Natural high

Hawaii's natural food stores see healthy growth

Hawaii is home to a handful of natural food stores, mostly small businesses, that are growing due to public demand.

With the arrival next year of Whole Foods Market, one of the largest natural food store chains, they are bracing for a dip in sales.

Still, the smaller natural food markets say there is growing public interest in natural products and organic produce, which is motivating them to remodel and expand.

Umeke Market in Kahala already has added a new lifestyles section in the space next door, while Kale's Natural Foods in Hawaii Kai plans to expand in June.

They are confident that customer service and knowledge will set them apart from the larger chain stores like Whole Foods, as well as Safeway, which now offers an organic line of products.

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Natural food stores in Hawaii, once just a small part of the overall grocery store industry, are expanding and fast becoming part of the mainstream.

Whereas they may have once occupied just a small niche in the market, their growth is now being driven by public demand.

Kale's Natural Foods in Hawaii Kai is growing to 2,700 square feet, taking over the art and framing store next door after two years in business. The target completion date is June, and the new space will add organic salads, a juice bar and sandwiches to its offerings.

At Umeke Natural Foods Market & Deli, near Kahala Mall, the expansion already has taken place.

In December, Umeke took on an additional 1,100 square feet, almost doubling its space, when the fitness center next door moved out.

The new space will feature an expanded personal care and clothing line -- from organic underwear made of bamboo to organic cotton baby clothes, recycled rugs, natural shampoos, lotions and household goods.

And, of course, the latest, trendy line of Newman's Own organic dog food -- especially in wake of the latest tainted dog food incident.

"I wanted more diverse offerings than the food and deli," said co-owner Debbie Yamaguchi. "The overall lifestyle is also important -- sustainability and environmental protection, for me, is important."

Umeke, which has been in business nine years, starting first as Kaimuki Health Market, has continued to gain market share over the years.

Profits are up, said Yamaguchi, though she declined to specify how much.

"The whole natural foods industry is growing in every single category," said Yamaguchi. "Why else would the supermarkets follow suit?"

FOOD SALES HIT $17B

The sales of organic foods in the United States amounted to close to $17 billion last year, according to the Organic Trade Association's 2006 Manufacturer Survey, exceeding expectations.

Organic foods last year made up about 3 percent of total food sales.

Organic products, which include personal care products and nutritional supplements, along with household cleaner, pet food and clothes, totaled $744 million in U.S. sales in 2005.

Glenn Kale Gibb, owner of Kale's Natural Foods, said he's already bracing for the arrival of Whole Foods at Ward Village next year, and expects a 10 to 15 percent drop in sales.

"When they finally do open, we'll take a hit," Gibb said. "We've planned for it, and if you're a natural foods store and you haven't planned for it, you're fooling yourself."

However, he said Kale's was planning to expand anyway, due to its growing demand from a customer base established over the last two years.

Being next door to Safeway is a plus, he said. At this time, his store is also the only one serving the Hawaii Kai community.

Gibb says Kale's will differentiate itself by providing excellent customer service -- from a staff that is familiar with the products personally.

"You will not find that in a conventional supermarket," he said.

Kokua Market Natural Foods Co-op held a grand reopening last month for its renovation, which added another 600 square feet, bringing the total square footage to 2,200.

General Manager Brad Salmon said it was a response to co-op member feedback. Former backroom space was converted into retail space, adding a kitchen and a deli section.

Salmon said it was part of a plan several years ago.

Since the renovation, he said sales have gone up about 20 percent -- deli sales have doubled and sales of frozen goods have gone up 30 percent.

He boasts of having 44 linear feet of natural frozen foods, which he says may be the largest in Hawaii.

Kokua has managed to survive despite a larger chain, Down to Earth Natural Foods, just up the street.

Down to Earth, a Maui company founded in 1977 which now has five locations, two on Maui and three on Oahu, has no expansion plans, but currently has the largest presence in Hawaii.

April Cockrell, Down to Earth's community outreach director, said the company just opened a new distribution center that will allow it to purchase larger quantities, and pass savings to the consumer.

Down to Earth also will be remodeling its King Street store by the end of the year to make the space more efficient and to increase its freezer section.

Cockrell is confident that Down to Earth as a local company will manage to keep loyal customers, despite the arrival of Whole Foods.

"We're expecting an initial impact, but we really think we have a different market," Cockrell said.

"Our customers know that we're totally vegetarian, and that they can come in here and not worry about ingredients. Our staff is really knowledgeable about the healthy vegetarian lifestyle."

Kokua Market's Salmon, likewise, said he's not worried about Whole Foods.

Based on the experience of the network of co-ops on the mainland, he said, smaller natural food businesses typically will see an initial decline in business as their customers go to check out Whole Foods.

This is what has happened to other co-ops in towns where Whole Foods entered the market.

Then the customers tend to come back a few months later, pushing sales slightly higher than before the arrival of Whole Foods.

Location and proximity to the new Whole Foods is also a factor.

"Stores that suffered were in marginal locations," he said. "In a decent location that's easy to access, you're probably going to be OK."

Kokua is carrying an expanded line of organic and natural meats, along with certified organic produce from local farms such as Ma'o Farms, in addition to local banana suppliers.

Kokua even buys mangoes and avocados from people's backyards.

NATIONAL TREND

The growing demand for organic produce and health products is a national trend.

"Conventional supermarkets have been seeing the growth and projected continued growth in organics," Salmon said. "No other category is growing like this, so they basically want a piece of the action."

Safeway, Sam's Club and Longs Drug Stores are all advertising and promoting their own organic line of products.

The question is what standards are maintained, according to Salmon, who said most small manufacturers of natural foods have now been acquired by mainstream giants like Kraft and Kellogg.

While the marketing of these giants is good for the natural food industry, it also may result in looser organic standards.

"The co-ops as a whole are trying to keep the standards in the consumer's best interest rather than the producer's best interest," he said.

L&L Drive-Inn and Hawaiian Barbecue owner Eddie Flores, whose wife is into health foods, said people are willing to pay more for healthy products.

His business advice?

"I would sell service, be really friendly and open the door for people," he said.

But he predicts Whole Foods will take customers away from existing natural foods markets, because of the convenience, variety and size.

As far as prices go, the smaller natural food markets say Whole Foods has been known for its higher prices. They are confident they will be able to remain competitive.

"There's a demand out there, and we feel like we're meeting that demand," Gibb said. "We're in a growth pattern that will continue to grow in spite of the impact of Whole Foods."