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Growth leveled to 11% in the nutri-tion industry’s $xx.x-billion Retail Segment in 1998. Penetration of the mass market led the way (up xx% in 1998), but the “supernatural”chains and many independents are still expanding (x% in 1998) in this buoyant economy for natural products.
Whole Foods Market is proving its crossover strategy; Wild Oats is playing with new formats and enjoying a run of strategic acquisitions; and regional supermarket giants are still dabbling with responses to demand for healthier shopping. Conventional Distributors and Brokers look ready to gain a place in the nutrition industry value chain. More entry by acquisition is imminent, which is likely to pose a threat to those already serving the industry as wholesalers.
"Competition heats up in $xx-billion retail channel. Distributors diversify and prepare for entry by mainstream. Consumer potential greater than imagined?"
In spite of intensifying competition and a softening in retail sales growth to x% in the natural/health food channel and xx% in the mass market in 1998, the nutrition industry still appears to have untapped depths which are surprising even seasoned retailers. Not only are the natural supermarket chains Whole Foods Market and Wild Oats Markets capturing marketshare by consolidation and growing same-store sales (internal forecasts are for x-x% and x-x% respectively in 1999), many smaller health food retail chains and independents also say that they are managing competitive pressures better than expected.
The rising tide means that, despite a more crowded marketplace, competition is not that acute, said Matt Patsky, a senior analyst with Adams Harkness & Hill (AHH, Boston, Mass.). Boston is a good example of a market that hasn’t found bottom. Bread & Circus (owned by Whole Foods) once thought they had the Boston area covered with six stores. Then in the last three years, Nature’s Heartland moved in with three stores and Wild Harvest with four, in addition to parent Star Market’s natural food units. Yet “Bread & Circus is continuing to experience positive same-store growth,” noted Patksy.
A number of small chains that believed they had saturated their home markets now realize they have room to expand without venturing further afield. For example, Henry’s Marketplace, a 15-store chain in San Diego which was recently purchased by Wild Oats, was anticipating geographic expansion, but market research revealed untapped demand remaining within county lines (see p.10).
Among the ranks of the independent health food stores, holding steady at around 9,000, consultants have seen quite a bit of new store activity encouraged by the prolonged buoyancy of the economy and the general uptick in the natural products awareness.
Excerpted from the 40 page double issue of July/Aug 1999 NBJ....exclusive market data and strategic analysis of the retail / distributon segments.
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