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
This article appears in July 28 • 1995 and July 28 • 1995 (Cover).
