Down to Earth up for challenge

Whole Foods challenges mainstream markets, too

STORY SUMMARY »

Down to Earth Natural Foods is gearing up to take on competition from incoming Whole Foods Market at the same time it is getting ready to celebrate its 30th anniversary at the end of this month.

At a glance » Stores: 5 » Local farmer suppliers: 172 » Local product purchases: $2.5 million* » Employees: 230 » Top-selling items: organic bananas, papayas, Genesis 100 Goji Juice, Govinda's carrot juice, Dr. Bronners peppermint hemp all-purpose soap, organic brown rice, Down to Earth Colon Cleanse. * 2006 statistics Source: Down to Earth

Besides renovations to its Honolulu and Kahului stores, it's upping marketing efforts to keep its customer base from straying as the Texas-based competitor rolls out four stores over the next three years. At least initially, the company is anticipating anywhere from a 5 to 40 percent hit in sales.

But CEO Mark Fergusson said the main strategy of the natural foods chain -- currently the largest in Hawaii -- is to stay true to its ideals of healthy living, vegetarianism and a respect for the environment.

While natural foods are a big part of Whole Foods' appeal, it also caters to the gourmet end of the market, which has never been a big part of Down to Earth's customer base.

In the meantime, Hawaii's mainstream grocery retailers also have been catching the organic wave, and they may end up feeling much of the brunt of the new competition.

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Down to Earth Natural Foods is staying true to its vegetarian roots.

As the 30-year-old Hawaii-based natural-foods retailer gears up for competition next spring from mainland giant Whole Foods Market, it is working to sink those roots deeper by reaching out to its customers, remodeling, and getting the word out that has been supporting local farmers all along.

Down to Earth stores Location Square Ft. Opened King St., Honolulu 6,000 1977 Kahului, Maui 9,000 1997 Makawao, Maui 3,000 1992 Pearlridge Mall, Pearl City 4,000 2000 Kailua 6,000 2000 Source: Down to Earth

Last year, Down to Earth bought nearly $2.5 million in products from local vendors and more than a third of its produce from local growers, ranging from Maui bananas to Big Island avocados and lychee, and Rapoza mangoes from Molokai. The stores -- five in all, with three on Oahu and two on Maui -- will also buy a bag of produce from your backyard, as long as it fits the criteria for quality. Each store has the option of buying directly from its community.

"We strongly support local farmers through our policy of purchasing virtually all the produce they are willing to sell us, even if it's only a crate full," said Down to Earth CEO Mark Fergusson. "The reason is simple. We understand how important excellent quality local produce is to our customers, and we also appreciate how much farmers count on us for their success."

Fergusson said the high-priced, gourmet products and glitzy shopping experience Whole Foods has to offer is not Down to Earth's market.

Supporting a lifestyle

Down to Earth sets itself apart by offering products for the vegetarian lifestyle -- even though half its shoppers may not be vegetarian. That includes gelatin-free capsules in the supplements department and cheese that is free of animal byproducts.

The business, which was founded by a small group of vegetarian friends on Maui in 1977, is banking on a loyal customer base built over the years to keep its stores up and running.

Fergusson said: "It's still a group of friends. We were, and remain even today, a grassroots business whose mission is to promote vegetarianism, healthy living, respect for the environment, and sustainable organic farming. We're still down to earth, and we don't have any pretensions about being a big business."

The natural foods chain has been steadily making money over the years, Fergusson said, though he declined to disclose profits or revenue.

"We got this far for one simple reason," he said. "We understand how important it is to meet our customer's expectations for high-quality organic and natural products at affordable, down-to-earth prices. That's been our goal all these years, and our customer's acceptance is evidence of our success."

Down to Earth is, to date, the store where customers can buy items like chocolate bars supporting endangered species, Goji juice, organic brown rice, vegan cheesecake, earth-friendly laundry detergent and cosmetics made from beets or minerals -- even tea tree-flavored toothpicks.

A row of items in bulk, which range from granolas to semolina flours, nuts, and grains, is popular with customers, as is the wellness section, which offers supplements and homeopathic remedies, with advice from Down to Earth employees.

There is tofu from Mrs. Cheng's as well as bread from Agnes' Portuguese Bake Shop.

Of the local produce, avocados, bananas and papayas are the biggest sellers for consumers. The store also hosts cooking classes and health seminars.

Terry Shintani, the author of "Hawaii Diet" and president of the Hawaii Health Foundation, plan to remain loyal to Down to Earth. Shintani says he's been shopping there since it opened 30 years ago, back when he was a student at the University of Hawaii.

"I had to scramble around to find good quality brown rice," he said. "And then like a miracle, they appeared. I'm a local boy and I like to support local companies."

To this day, Shintani still shops for his brown rice, beans and vegetables at Down to Earth, and it's become a venue for his diet seminars as well.

Still, Down to Earth is bracing for anywhere from a 5 percent to 40 percent hit in sales due to Whole Foods' arrival, Fergusson said.

Enter the competition

The planned Whole Foods stores are a bit too close for comfort, with two (Ward and Kahala Mall) planned within two miles of the King Street store, Down to Earth's No. 1 store in gross sales.

