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Outpost Spreads to Bay View; Natural Foods Co-Op Will Face Competition From Bigger Whole Foods a Year From Now

Posted on: Monday, 12 September 2005, 18:00 CDT

Who's afraid of Whole Foods? Not Outpost Natural Foods, a local co-op that dates back to the hippie days of 1970.

The grocery chain, owned co-operatively by almost 12,000 members, will open its third store location Thursday, about a year ahead of the entry into Milwaukee's east side of Austin, Texas-based Whole Foods, one of the best-known organic retailers in the U.S.

The new Outpost store will open at 2826 S. Kinnickinnic Ave. in Bay View in a completely renovated building that once housed a Kohl's supermarket. Other locations are the 8,700-square-foot store at 7000 W. State St. in Wauwatosa that opened in 2000 and a 10,000- square-foot store at 100 E. Capitol Drive.

Outpost's expansion is unusual, but not unheard of, in the world of co-op groceries, according to Robert Cropp, director of the University of Wisconsin Center for Co-ops in Madison.

"Most of them have one location," Cropp said. When the co-op groceries grow, they typically move to larger quarters rather than add stores, he said.

For the most part, co-ops are surviving competition from Whole Foods and other natural or organic chains, Cropp said.

Outpost expects that it will be the same here when Whole Foods arrives, said general manager Pam Mehnert.

"We've looked at other cities across the country," Mehnert said. "In every single case, the market has grown. Whole Foods does such a good job of raising awareness that people will start to discover us."

"A small local co-op like Outpost will feel the impact of Whole Foods' entry into the marketplace," said Jon Hauptman, vice president at Willard Bishop Consulting in Barrington, Ill. "They attract sales from a whole range of retailers wherever they go."

But Hauptman agrees that there's still an opportunity for the locals as Whole Foods raises awareness of natural and organic products. That happened in Minneapolis, where local co-ops are thriving after Whole Foods came to town, he said.

The decision to add the Bay View store was made in response to requests from Outpost's members who live in the area, not as a strategic move to prepare for Whole Foods, Mehnert said.

But that doesn't mean that Outpost is oblivious to the challenge it faces. Last year, the co-op launched a catering service that can serve organic meals at customers' events.

The catering business meets a previously unserved need in the community, Mehnert said, but also gives Outpost a leg up against Whole Foods. The Texas chain caters food, but only on a carry-out basis, without off-site service, Mehnert said.

The new Bay View store has 10,000 square feet of space at the back that serves as a commissary, preparing deli foods for all three grocery stores as well as for the catering service.

Mehnert expects the catering service to do $50,000 in sales this year. The co-op had revenue of $22 million for the previous 12 months, and expects to get an additional $4 million in sales for the first 12 months of the Bay View store's operation.

The bigger threat to organic co-ops such as Outpost has been the increase in organic products offered by traditional supermarket chains, including Pick 'n Save.

In a recent survey by the Food Marketers Institute, 73% of consumers said organic foods were available at the stores where they shopped, said Holly Givens, communications director for the Organic Trade Association. Sales of all organic products have increased by about 20% annually since 1990, Givens said.

For food products, a 20% gain is huge, Givens said, but some of the large percentage increase stems from the fact that organic products still make up a tiny portion, about 2%, of all food sales.

Bishop Consulting estimates that fresh format grocers such as Whole Foods accounted for just 0.6% of all grocery sales in the U.S. last year, or about $5 billion. Bishop counted 762 such stores in the country last year, but estimates that the figure will grow to 1,051 stores by 2009, with sales of $7.5 billion, for a market share of 0.8%.

Superstores such as Wal-Mart took the largest share of grocery expenditures in the U.S. last year, with 20.1% of the market and sales of $162 billion, according to the Bishop study.

While the large chains can be daunting competition, small local stores like Outpost still can offer other incentives to shoppers, Mehnert said.

"There's no easy in and out," Mehnert said of the big stores. "We're large enough to meet your needs but small enough to meet your neighbor."

20%: annual increase of sales of all organic products since 1990

2% of all food sales are organic products sales

Business: Outpost Natural Foods, a grocery cooperative with 11,700 members, headquartered at 205 W. Highland Ave., Suite 501

Founded: 1970 as Kane Street Co-op on the lower east side.

Locations: 7000 W. State St.; 100 E. Capitol Drive. New store at 2826 S. Kinnickinnic Ave. opening Thursday.

Annual sales: $22 million

Membership fee: $25 annually, up to $200 for a full share membership. The investment can be returned to full-share members when they leave the organization. About 20% of profits are returned to members annually, with 80% retained for re-investment in the business.

General manager: Pam Mehnert, a 25-year Outpost employee who holds a bachelor of arts degree in theology from Ambassador College in Pasadena, Calif.

Certification: Outpost became a certified organic retailer in 2004, through the Midwest Organic Services Organization in Viroqua. Land used for growing organic foods must be free of prohibited substances for three years prior to certification; farmers and processors must keep detailed records of methods, materials and management practices; and growers and processors must be inspected annually by a third-party certifier. Retail organic certification at the store level ensures that there will be no cross-contamination or commingling of certified organic food with non-organic foods.

Copyright 2005, Journal Sentinel Inc. All rights reserved. (Note: This notice does not apply to those news items already copyrighted and received through wire services or other media.)

Source: Milwaukee Journal Sentinel

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