Vegetarians at the Gate

Health-food heavyweight Whole Foods takes aim at the Uptown crowd

A few steps from the northwestern shores of Lake Calhoun in Minneapolis, the bricks and mortar are falling quickly into place on Calhoun Commons, a new development that will be anchored by a spacious Whole Foods grocery store.

Roll over, Euell Gibbons: Nuts and berries have become a big, remarkably profitable business.

As the nation's largest chain of natural-foods retailers, Texas-based Whole Foods Market Inc. has, since its founding in 1980, ridden the boom in organic food and nutritional supplements to become a billion-dollar enterprise. It's no secret that consumers have become increasingly receptive to eating healthy and getting educated about their diets: Industry analysts figure that sales in the natural and organic food industry have been growing by leaps and bounds--20 percent or more a year for much of the decade. And Whole Foods is riding the wheat-grass wave. At last count, the rapidly expanding chain had 93 stores across the nation.

No sweat yet: The Wedge's Elizabeth Archerd says times are good for the local co-op, and a new chain-linked neighbor isn't worth worrying about
Diana Watters
No sweat yet: The Wedge's Elizabeth Archerd says times are good for the local co-op, and a new chain-linked neighbor isn't worth worrying about

The company's numbers tell its success story: Since 1992, Whole Foods' sales have increased nearly sixfold; fiscal 1998 sales approached $1.4 billion, with profits of $45.4 million. Whole Foods stock is publicly traded, and is closely watched by Wall Street analysts. The company's average store size--24,000 square feet--puts its outlets closer in size to megagroceries like Rainbow or Cub than the stereotypical hole-in-the-wall co-ops you could handily tuck into a Whole Foods juice bar; the suits at Whole Foods have concluded that, besides their own, there are fewer than 100 natural-foods stores in the U.S. that measure more than 10,000 square feet.

Whole Foods first came to the Twin Cities in May 1995, when it opened a 17,000-square-foot store at the corner of Fairview and Grand avenues in St. Paul. With that move Whole Foods was tapping into one of the country's strongest natural foods markets. Seattle and the Twin Cities have the highest number of co-op grocery stores in the country; the metro area here hosts 12. (The state as a whole counts 41 retail food co-ops inside its borders, and another 1,000 cooperatives of all stripes--agricultural, utilities, etc.) Still, at the time gloom-and-doom predictions swirled about how the chain's presence would impact the city's traditional purveyors of natural foods--co-ops, which are collectively owned by voting members who've paid a joiner's fee and in turn gain a vote in the store's elections, enjoy discounts on food, and receive annual rebates based on their purchases.

The 20-year-old Mississippi Market, which operates with 3,900 feet of floor space in Highland Park, is St. Paul's largest such co-op. According to Alan Mathewson, its general manager, having one of the links in the Whole Foods chain as a neighbor did cut into business: The market's sales, which had been showing double-digit growth in the early 1990s, dropped after Whole Foods opened its doors. Since then, sales have steadied, and even climbed a bit, to $4.7 million in 1998--though not to what they might have been had Whole Foods not taken up residence nearby.

In April Mississippi Market opened another St. Paul store, a $3.5 million, 7,500-square-footer at the corner of Selby and Dale. Mathewson says the expansion was made in response both to the co-op's own good health and to the presence of its corporate rival. Mathewson, who is projecting sales of $3.5 million at Highland Park and $5 million at Selby and Dale, figures that the presence of Whole Foods has not only raised public awareness about natural foods, but has helped to toughen the business sense of co-op groceries: "The competition of Whole Foods has helped co-ops think as competitors and entrepreneurs."

When the new 40,000-square-foot Whole Foods opens on the lakeshore in Minneapolis in late November or early December, Dan Blackburn, who runs St. Paul's Whole Foods, will take the reins. The home office, he says, is pleased with the performance of the first Minnesota outlet--a whopping nine million dollars in sales last year--and is ready to take a crack at the lucrative market on the other side of the river: "I'd say everyone's very happy with us, or they wouldn't have even looked in Minneapolis."

Ann Brennan, Whole Foods marketing director for the Twin Cities, says that it isn't the chain's intention to drive independent co-ops out of business. Quite the opposite, she insists: right now, anyone who's selling natural foods is good for the industry. "They're great for the whole market," Brennan declares, even while conceding that "they might not view us the same."

