The "Yuppie Chow" Market

A mere five years ago, the only reliable sources for what one food writer calls "Yuppie Chow" were a few Whole Foods Markets and Wheatsville Co-op. The larger, corporate chains were satisfied to offer your basic head of iceberg and plenty of white bread. Now, everybody in Austin wants in on the natural/gourmet food market - including HEB, with its fledgling gourmand paradiso, Central Market, and Albertson's, with the addition of specialty foods (sans 100% organic purity) at its upcoming store in Westlake Hills.

Ironically, it's the corporate giants who are driving the food aesthetics trend, forcing Whole Foods and the smaller, corner-store markets, like Wheatsville and Fresh Plus, to rethink their marketing strategies to compete. The tension has been palatable; with the opening of Central Market, Whole Foods was said to be sunk. Up until the grand opening of their mother of a store on the corner of Sixth Street and Lamar, there were whispers of falling stock prices and a troubled management. Instead, as it turns out, Whole Foods knew what they were tapping into: masses of upscale Austin shoppers looking for beautiful food, New Age sensitivity, and juice bars.

The message hasn't been missed by other grocery outlets: Sun Harvest Farms rejuvenated itself with a move to the former Whole Foods store in South Austin's Brodie Oaks and expanded its Anderson Lane store. Fiesta Market, a conventional supermarket with heavy emphasis on fresh foods, is keeping the status quo with its ethnic and blue-collar market niche. Sadly, one area of town is not benefitting from the excitement of competition: East Austin still lacks an organic grocery store, and in fact has seen only minor improvements to the HEB on East Seventh (see box, p.16).

Natural Goes National

In the late 1960s, biting into an organically grown peach was akin to making a bold statement against the establishment. Now natural foods are planted firmly into mainstream society as an $8 billion industry, with Austin-based Whole Foods leading the pack nationally as the largest natural foods supermarket chain, with 35 stores in eight states, and two more scheduled for New York and San Francisco.

"Austin is a microcosm of what's happening in the industry," says Emily Esterson, an editor with Natural Foods Merchandiser, a trade publication based in Boulder, Colorado. "You have mainstream giants coming into the market to compete with natural food stores."

A classic example of this phenomenon began to unfold in January 1994 with the opening of HEB's Central Market on North Lamar, between 38th and 41st Streets. It was pretty nervy of a conventional grocery store to delve into a world without health and beauty products, subscribing instead to a theory befitting a 1990s hedonist: eat, drink, and be merry and healthy, too. The store effectively wooed customers away from Whole Foods and Wheatsville, a 19-year-old co-op located just seven blocks from where the corporate newcomer laid down stakes on land it leases from the state. As such, there evolved a slew of closet cases ashamed to admit to shopping at Central Market.

"Central Market is such a novelty that it's the kind of place that everybody enjoys shopping [at] at least once," says Esterson, who quotes industry experts who put the store's weekly take at $1 million-plus. That figure makes sense, she says, because the store's ring per customer is higher than most other grocery stores. One local shopper recently bore out this claim when he dashed into Central Market in search of the perfect artichoke and walked out with $147 worth of food items. But people's willingness to pay such prices have forced Whole Foods and Wheatsville to rethink their approach. Whole Foods restructured its local market, closing three stores and opening two new stores, one at Sixth and Lamar and the other at Gateway Shopping Center, in the high-growth corridor of Research Blvd. and Loop 360 in Northwest Austin.

The much-heralded arrival of the downtown stores turned into bitter disappointment for the folks who had carved out a home for themselves at the 15-year-old site three blocks away at Ninth and Lamar - employees and loyal customers alike. In the move to the new 38,000 square-foot store downtown, Whole Foods clamped down on an existing dress code for employees - limiting the number of rings in pierced noses to one (no eyebrow piercings, please), and went after a new market of liberal yuppie shoppers who are perhaps more concerned with image than the environment. When the cozy atmosphere of the old Whole Foods gave way to the new cavernous store, some customers balked, missing the feeling of community they got from shopping at Ninth and Lamar.

While acknowledging a dip in sales after Central Market opened, Whole Foods has demonstrated its resilience by bouncing back. Its stock has shot up more than 32% and sales figures have put the downtown store third in company sales out of its 35 stores nationally; the Ninth and Lamar Whole Foods had averaged in the top 20. But the fact that Whole Foods is appealing to a new market has cost them a substantial number of diehard customers.

"I know that's true and it's unfortunate that we would lose customers over our move," says Rich Cundiff, president of Whole Foods' southwest region. "But we've talked to a number of our customers who felt alienated at our other stores. They felt like they were walking into an exclusive club. We're not a niche market any more. We're a national chain. The market has shifted to the point where we can sell Cheerios now because it doesn't have preservatives. But the fact that we're selling Cheerios doesn't mean we have compromised our quality."

