Louisville Courier-Journal - 4 January 2003
For 25 years, the Rainbow Blossom food and nutrition stores have been at the top of Louisville’s natural foods chain, but they’re about to be challenged by the nation’s No. 2 natural foods specialty retailer.
Wild Oats Markets Inc. is set to open a new megastore Jan. 29 in the Shelbyville Road Plaza, bringing the first major, outside competition to the area’s organic foods and nutritional supplements market.
And for its first Kentucky store, Wild Oats will be making the challenge in a big way.
At 28,000 square feet, Wild Oats will be twice the size of Rainbow Blossom’s flagship store a couple of miles away on Lexington Road. And with its big cases of fresh, organic meats and fish, large produce section, deli and other attractions, it could rival mainstream groceries Kroger and Winn-Dixie.
“We will definitely see impacts,” from the opening, said Rainbow Blossom owner Rob Auerbach, but he’s counting on the loyalty of Louisville’s natural foods community and St. Matthews traffic patterns to soften the blow.
“When the smoke settles, where we’ll be hurt is in the people who live in the area of Wild Oats. But people who live on Frankfort Avenue are not going to drive by me to fight the traffic on Shelbyville Road.”
Rainbow Blossom has three stores in Louisville and recently expanded with the purchase of the Great Harvest bakeries, Auerbach noted, so he’s not without resources of his own.
“We are a very formidable independent. We’re one of the strongest independents, certainly, in the Midwest.”
Grace Koenig, owner of Amazing Grace Whole Foods and Nutrition Center on Bardstown Road, said she’s already lost all of her big store customers to Rainbow Blossom and to the locally owned Health & Harvest stores.
“We have a lot of people coming in all day long for small items. That’s why I hope will help us stay afloat. The people in the Highlands don’t want to run up to Shelbyville Road for their lunch. People will go and check (Wild Oats) out, and probably be in awe a little when they get there, but people will be coming back.”
Consumers should get a break for a while when Wild Oats opens.
“You will see some pretty promotional pricing at the start-up, and they’ll probably have a pretty good flier out there,” said Bennett Bertoli, a former Louisvillian who handled leasing for Wild Oats in its early growth days. By three to five months later, he said, the stores will be “back to their regular pricing, which is higher than people would pay at a Kroger.”
One thing the locals probably won’t have to worry about is the kind of long-term, cut-throat pricing that often follows the entry of a big-box retailer such as Meijer into a market and keeps grocery stores operating on razor-thin margins.
“Natural foods retailer are generally not as price promotional as supermarket retailers,” said Scott Van Winkle, a stock analyst with Adams, Harkness and Hill. “There’s not as much vendor participation” to share the costs with the retailer.
Price is well down the list of concerns for the natural foods and supplements consumer, Auerbach said.
“When we talk to our customers, we talk about solutions to your problems. If I give you an herb that helps you sleep, you’re not going to worry if it’s $8 or $9.”
What nobody knows is how much business the new store will take from existing natural-foods retailers or traditional groceries and how much new business it will create.
Van Winkle assumes there will be a mix. If this were Boston or San Francisco, with a mature natural-foods market, the Wild Oats share might come more from other specialty stores, he said. But in Louisville he would expect to see more trade transferring from the groceries, where people get their first taste of natural foods, to the specialty stores.
“They will definitely grow the market,” said Bertoli. “It depends on the proximity of the competition how badly they hit other, existing stores.”
Kroger does not comment on sales or the impact of competition, said Tim McGurk, spokesman for the company’s Louisville office.
“Natural foods does represent one of the fastest-growing areas of our business,” he added. “Nearly every new store we open now includes an expanded section for natural foods.”
The natural and organic foods and supplements market is growing about 20 percent a year, Van Winkle said, with $15 billion of its $25 billion in sales coming from the supplement side. Wild Oats rings up about $1 billion in sales at its 100 stores.
The company began in 1987 in Boulder, Colo. It went public in 1996 and bought out several other chains, a growth spurt that peaked in 1999 with the addition of 47 stores.
But the growth strategy was undisciplined, Van Winkle said, and the company borrowed too much money to achieve it. Losses started to pile up and its stock price fell.
Management changes have since righted things. A secondary stock offering earlier last year brought in $48 million for anew round of expansion. Wild Oats plans to add up to 13 stores this year and another 45 by the end of 2005.
“We’re looking at having greater density in our markets,” said Wild Oats spokeswomen Sonja Tuitele. “While we don’t have another site identifies in Louisville right now, it’s very likely we’ll be adding additional stores in your community in the coming years. A market that size, we could probably have three or four stores.