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Co-op preps for whole foods: ozark natural foods in fayetteville to get direct competition.

Fayetteville city officials were on hand for the official groundbreaking ceremonies for the new Whole Foods Market Inc. store on North College Avenue on Wednesday.

"It's a perfect fit for this city," said Mayor Lioneld Jordan. "It's a great win for the city."

When Whole Foods announced its plans in the spring to locate a store in Fayetteville, it elicited both cheers from fans of the high-end grocery store and concern from supporters of Fayetteville's own organic Ozark Natural Foods, the state's only grocery co-operative, which has been in business since 1971. Ozark Natural Foods later released a statement that said it welcomed Whole Foods since that would increase the community's access to healthy products.

Behind the scenes, though, Ozark Natural Foods went to work quickly to determine how best to handle the new competition. It developed a "competition preparation plan" with different marketing and pricing strategies for the next year.

"We're definitely going to be aggressive," said Alexa McGriff, the marketing director for Ozark Natural Foods. "We're not going to sit back and let Whole Foods come in while we hold on and hope we make it through the storm. We're trying to do a lot where we engage with customers and get them more involved with our brand.

"I'm sure Whole Foods is going to have good customer service, but we're going to have better customer service. That's our thing. We pride ourselves on being the happiest, friendliest store in town."

Whole Foods, with 371 stores nationwide and eight in Canada, reported revenue of $12.9 billion in fiscal year 2013 compared with $14 million for Ozark Natural Foods. And not only is Whole Foods coming to town, it's also setting up shop just 2 miles north of Ozark Natural Foods.

"While it is competition and that can be scary, the more important thing is we are excited that now more people will have access to healthy foods," McGriff said. "It's a larger organization that has more money to spend on advertising so more people will learn about it. We are definitely aware we will lose some business. That's just the nature of competition."

Whole Foods paid $4 million for the 5-acre lot at 3535 N. College Ave. that will have up to 10 other stores or restaurants. Construction is scheduled to begin in a few weeks, and Whole Foods expects the store to open in the fall of 2015.

The city agreed to pay about $150,000 to install a traffic light at the intersection of Masonic Drive and College--the intersection at the entrance to the shopping center at the west end of Masonic Drive that Whole Foods is anchoring.

Whole Foods decided on Fayetteville, rather than the other main cities in northwest Arkansas that were also vying for the grocery giant, after the city began building the flyover bridge to connect College--which is also Highway 71B--to the Fulbright Expressway.

"We're always wanting to go to communities that are excited about us," said Laura Zappi, the executive marketing coordinator for Whole Foods' Southwest Region. "The area as a whole is a great spot. It could use this type of service. It's underserved in the local, organic market."

McGriff said Ozark Natural Foods executives contacted other co-ops around the country to see how Whole Foods affected their operations when it came into their same areas. McGriff said Ozark Natural Foods expects to lose perhaps 30 percent of its business but that only a loss of 50 percent or more would cause the company to make layoffs or drastically scale back the business.

McGriff said other co-ops told them half their lost business returned after the first year--when presumably the newness of Whole Foods wore off--and the co-ops that struggled for longer stretches were the ones that didn't aggressively market themselves when Whole Foods arrived.

"We're not expecting to have a huge hit," said Alysen Land, the general manager of Ozark Natural Foods. "It's a good thing for a restaurant when other restaurants move into the same area. Personally, I'm going to go to Whole Foods. They have things I like that we don't have."

Jordan, who worked as mayor to attract Whole Foods, is one of the 10,000-plus owners of Ozark Natural Foods and is a regular shopper there--"I love Ezekiel Bread," Jordan said, referring to the sprouted grain bread that is a customer favorite. He doesn't think Whole Foods' arrival is a death knell for Ozark Natural Foods. "There's room for everybody," Jordan said.

Blessing in Disguise?

McGriff said Whole Foods' entry into the market could be a blessing for Ozark Natural Foods, which she acknowledged faces a perception that it's over-priced. She said Ozark Natural Foods officials regularly compare prices of their store's goods with similar goods at a Whole Foods in Tulsa and find them comparable.

McGriff said the store has lowered its profit margin 3 percentage points in the past five years and was starting up a "basics" special on items such as bread and eggs that lowered the margin to as little as possible. Ozark Natural Foods is also going to start a program with revolving low-price specials for other common items, McGriff said.

Those plans were talked about before, McGriff said, but Whole Foods' announcement of a Fayetteville store persuaded Ozark Natural Foods to proceed.

"There are a lot of people in northwest Arkansas who don't shop here because they think we're too expensive or we're price gouging," McGriff said. "Those people are going to go check out Whole Foods and see our prices are very comparable. We completely understand that people think that, though, because we do live in Wal-Mart Country, and Wal-Mart does provide foods at the lowest price they can. We can't do that."

What Ozark Natural Foods does, and McGriff said this will be emphasized in the coming months, is operate locally and market products that are grown locally by small or cooperatively owned farms. McGriff said revenue generated by Whole Foods goes to its headquarters in Texas to benefit shareholders of the publicly traded company, while Ozark Natural Foods gives money back to its members and local charities.

"Here, at ONF, whenever you spend your money here, that is staying here," McGriff said.

McGriff said Ozark Natural Foods reserves 13 percent of its shelf space for local organically grown products--with the store's definition of local being within 100 miles of Fayetteville. Zappi said Whole Foods will also use local vendors and would bring in a "local forager" to find vendors in the area to provide for the new store.

No vendor has left Ozark Natural Foods for Whole Foods, but, of course, the new store doesn't open for at least a year. McGriff said she wouldn't be surprised if some vendors eventually chose Whole Foods, which can buy in much larger amounts than Ozark Natural Foods could hope to.

Ozark Natural Foods hopes a distribution center change will help it lower prices as well. ONF, as does Whole Foods, buys its national products from United Natural Foods, which has moved from Iowa to just outside of Dallas.

McGriff said that will result in lower shipping costs for the three weekly truckloads Ozark Natural Foods receives and even more savings if deliveries can be combined with Whole Foods orders.

"I mean this 100 percent--and you'd be able to tell if I'm lying because I'm a terrible liar--but our mission really is to bring healthy foods to people of northwest Arkansas at the lowest price possible," McGriff said. "If other businesses are helping us accomplish that mission, we're going to be happy."

Caption: Alexa McGriff, marketing director at Ozark Natural Foods: "We pride ourselves on being the happiest, friendliest store in town." PHOTO BY BETH HALL]

Caption: From left: Fayetteville Mayor Lioneld Jordan speaks at the groundbreaking last week for Whole Foods. Dignitaries from Fayetteville and Whole Foods Market mark the beginning of construction. Whole Foods will be located just 2 mites north of Ozark Natural Foods. Laura Zappi, executive marketing coordinator for Whole Foods Market's Southwest Region, speaks at the event. [PHOTOS BY BETH HALL]

By Marty Cook

MCook@ABPG.com
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Author:Cook, Marty
Publication:Arkansas Business
Date:Aug 18, 2014
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