September 7, 2012 in Business, Health

Food co-ops brace for national competition

Trader Joe’s, Whole Foods put pressure on local stores
John Miller Associated Press
Associated Press photo

Boise Co-op pet food buyer Zach Jones stands in the Boise store’s new space dedicated to natural pet food and supplies.
(Full-size photo)

Fast facts

UPDATING CO-OPS: Food cooperatives across the U.S. are making big changes – eliminating slow-selling items, spiffing up stores, identifying trends – to prepare for the arrival of a Whole Foods or Trader Joe’s in the neighborhood.

COMPETITION HEATS UP: Demand for natural and organic foods is growing, and so are the chains that sell such products. Whole Foods Market Inc. aims to triple its store count to 1,000. German-owned Trader Joe’s has a 19-city “coming soon” list.

THE HISTORY: Modern co-ops date back to the 1970s, when customer-owned food stores were organized to provide an alternative to national grocery chains.

Associated Press

BOISE – The Boise Co-op eliminated thousands of slow-selling items, sweeping away the claustrophobic effect that accompanied too many offerings. The Wheatsville Food Co-op in Texas is opening its second store after 40 years.

And in California, the Davis Food Co-op turned to a designer to revamp its look.

It’s no coincidence food cooperatives across the U.S. are making big changes. Many are preparing for the arrival of a Whole Foods or Trader Joe’s, two organic- and specialty-food industry giants that are opening new stores nationwide.

Some co-ops are even dispatching camera-toting, intelligence-gathering crews to poach ideas from the big guys.

With demand for organic, natural and specialty food continuing to outpace other segments in the grocery industry, co-ops say they must improve their stores, identify trends and appeal to a changing audience as the competition moves in.

Whole Foods Market Inc. aims to triple stores to 1,000, including in Boise and Davis, Calif.; German-owned Trader Joe’s is expanding, too, with a 19 city “coming-soon” list.

“Co-ops had it easy for years” when customers had few other places to go, said Robynn Shrader, head of the 125-member, 164-store National Cooperative Grocers Association. “It’s more complicated being a retailer today.”

The modern co-op movement dates back to the 1970s, when customer-owned food stores – including in Boise, Davis, Calif., and Austin, Texas – were organized to provide an alternative to national grocery chains. Despite typically higher prices, shoppers often feel as if they’re buying more than groceries, that they are supporting a lifestyle.

They emphasize community roots and, though they’ve evolved from when nearly everything came in big bulk bins, they still stock an average of 20 percent local products, compared to 6 percent at conventional stores, according to a study released in August by Shrader’s group. About 80 percent of co-ops’ produce is organic, compared to 12 percent for conventional grocers.

Over the years, demand for natural, organic foods has only grown. The Organic Trade Association reports 2011 sales rose 9 percent to $31.4 billion.

Brent Hueth, director of the Center for Cooperatives at the University of Wisconsin-Madison, said he’d expected an increasingly crowded landscape of organic purveyors, including from conventional stores, to be tougher on co-ops.

That hasn’t materialized. “Demand is growing faster than supply,” Hueth said. “It’s not saturated yet.”

Even so, some co-ops have been hurt. In West Des Moines, Iowa, for instance, the Tall Grass Grocery Co-op closed in August, a year after opening and a month after Whole Foods’ arrival.

At the 40-year-old Davis Food Co-Op in Davis, sales slipped 7 percent after Trader Joe’s October 2010 opening, forcing wage freezes and retirement-plan cuts, manager Eric Stromberg said.

Though revenue has recovered, Whole Foods opens in October in this university town near Sacramento, so additional austerity measures are planned to navigate another dip.

“Honestly, the emotion I felt was anger,” he said. “I worked really hard to give our employees good benefits. And I hate to see that nibbled away.”

The Davis co-op is going on the offensive, too, enlisting a store designer who also works with Whole Foods to spiff up the place. Stromberg isn’t bashful about “shoplifting” ideas from his bigger rivals.

“The goal is you walk away with at least one good idea we can use in our store,” he said, describing how one crew was politely asked to leave a San Francisco Bay-area Whole Foods.

Whole Foods, which boosted second-quarter profit a third to $117 million and whose stock is valued at $18 billion, won’t say when it hopes to crest the 1,000-store mark.

But Joe Rogoff, Whole Foods’ Seattle-based manager for Northwest stores, insisted the Austin-based retailer isn’t trying to muscle out smaller rivals. Rather, he hoped it turns on a whole new audience to natural, organic food.

Trader Joe’s didn’t return phone calls and emails seeking comment.

In Boise, Ben Kuzma hired on as the local co-op’s general manager in 2011, just as the store in the capital city’s oldest neighborhood was about to be drenched by a wave of competition.

Two regional chains, Spokane-based Huckleberry’s and Denver’s Natural Grocers, arrived this year, while Whole Foods opens its 35,000-square-foot store a mile away in November.

So far, Kuzma said, 2012 revenue growth has been cut in half, to about 3 percent, for a store that last year grossed $26 million. The impact could be even more significant when Whole Foods opens and lures curious shoppers away.

A veteran of California, Maine and Arizona co-ops, Kuzma said looming competition forced him to cram a three-year store transformation into just one.

He joined the National Cooperative Grocers Association in February, to take advantage of the group’s national buying power. The company has also adopted new accounting standards and boosted employee training.

Others changes are more visible: Fast-growing organic pet supplies now have a separate storefront.

And Kuzma hired a chef to remake the deli – and abandon use of an outside supplier, Sysco Food Services, for prepared items. Kuzma wanted to use the organic food sold elsewhere in the store in the “grab-and-go” section because customers probably figured the store was doing that anyway.

“It’s more honest,” Kuzma said. “I felt like we weren’t walking the walk.”

In Austin, the Wheatsville Food Co-op opened in 1976, four years before Whole Foods Market got its start across town. Whole Foods now has more than 300 locations, while Wheatsville stuck with a single store.

That’s changing. It plans a second location amid increasing competition: Whole Foods has three stores, including its flagship; popular gourmet grocer Central Market is down the street. Trader Joe’s is coming, too.

Like the Davis co-op, Wheatsville hired a designer.

“We’re looking at what makes people want to shop at Whole Foods and Trader Joe’s, and trying to bring pieces of it to our next location,” brand manager Raquel Dadomo said.

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