The Kailua Whole Foods Market is just around the corner from the existing Down to Earth on Hamakua Street. And in Kahului, the No. 2 store in gross sales, the planned Whole Foods is just a mile from the existing Down to Earth.

Austin, Texas-based Whole Foods has been known to beat its competition by acquiring it, as was recently the case with the Wild Oats Markets chain on the mainland.

The Federal Trade Commission tried to block it, but a federal judge and appeals court allowed the deal.

In mainland towns, some natural foods stores have managed to survive -- and others have not.

Whether or not there will be a price war here remains to be seen.

Down to Earth does carry some high-ticket items, but also offers regular sales items, as well as items in bulk, which keeps prices down. But it won't have the same economies of scale as Whole Foods.

Combined, Whole Foods Market has announced plans to enter Hawaii with more than 160,000 square feet of retail space over the next three years -- more than five times the retail square footage for the existing Down to Earth stores.

Natural food stores have introduced people to organic produce, said Fergusson, and Whole Foods has brought it to a broader audience.

The overall consumer pie could grow bigger as more people become interested in buying organic, natural foods, as has become evident in mainstream stores such as Safeway and Wal-Mart.

Down to growth

Down to Earth has some strategies for growth, one of which is to remodel its Honolulu and Kahului stores.

Demand at the King Street store has for many years outgrown its size. Instead of moving, however, Down to Earth has opted to stay at the central location, which attracts the university crowd and local residents.

Remodeling plans were already in the works before Whole Food's announced arrival, according to Fergusson. But the news was also a wake-up call to make the stores look nicer.

Its plans are to widen and reconfigure aisles, double the frozen/chilled section and improve the back area -- which offers a hot food bar, salad bar and bakery, and will include a new juice bar. Completion is expected at the end of February.

Remodeling is also planned for the Kahului, Maui store, which will expand by 3,000 square feet to 9,000 square feet.

A new distribution warehouse in Halawa Valley this year will play a key role in expanding Down to Earth's capabilities. It will have more storage space, particularly its frozen section, and be able to buy direct from manufacturers in larger quantities to reduce prices.

Fergusson said, in keeping with the Down to Earth philosophy, buying locally would result in cost savings because of the elimination of high freight costs for shipping produce here from the mainland.

As a result of growing competition, Down to Earth is increasing its marketing efforts more than ever before. Besides ad inserts, which were launched about a year ago, the store is planning some TV ads in the near future.

Fergusson believes customers initially be lured away to Whole Foods Market will eventually return. He also hopes a well-established customer base will continue to support Down to Earth.

The next campaign? A celebration of Down to Earth's 30th anniversary on Oct. 30, with 30 percent off the store's 30 best-selling items.

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Whole Foods challenges mainstream markets, too

When Whole Foods Market rolls into Hawaii, it may be the larger supermarket chains, rather than the small natural foods stores, feeling the brunt of the competition.

That includes Safeway, Foodland, Times Super Market, and Star Markets -- which gave up leases at two locations now slated to become Whole Foods stores.

Safeway, the California supermarket chain which launched its own Organics line and is rolling out new lifestyle format stores with its largest, to date, on Kapahulu Avenue, has been named as a top contender.

But every grocer will be impacted in one way or another, according to retail analyst Stephany Sofos.

"It will be very stiff competition for your local retail grocers, including Foodland, Times and Star Market," said Sofos. "There is an adverse effect every time you bring in a new kid on the block. It's going to create more competition and costs."

Times has its Fujioka's Wine Times, and California backing.

Star Market remodeled its Moiliili store and was bolstering its selection of healthy and gourmet products, including a larger range of cheese and wines.

Foodland has roots that go back to 1948, and recently completed a multi-milion-dollar renovation of its Ala Moana Center store.

It's brought in new offerings, including Beard Papa's cream puffs and the Coffee Bean & Tea Leaf, and also has fine foods from R. Field. Foodland is also planning its own gourmet, natural foods store at the Shops at Mauna Lani on the Big Island.

Big box stores, including Costco and Wal-Mart (although Wal-Mart has yet to build a Supercenter here with a grocery store) may also be impacted.

Competition from traditional supermarkets, which have recently boosted their natural and organic offerings, was Whole Foods' very own argument for why it should be allowed to acquire Wild Oats Markets on the mainland.

The question is how local grocery prices -- a major component of Hawaii's high cost of living -- will be impacted.

Whole Foods, jokingly referred to by some as "Whole Paycheck," is in the gourmet grocery category.

In Hawaii, there are few large competitors in the natural foods realm. There are several dozen independent natural foods stores with single locations, and Down to Earth Natural Foods, the largest chain here, which is still small compared to Whole Food's intended four-store entry.

Top competitors for Whole Foods Market include GNC, Kroger and Trader Joe's, the latter two of which do not exist in Hawaii.

"The bottom line is that the consumer in Hawaii is very cost-conscious and very concerned about convenience and pricing," said Sofos. "Who will succeed in this marketplace has yet to be determined. We'll know better within 6 to 9 months after Whole Foods has opened."