What the store may have lost in old fans it has gained back in the pocketbook. "Whole Foods has definitely gained back some market share from Central Market, but HEB should be credited with throwing them the idea," declares David Karson, a securities analyst with Southcoast Capital who keeps close tabs on Whole Foods. And he adds that the Gateway Store in North Austin has taken market shares away from Randall's Simon David, a gourmet food store. "When you go into [the Gateway store's] cheese department it's like walking into a European cheese market. You compare that to Simon David or any other store, with their 4"x6" squares of cheese, and it makes the competition look so sterile, like a hospital or something."

The Little Guys

While Whole Foods had the working capital to deflect Central Market's punch, Wheatsville Co-op, with 3,800 members, has had to rely on old-fashioned ingenuity.

"The whole idea of food co-ops is to transform society," explains Marie Caesar, general manager of Wheatsville Food Co-op. "So if the big chains are selling organically grown lettuce, then we've done our job of changing society." Of course, Wheatsville didn't think "the big chain" would turn around and eat the co-op's lunch.

"There was a direct link from the time they opened to when our sales dropped," says Caesar of Wheatsville's 7% decline in the 1994 fiscal year after Central Market opened. "It changed our reality. We were going to have to deal with a major competitor." Adding insult to injury was seeing "the guys in suits" walking through the store with notepads before Central Market opened, she says."It was so obvious who they were and what they were doing. But I'm sure they see us as just a little gnat flying around their heads. Their real competitor is Whole Foods." The Wheatsville staff stewed for a while and then went to work. They painted the exterior of the store, installed new signs, added an espresso bar, repositioned the vitamin and beauty aids for more visability, and set aside space to sign up new members. Caesar, who is leaving her post in November to start her own business, says the co-op is slowly pulling out of its slump with sales growing at a rate of 1-2% per month, and new members coming into the co-op fold - membership is up by 100 since a few months ago, due in part, most likely, to disgruntled Whole Foods customers Caesar has noticed showing up at Wheatsville's doors for shopping and solace.

Not to be overlooked in all this shifting around is Sun Harvest Farms, considered the white knight of South Austin because it moved into the store left vacant by Whole Foods in the Brodie Oaks shopping center on South Lamar. The place has a comfortable, funky-lite feel to it. Many of the employees and managers hail from Whole Foods and Central Market. Maggie Ivie, the store manager, has an eight-year history with Whole Foods, getting her start at the same Brodie Oaks store location. Ivie, following Sun Harvest's new vision plan, has fleshed out the produce department, spiced up the beer and wine selection, and put in a bakery, deli, and juice bar.

Owner Nelson Wolff, a former mayor of San Antonio, admits to letting the company get sluggish during his foray into politics. "When we started in 1979 we certainly weren't upscale, but more blue collar." But when Whole Foods moved from Brodie Oaks, Wolff says he couldn't let the opportunity slip by. "We decided what we really needed to be doing in Austin is jumping in with both feet and moving quickly to industry standards." The store's new look has carried over in part to the company's second shop at 2917 W. Anderson Lane with the addition of a cafe. "Sun Harvest occupies a very interesting niche," says Esterson. "They're targeting an interesting mix of people - young and old and ethnic."

The most difficult trick in the grocery industry is to control costs while selling quality products at competitive prices. That's what Sun Harvest is trying to achieve. Wolff says the company manages to stay competitive through its longtime association with San Antonio's Catalani family of wholesale suppliers.

The Big Picture

As conventional grocery stores go, Austin fares pretty well in the precarious supermarket industry. Operating a grocery store is not easy when there is such a fine line between success and failure. With profit margins running a narrow 1-3% of sales, customers are crucial to keeping the doors open. Locally, HEB has managed to keep its dominant position in the market, with 20 stores in Austin, Pflugerville, and Round Rock.

"We're attempting to appeal to not just a niche market but to all shoppers," says HEB spokesperson Kristy Ozmun. "And what we know about Austin is that people here are very mobile and they shop at a lot of different places all the time. That's what keeps a lot of stores healthy."

The survival of a grocery store chain is a lot like a game of Monopoly. HEB, Randall's, and Albertson's are all moving aggressively to cover every square in town. In terms of numbers, HEB is ahead, and they're still expanding aggressively. The company's real estate honchos are narrowing their search for a site in southwest Austin. On the other side of town, the company plans to build a new store next year at Parmer and McNeil roads, which will help take a load off the overflowing mess at the chain's Parmer and MoPac store in far North Austin. (Ozmun says everyone complains about the crowds at HEB, but that's not altogether a bad sign in this business.) The final phase of remodeling at Ed Bluestein and Springdale Road will conclude in 1996, and next year's remodeling line-up includes the Pflugerville HEB, the store at Burnet and Koenig, and the cramped store at Congress and Oltorf.