 

National chains such as Whole Foods and local, independent co-ops are both riding the same wave of growth in natural-foods sales. Dave Gutknecht, publisher and editor of the trade magazine Cooperative Grocer, estimates that there are more than 300 retail food co-ops around the nation (including co-ops that don't sell only natural foods), doing between $450 million and $500 million a year in sales. Call it a crowded market, but Frank Blackburn, director of education for the Minnesota Association of Cooperatives, says there's room for everybody, at least for the time being: "At some point, it's just like antique stores: You're going to have all the market can handle. But right now the market is growing faster than the stores."

While overall sales volume is growing (a rising tide that's lifting most boats), competition is increasing, which means that the co-ops' share of the natural-foods market is falling (because there are more ships in the water). At the same time, the total number of co-ops in the metro has fallen: In the late 1970s there were more than 30 co-ops in the Twin Cities; while total sales at co-ops today eclipse those of 20 years ago, the money is going to a smaller group of co-ops that have survived and prospered.

Among the most flush is the Wedge Community Co-op, just south of the intersection of Franklin and Lyndale in south Minneapolis, which this week marks its 25th anniversary. Elizabeth Archerd, member services director there, says the co-op did $14.5 million in sales for its fiscal year that ended last June: That figure ranks the Wedge as the second largest natural foods co-op in the nation. "The Wedge has always, in all of its incarnations, outstripped what all of the natural-foods consultants said we could do in our building," Archerd says.

Co-op members share those good times. Last year the Wedge distributed $197,000 in cash "patronage rebates" to them, and an equal amount in stock. Now in its third home in the neighborhood, the co-op doubled its space in 1997 to just under 11,000 square feet of retail space. During this fiscal year, which ends in a few weeks, the Wedge is still growing at a rapid pace and expects to post sales of more than $16.4 million. Last year, the co-op tested the waters of further expansion when it surveyed members for their thoughts on a second store, but Archerd says right now there are no plans. "Everyone who lives more than five to ten miles away would like a store closer to them," she says. That would require significant investment, and Archerd says members have typically been wary of anything that might financially imperil the original store.

Opening another store would be one way of hanging onto market share in the face of increasing competition by, say, Whole Foods, which will be located but a few miles to the west of the Wedge. Or by Wild Oats Markets Inc. of Boulder, Colorado, which has 71 stores nationally. In 1998 the publicly traded chain saw sales of $398.9 million and a profit of $11.6 million. "We've long had a strong interest in the greater Minneapolis area," says Wild Oats president Jim Lee, who declines to give specifics about the company's possible real estate plans (Wild Oats' list of store openings through 2000 includes nothing in the Twin Cities area).

Furthermore, traditional grocers are increasingly expanding their offerings of natural-foods products. Take, for instance, the overhauled Rainbow Foods in Minneapolis's Uptown neighborhood, within walking distance of the Wedge, which as of its recent Grand Re-opening features a much more expansive display of natural foods.

As competition from Whole Foods and others intensifies, local co-ops may revisit the idea of unifying in order to remain viable. The concept isn't new. In 1993 five co-ops--the Wedge, Mississippi Market, Seward Community Co-op in Minneapolis, Lakewinds Natural Foods of Minnetonka, and Valley Co-op in Stillwater--voted on a merger, which would have meant that members of one would be members of all. But only two of the co-ops got the necessary two-thirds vote: the Wedge and Lakewinds. Bottom line? Staying ruggedly independent won out.

That was six years ago, before the arrival of Whole Foods. Archerd says there's no concrete merger discussion right now, but allows that the topic is floating in the background. Mississippi Market's Mathewson says the benefits of such a merger would include collective buying muscle for the co-ops: They could purchase in greater bulk, which could lower costs at the store level; from a convenience standpoint, members would be able to shop at any participating co-op with a single membership.

In the wake of the no vote, local co-ops have found other ways to do business together. Those same five co-ops plus the Linden Hills Co-op in Minneapolis and Valley Natural Foods of Burnsville banded together last year to form an incorporated trade organization. Twin Cities Natural Food Co-ops collectively promotes member co-ops, including via the publication of the bi-monthly Co-op Consumer News. Too, the Wedge and Mississippi Market joined hands to retain the same public-relations firm to promote themselves to the media.

The joint efforts among local co-ops, Mathewson concludes, might best be read as a signal of what's to come--that is, more chain outlets peddling tofu, and the eventual overcrowding of today's room-for-all natural-foods market. "We may see some mergers and consolidations of some of the food co-ops in the Twin Cities," he says, stressing that those decisions are up to the member-owners. "I think the timing is good. A lot of our members at a lot of our stores realize it's much harder to operate independent stores."

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