By Brenda Porter

Natural food store retailers face an increasing amount of competition today. If not from big box retailers and online sources then from other health-food stores. In the milieu of a changing landscape for goods, how do the independent and small chain natural food retailers compete against discounters? The answer, experts said, is they don’t. The multi-pronged solution to staying in business involves retailers establishing relationships with customers and suppliers, staying on top of new products and trends, and being knowledgeable about their product selection.

Selling Product and Offering Diversity

Experts interviewed here agreed that that the natural food store has a long history steeped in product diversity.

Rand Skolnick, CEO of Solgar Vitamin and Herb (Leonia, NJ) said the natural products store is the first place consumers will look to for new products to help maintain a healthy lifestyle.

“With a new product introduction stores can get about two to three years of proprietary sales before it hits mass market. Let’s build on that,” said Skolnick.

According to Natural Synergies’ (Miami) vice president, member services, Dean Yachison, “You certainly do not want to [try] to sell those products that Wal-Mart is going to use to get consumers in the store. We all need to be watching for this and then moving to products that are not in Wal-Mart. There [are] not a lot of the same products, but those that are there [are an indication of] what we should be avoiding and putting our energy in those that are not there.”

Manufacturers and industry consultants also advised stores not to try to match the prices of the big discount stores.

“Those who try to match the straight line discounter will lose,” said retail consultant Danny Wells during this year’s Natural Products Association West-Healthy Harvest Show.

Added Natural Synergies’ Yachison, “As an independent retailer, the last thing I would want to do is get in the middle of a price war between the Wal-Marts and the Safeways. I would just want to sit back and let them duke it out.” He said retailers cannot match Wal-Mart’s discounts—especially when it takes drastic measures like slashing baby food prices to 25 cents per jar, less than half of its current retail price.

“This is their attempt to get consumers into their store. In October, Wal-Mart recorded the worst sales ever. I think that’s because they tried to add on upscale clothing to attract higher spenders and it didn’t go over well,” said Yachison.

Bioforce USA’s (Ghent, NY) president, Pierce Sioussat, said there are primary points of differentiation for the natural food store when it comes to vitamins and supplements.

“Take product selection, for instance,” said Sioussat. “Wal-Mart will sell 1,000 softgels for $1.99. A good health food store will charge more, but will offer quality ingredients in that product. They will educate the consumer about their choices and will have a healthy selection of products.”

Solgar Vitamin and Herb is getting ready to celebrate its 60th year in business, a milestone the company’s CEO attributes to its long-standing relationship with the natural food store.

“I truly give credit to Solgar being in business this long by staying away from the mass market game,” said Skolnick, who recently returned to the top leadership position after a seven-year absence. “After being away for seven years, I see now that the discount game is out of control.  Retailers have pushed manufacturers as far as they can go with discounting. Retailers have pushed each other too far with the discounting and have lost significant bottom line.”

For example, Skolnick said if a retailer sells 100 bottles of Solgar’s Formula VM-75 90’s at the suggested retail price (SRP), the retailer will realize a gross profit of $1,240. However, if the store discounts the SRP by 40 percent, the retailer will need to sell 500 bottles to realize the same profit. Is it possible to increase that much? Even so, is it worth it, he pondered?

“Our stores are not Wal-Mart. While you’re trying to compete, this causes the mass outlet to discount even more,” said Skolnick. “The advantage that we have over other markets is that no one can provide the service and the education that we do. That’s what the independents need to get back to and make their priority.”

Skolnick said the natural products stores are usually where new nutritional products are introduced.

“Our stores can usually get two or three years out of the sale of these products before they get mass awareness. We should take advantage of that. Even when some of these products do go mass we [will] always have new products being introduced. We need to build on the credibility we offer by being the ones to introduce new, innovative nutritional products,” said Skolnick.

When it comes to supplements, Wal-Mart isn’t offering private label, which can be a great way to help set stores set themselves apart from much of the competition, Yachison said.

“One of the biggest points of difference that the retailer owns is his or her name on the store [and label]. It is like free advertising and everyday that the consumer uses the product they are looking at your name. Then when they are finished using the product they have the bottle to refer to and know where to go to buy the product again. It is the power of the brand working for the retailer to bring consumers back to the store,” explained Yachison.

Organic food suppliers and consultants said, stores should not be dissuaded from taking on organic foods just because conventional grocery stores and discount retailers have added organic lines.

Said Jay Jacobowitz, president, Retail Insights, “The impact of Wal-Mart and Target in the area of organic [foods] will be less of a threat to you than that of Trader Joe’s. [Wal-Mart and Target] are simply going to be expanding the market by looking to Kraft, for example, to develop organic lines. They’re not going to ask Amy’s. Their hope is to encourage shoppers to upgrade to organics. I don’t think the core organic shopper is going to stop buying Amy’s and Hain [Celestial] to buy organic Oreos.”

Jacobowitz offered further inspiration.

“Maybe some of your customers will go to Wal-Mart for organic, but over time those newly converted customers will find their way into your store,” he said.

