the wind at its back.”
Moderator’s Comment: What do you see as the strengths and weaknesses of Whole Foods and Wild Oats? As the manager
of the Wild Oats and Whole Foods stores in Portland, what do you do to keep your customers from going next door to buy natural foods and related items? –
George Anderson – Moderator
Traditionally, having similar stores as neighbors does nothing but draw customers to the area. Years ago I worked for a furniture chain which drove growth to the building of a home furnishings district outside of Minneapolis. The area drew customers from all across the state. The enticing factor for shoppers was the range of products available in one geographic area.
I’m not all that familiar with the similarities or differences of products between Wild Oats and Whole Foods. However, if they carry the same healthy branded items, the only thing left to do will be a price war. One wins, one loses and maybe the battle puts a bad taste in everyone’s mouth for health foods. That’s the risk for the industry, suppliers, etc.
To Whole Foods I say, “Sow your Wild Oats, build a new store in 2007, sail forward into the Cupboards of Maine as well as into the future, and trust that the natural foods market will grow beyond a fad culture indefinitely. The wind currently is at your back.”
Meanwhile, Whole Foods and Wild Oats are giving each other a smile with a future in it.
Steven hit the nail on the head. In this kind of direct competitive situation for a narrow market segment, the likelihood is that there will be no winner and, frankly, no strategy that could produce a winner.
The problem is that neither competitor is likely to be able to achieve satisfactory unit profitability. If this happens, it’ll be a question of who has the deeper pockets and the fortitude to spend to protect their investment.
Whole Foods has a golden opportunity to beat the living daylights out of Wild Oats in Portland. All they have to do is build a larger store than the Wild Oats location with a much more robust assortment. But this won’t prove anything in the big picture.
Both companies’ CEO’s should sit down together in a quiet neutral place and merge. Pay both CEO’s and both boards of directors absurdly high compensation packages. This would be the maximum service to everyone’s shareholders. Pretending that shareholders are best served by one company “beating” the other in the long run is no service. Pretending that there’s a great big market that everyone will be happy sharing is no service. Great fortunes are most easily made and kept by not competing. The optimal strategy is always the monopoly strategy. Most wars do not end by one party vanquishing the other. They end because the parties get tired of fighting. Fighting is hurtful, expensive, and risky. Even if one party wins, it’s still costs plenty.
Is this a “too much of a fad” problem? Yes, there will always be a natural foods market, just like there is still a low-carb market. But to sustain 2 stores next door seems either silly or overly optimistic. And see the latest issue of Consumer Reports for a great article on “organic” products.
My instinctive answer to the question was THE CUSTOMER. After reading the comments, I concluded that the focus was (apparently) meant to be on the behind-the-counter side of things…but I also wonder whatever happened to that quaint idea of “serving the public.” So many of the commentators, IMHO, seem to feel the ultimate goal of a business is to put your competitor out-of-business.
Obviously market saturation is an issue, but many here seem to suggest that monopoly should be – or at least WILL be – retail’s future…. I can only see that as a negative, ultimately for everyone.
I have been suspecting for awhile — and today’s discussion confirms for me — that many frequent contributors work with or for the traditional supermarket industry. While your expertise shows, your biases do as well. Most outsiders do not view it as a “narrow niche” but on the contrary an expanding category serving those who want quality and diverse and unique products as well as educated and health orientated consumers. To deny this and to deny the strength and growth potential of the lower end price and volume oriented stores (Wal-Mart, Costco, etc.) will just serve to continue the malaise traditional supermarkets have been experiencing the last ten years.
I’ve visited both the Whole Grocer location and the Wild Oats store (on Marginal Way in Portland). The Wild Oats does quite well up there, but they really haven’t had much competition, candidly, from the Whole Grocer store next to it (the latter had a lot more bulk product). Nonetheless, this makes a lot of sense. Portland is not maxed out by any means in terms of meeting the consumer demand, shoppers will benefit, etc.
The more interesting question is how the new prototype Hannaford store, which is on the other side of the highway overpass, does….
Whole Foods will be the dominant player for reasons cited already. But Wild Oats is truly no slouch, and I don’t think they’ll be closing down their Portland site anytime soon. It’s a good market up there for this type store. And Whole Foods has said in the past that when they open new stores practically in the shadow of one of their existing units, there’s almost no cannibalization and comps of the original store get right back to where they were. So I don’t think that the Wild Oats spokesperson was being disingenuous here in what she said. Besides, what’s she going to say: “Oh, no! We’re really worried.” She just said what I think any of us would have said to a reporter in similar circumstances. Down the line, I could easily see Whole Foods acquiring Wild Oats. Not for awhile yet, certainly, but over the long haul it would not surprise me.
I’ve seen this in other markets as well. Santa Fe, New Mexico is a good example where Whole Foods, Wild Oats and Trader Joe’s are all basically at the same intersection. From my experience, Whole Foods wins every time and by a big margin. Whole Foods has store size, presentation, Wall Street and financial strength on its side. I really can’t find any areas that Wild Oats can do a “one up” on Whole Foods. When I hear canned comments like “sales generally decline when a new Whole Foods opens, they rebound to previous levels after a few months,” I laugh because we all know that doesn’t happen. The competition gets hurt and they get hurt bad. Spokespersons lose credibility with those “the more the merrier” comments. The fact that Wild Oats did not put Whole Grocer out of business is more of a poor reflection on Wild Oats. Especially if business really did improve at Whole Grocer.
For Mike Tesler, some of we supermarket folk see your point and agree. Further, from the supermarket chain business, allow me to add that when competing stores open up across the street from each other, more business is drawn to the area and all competitors benefit. That’s why one sees store clustering so frequently. Additionally, at Raley’s we were once the largest purveyor of natural foods in the states of California and Nevada. They understood the market and its potential, and even helped build it. Raley’s is still a major player today with its huge, dedicated departments, separate refrigerated and frozen installations, and their own private label versions of several natural food items.
The Natural and Organic Market is substantially more than a fad.
David is correct in his assessment of the competitive landscape in Santa Fe. In fact, he may understate the true depth of the market by omitting the existence of a large, strong co-op, the fact that every chain store in town has devoted significant space and resources to Natural and Organic (and growing) and the entry of Vitamin Cottage. All of them doing healthy, profitable business.
Whole Foods has larger, prettier stores, greater selection, amazing perishables and a better trained, better motivated staff. They’re also not afraid to dig into their deeper pockets to invest in the business. Portland is a great example:
They could easily have foregone the purchase of the Whole Grocer and simply opened up a brand new bigger and better store in an attempt to knock everyone else out. Instead they are investing for the long term and ensuring their short-term acceptance in the community by not trying to put the beloved local guy/gal out of business. Whole Foods is giving their new bigger store a head start.
Wild Oats is very good at making money in a smaller store footprint. Their private label program is strong and growing, and their produce departments emphasize organics better. Execution and operations are critical right now. Having a clear focus and getting the message down to their staff and ultimately to the customer will be critical.
Yes, there’s room in the sandbox for both companies, and perhaps even others. The beauty of this scenario is that the entry of a Whole Foods ultimately means that the Natural and Organic market in Portland will expand. The guys who really have to watch their backs are the conventional chain stores and independents. That’s where Whole Foods will take the business that it needs in order to justify a larger store.