The Boise, Idaho-based Albertson's is also flexing its muscle in the local market, with a 65,000-square-foot store going up at Loop 360 and Bee Caves Road, a supermarket-starved part of town. The new store will bring to 12 the number of Albertson's in the Austin area. Real estate rumors also point to Cedar Park as another probable site for Albertson's.

Randall's had a shaky entry into the Austin market, but appears to have stabilized, with two new stores in the works - one at William Cannon and South MoPac, and another at Research and Braker Lane. But those pesky rumors that Randall's is for sale still persist, says spokeswoman Cindy Crane Garb.

"We absolutely love Austin, Texas, and we're here to stay," she says of the Houston-based chain that began taking over Tom Thumb and AppleTree stores in the past couple of years. Last year, Randall's began hoisting its own store signs at the stores and sent longtime Tom Thumbers into a dither over the change. "It was a very weird phenomenon that was a monster to fix," Garb recalls. So the advertising firm of Tate/Austin cooked up the infamous "Ask Ellie" campaign featuring Ellie Rucker, the popular former consumer advocate for theAustin American-Statesman. With Rucker soliciting queries and complaints from shoppers, Randall's was able to put on a show of good faith to the community. The campaign lasted only six months, Garb says, because Rucker didn't want to make a career out of pitching for grocery stores.

Having worked out most of the technical glitches, Randall's officials now are trying to figure out what to do with its gourmet component - the Simon David store - now that Whole Foods has moved into its Northwest Austin territory. Garb says there's a possibility that Simon David could relocate to a brand new store in the same neighborhood, putting it in more direct competition with Whole Foods.

There is one grocery store content with the way things are: Fiesta, a 90,000-square-foot supermarket that hugs the east frontage of I-35 in Central Austin. The Houston-based store has carved out a loyal ethnic and blue-collar consumer market - "basically the underserved," says Bernie Murphy of the store's Houston office. Although largely a conventional grocery store, Fiesta has gained a following of shoppers going after bulk foods, fresh foods, and international fares, where a particular country's native foods are found in the aisle marked by a corresponding flag.

Perhaps the best news of all in this reshuffling trend is that Austin's other grocery stores are feeling pressure to compete for customers by improving their selections. Locally owned Foodland Grocery Stores, which has been asleep at the wheel for much of its 20-year existence, is fessing up to its poor image and trying to fix things. Foodland owner B.J. Armstrong hired Joe Cutrer, a former Randall's manager, to redirect not just the company's product mix, but also its line of thinking. Foodland is investing a "substantial amount of capital" into store makeovers at all six of its locations, which are in predominantly low- to middle-income neighborhoods. "We're not just talking about painting the walls," Cutrer says. "We know we have a low image, but we think we can change that. And despite our low rating, we still have a strong customer base." One reason for that could lie in Foodland's proximity to low-income neighborhoods where residents, including many elderly citizens, have little or no access to transportation that would take them to a supermarket beyond walking distance.

Foodland is upgrading its meat department and produce selections, and increasing produce deliveries to the stores from three to four times a week, Cutrer says. Of course, what's driving these changes is not social consciousness, but economics. The neighborhoods where Foodland set up shop long ago now are drawing younger, more demanding consumers. "We see the neighborhoods are changing and that a different type of customer is moving into these areas," Cutrer says. "They're coming in here and asking for healthier food products."

While Foodland's sudden change of heart is encouraging, one can't help but wonder why the hometown independent waited this long to clean house. "It's hard to say why they procrastinated," Cutrer says of his new employer. "But you wait; we're going to transform this company."

Nutrition Goes Mainstream?

It took more than a couple of decades, but supermarket chains are starting to come around to the fact that a healthy diet of fresh foods is not such a weird and nutty idea after all. This is what natural food stores and co-ops have advocated all along, but it took Whole Foods to prove that such an approach could be profitable, and HEB leading the chains in jazzing up the marketing of healthy, nutritious foods along with aesthetically pleasing supermarkets. And in going after this "new" market, the conventional supermarkets have, in effect, declared war on the natural food stores.

Of course, competition is good for consumers because it forces stores to hold the line on prices. But in the warfare over market share, there are going to be casualties. For one, the communal spirit of the small, neighborhood grocery store is fading rapidly from Austin's landscape. This is part of an industry trend toward centralization, which translates to fewer but bigger supermarkets dotting the city map, and fewer people walking or riding their bikes to the corner store. In the end, it looks like iceberg lettuce and white bread will have to get used to sharing their shelves with iron-rich bibbs and fat-free granola. n