Added Holly Givens, communications director for the Organic Trade Association (Greenfield, MA), “Having organic at more venues is not a bad thing. It would introduce the product to more people. Oftentimes, people assume that because the store is bigger you have more choice. And that’s not always the case. I doubt some of the bigger stores would do a special order or fulfill a special need.”

Also, stores should seek out local vendors—again, experts said, re-emphasizing the need to provide what Wal-Mart isn’t.

Plan Ahead

What can retailers do if they should not be competing by offering deep discounts? First, realize that your bright smile and winning personality go a long way with customers, will not be the sole solution to keep them in your store. It’s a start, but that’s merely a place to build upon.

During the Healthy Harvest Show, retailing guru Wells advised stores to know what to expect in advance of the competition entering the neighborhood. He said retailers should shore up their business before the competition arrives.

Wells told the audience to first expect to lose customers and, as a result, sales.

For example, he said if Whole Foods or Wild Oats moves in expect up to a 35 percent loss in sales with the first 30 days. Traders Joe’s setting up shop? Expect about a 10 percent loss. And if Vitamin Shoppe comes to your neighborhood, don’t be alarmed if your sales dip anywhere from 15-20 percent within 60 days of the store opening.

“Don’t think that your friendly nature and great personality will keep customers loyal,” said Wells, pointing out that, if nothing else, customers will be curious.

In preparation for the competition, Wells offered tips like reducing inventory in advance and reducing payroll by 15 to 20 percent.

He also suggested investing time in a solid customer loyalty program, if you don’t already have one. That way you can send specialized promotions to customers based on past purchases. “Create incentives to get all of your customers using your customer loyalty programs.”

Also “establish a robust monthly sale program,” said Wells. “Utilize your checkout space to further highlight sales and specials.”

Then about one month before the new store opens, Wells said, brace yourself for the hit, but look for a silver lining.

“Remember you don’t own the customer—you earn their business,” said Wells. And think about how you will go forward and what the natural food industry stands for: “We don’t sell products, we sell solutions.” In other words, Wells said, “People don’t come in for vitamin E. They’re coming in for a healthy heart. Educate your customers on the substantiated benefits of the products [you] sell.”

Jacobowitz, also a speaker at the Healthy Harvest Show, added, “You take some of the guess work out of finding wellness. Find value in your store, [because] your store adds value.”

Know Your Customers

According to Sioussat, there exists a trusting relationship between the natural food retailer and the customer.

“It’s something the customer has come to rely on. And that’s just not happening in the broader mass market and discount stores,” said Sioussat.

Retailer Pat Sardell added, “The ability to establish a relationship with a customer is what differentiates a natural products retailer from the mass market and other types of retailers.”

She continued, “As retailers, we act as a filter to get our customers the best products and information. For instance, we’re very careful about the kinds of products we stock and are knowledgeable about what to ask our suppliers to ensure we’re getting the right products of the best quality, for our customers.” Sardell is the owner of Country Vitamins in Corvallis, OR as well as a Natural Products Association board member and chair of its Retail Council.

Commented Robynn Schrader, executive director of National Cooperative Grocers Association (Iowa City, IA), “Stores must stay very focused on that customer connection. In many of our stores there are staff positions focused solely on consumer education. Customer intimacy can’t be faked, and consumers know if you’re genuine in your approach to serving their needs. An analysis of our same store sales growth from June 2005 to June 2006 shows an increase of 14.28 percent. So that tells us our stores are retaining customers and attracting new ones.”

Sardell noted, “Because our relationships with our customers are based on trust—trust that we have the quality products and information they seek—they will survive. If a relationship is based on price alone, then it will be much more difficult to compete with mass market stores that can offer huge discounts.”

Be Informed

An informed retailer makes product selectioneasier. Establish a relationship with your manufacturers, for they can be a reliable source for the latest science and nutritional information.

“We try to make sure the store is given an opportunity to be educated not just about our products, but about herbs, in general,” said Sioussat.

Sioussat said each quarter Bioforce sponsors different programs and educational sessions, like cash prizes and giveaways to draw in more customers, which help liven up the product category and give retailers tools for talking with the customer, said Sioussat.

Added Skolnick, “Know the uniqueness of each manufacturer that you purchase from. Does the manufacturer actually do [its] own manufacturing and packaging? Does the manufacturer have full quality control and quality assurance procedures in place?  Is the manufacturer consistently doing research in order to bring new and innovative products to the market?

“Knowing these answers gives you great sales conversation tools to use with your customers. Most importantly know that your manufacturer is treating all customers equally so unfair competition does not become an issue [a mong] our health food stores,” Skolnick said, referring to a concept he describes as a “mutually beneficial” and successful relationship between manufacturer and retailer.  

Said Skolnick, “Our specialty market is the gatekeeper to good, sound nutrition. We are the greatest resource to get the information to the consumer about good health and nutrition. Our retailers get into this business out of passion and commitment in bringing nutritional awareness forward. Retailers deserve to be profitable for their efforts since there is no discounting their efforts.” VR