NEW YORK (FNS) -- Competition between Whole Foods Market and Wild Oats Markets is becoming stormier, now that they have targeted each other's core markets for expansion.
oss the bow by opening a 39,000-square-foot store in Boulder, Colo., Wild Oats' home town.
'We are seeking head-to-head competition," John Mackey, Whole Foods chairman, told the second annual Healthy Living conference here. He said the chain will continue to build stores in upscale markets and acquire competitors.
In a separate session, Mike Gilliland, president and chief executive officer of Wild Oats Markets, said his company would continue its strategy of operating large and small stores, targeting the more devoted health-conscious consumer. Both executives spoke before standing-room-only crowds, demonstrating increased investor interest in the natural-food category, sales of which are increasing 20% per year. This year's conference roughly doubled in the number of attendees (about 400) and saw the number of presentations by retailers and manufacturers jump from 30 to 48.
Over the past few years, the two publicly held supermarket chains have gobbled up the larger players, both multiple-unit companies and single-store operators in appealing markets. About 6,600 independent natural-food retailers remain, say industry observers. Most of them measure 10,000 square feet or less.
"These are the two players that are in a position to consolidate the retail channel of the natural-food industry," said Matthew Patsky, a financial analyst with Boston-based Adams, Harkness & Hill, the firm that sponsored the conference.
Austin, Texas-based Whole Foods is more than three times the size of Wild Oats in terms of sales, with revenues of $1.1 billion in fiscal 1997, compared with Wild Oats sales of $311.1 million last year.
Whole Foods has roughly 8% of the market for natural food, while Wild Oats has 2%.
Whole Foods has grown to 84 stores in 19 states, with stores averaging 24,000 square feet and $15.5 million in annual sales. Mackey reinforced his belief that bigger is better and the size of the company's stores has grown. The 16 stores in development average 33,000 square feet.
"I've yet to see small stores successfully compete with large stores," Mackey said. The strategy seems to be working for Whole Foods. Of the 21 stores opened over the past two years, 17 already are profitable, Mackey said.
Four of the top 10 stores in the company were opened over the past two years. Average weekly store sales have grown from $280,000 in 1997 to $300,000 today.
Mackey said his company continues to seek out prime real estate in upscale markets as well as possible acquisition targets. Whole Foods has acquired 18 companies since 1986. At any one time, the company might be looking at a dozen deals, he said.
Wild Oats has taken a different approach, with both a large supermarket format and smaller stores in the 8,000-square-foot range.
With 54 stores in 12 states and British Columbia, Wild Oats has grown rapidly. The company acquired 23 stores over the past two years and will open 11 stores in 1998, Gilliland said.
Wild Oats' strength is its Natural Living department, which includes vitamins, herbs and personal-care products. It is the company's fastest-growing and most profitable part of the business, accounting for 23% of sales. Both companies have broadened their customer base, although Wild Oats intends to remain devoted to the core natural-food customer, Gilliland said. He estimates the stockkeeping-unit overlap between Whole Foods and Wild Oats is 95%.
"Whole Foods is looking for more mainstream customers," Gilliland said. "We're perceived as a more stringent natural-food store rather than a cross-over store."Gilliland said he believes competition between Whole Foods and Wild Oats will be good for both companies because it will expand the total market.
Financial analyst Patsky believes there's probably room for both companies, "but certainly we'll know over time."