What's the greatest fear of the specialty natural-food retailing sector?
It's that conventional supermarkets will catch on to the fact that natural food -- products free of added chemicals, flavoring, sweeteners and so on -- is chalking up sales of nearly $10 billion. Sales, now chiefly concentrated in stores under the ownership of Whole Foods in Texas and Wild Oats in Colorado, have been increasing at an exponential rate in recent years.
As the news feature starting on the front page shows, several conventional operators are alert to these facts and are becoming the worst nightmare of the natural-food operators by initiating various competitive responses.
The question arises, though -- what kind of responses can be trotted out by conventional stores?
Among the possibilities are these: A conventional chain could spin off full-fledged natural-food supermarkets under a separate banner, or it could proceed more modestly by inaugurating natural-food sections in existing stores.
Both methods are under test by conventionals. Operators such as King Kullen and Rosauers have opened entirely separate natural-food supermarkets. Others, such as Star Market and Stop & Shop, have taken the separate-department approach.
To decide which approach might be best, let's take a look at what a little industry history might teach.
Several years ago, conventionals faced a far more formidable competitive threat from membership clubs.
And, in response, operators such as Wakefern, Supervalu and Meijer launched membership-club operations of their own, all under separate banners.
Meanwhile, countless other distributors took the more conservative approach of seeding their stores with high-velocity "bulk pack" or "club pack" departments in hope of cherry-picking club shoppers.
Which strategy was the winner?
In the end, the more conservative approach of folding club-like products into the product mix was a winner for conventionals.
The chief indicator of that is that none of the spinoff membership-club outlets survived more than a few months, despite the fact that they diverted huge amounts of imagination, labor and capital from the companies that sponsored them.
The more conservative approach of figuring out what products were driving customers into clubs, and of offering those same products in the conventional supermarket, was effective competitively. It also was cheaper to execute, and swept traffic into the core retail operation instead of dispersing it elsewhere.
So, is this the approach that supermarkets should use as they contemplate the competitive threat posed by natural-food outlets?
Probably it is and for all the same reasons learned by distributors in their competition against membership clubs.
Moreover, and perhaps more importantly, there's certain to be a fading of the distinction between natural and traditional food products as time goes on.
So why not learn about such products now, and take steps to fold them into the store right away; first in a separate department, but with the proviso that they will probably be integrated into the balance of the product mix later?