A trio of specialty grocery stores has opened in Orange County, hoping to further feed the local appetite for healthy luxuries such as fine wine, cranberry apple turkey sausage and even octopus salad.
Wild Oats Market, Henry’s Marketplace and Gelson’s Markets recently set up new locations here and join a contingent of local specialty stores that ranges from Mother’s Market and Kitchen to Trader Joe’s.
Wild Oats opened the largest of its three OC stores on Culver Drive in Irvine last month, just three months after opening its first Henry’s Marketplace in Yorba Linda in November. Back in February, Gelson’s Market opened its third OC store at Monarch Bay Plaza.
Specialty stores, which sell delicacies such as octopus salad for around $10 a pound, have developed a core following. OC is seen as an apt market for the retailers, with its share of affluent food aficionados. Locally, OC shoppers spent an estimated $1.6 billion last year at food stores and another $3.4 billion on eating and drinking out, according to the A. Gary Anderson Center for Economic Research at Chapman University in Orange.
But the recent expansions come amid a national economic slowdown, layoffs and a testy stock market. Will OC shoppers still be willing to pay $18 for a lobster tail or $12 for a pound of baby sunburst squash a few months from now?
“Higher-end (grocery) stores have a tougher environment to sell in because right now consumers are showing restraint in their spending habits,” said Richard Giss, a partner in the consumer products group of Deloitte & Touche LLC in Los Angeles.
Other analysts give the specialty stores a sporting chance of weathering a downturn. They’re bound to lose some budget-conscious shoppers to supermarkets, but well-heeled food lovers aren’t as likely to stray, they say.
“These (customers) are the epicureans,” said Chris Lemos, an analyst at Deutsche Banc Alex. Brown Inc. in San Francisco. “These are people who are willing to spend money on food. Cooking is a hobby to a lot of people, and stores such as Whole Foods and Wild Oats are basically their junkyard where they pick up supplies for their hobby.”
In a recent Goldman, Sachs & Co. report on Whole Foods, analyst Kristin Ketner said concerns about slowing consumer spending are unfounded.
“The real issue for the company is not the top line, but rather, expenses,” Ketner wrote.
While the specialty store segment may hold its own in a slowing economy, it’s unclear whether everyone will have a seat at the table in an increasingly crowded market. Including a handful of big players, the U.S. Census Bureau counted some 22,000 specialty food grocery stores in 1997 with sales of $10 billion.
Investors already have cut back their buying of Boulder, Colo.-based Wild Oats Markets Inc. and Austin, Texas-based Whole Foods Market Inc. Both stocks are in downturns. The two companies also are closing stores in a bid to avoid oversaturating their markets.
As the novelty of specialty stores wears off, the key to survival will be better service, higher-quality products and greater variety, analysts say.
Even as it closes stores elsewhere, Wild Oats is expanding in OC. The company’s new Irvine store totals 26,000 square feet with 168 employees. The company’s first OC store opened in Laguna Beach with 50 employees. Wild Oats, which also owns Henry’s Marketplace and Sunshine Grocery, operates 108 stores in all.
“People are always looking to eat healthy food, so we don’t think the economy will really affect our business,” said Harry Day, vice president of marketing for Wild Oats. “So many consumers are looking for healthier food and won’t give up better-tasting food that is healthier for them.”
Wild Oats stores, which offer organic and conventional foods as well as dining areas and take-out, do $7 million to $13 million annually, Day said.
The Irvine location is a prototype for the company. It features an expanded 5,070-square-foot gourmet deli with everything from Asian-Mexican items to pizzas, a grill, sushi and a garden bar with more than 50 organic items. Seafood and meats can be prepared upon request at the store’s Flamedance Grill station.
The new store also offers a wide selection of wines, including rare vintages and brands such as a 1970 bottle of Fonseca Portugal port for $213, said Bruce Matte, the store’s wine buyer.
“We are getting wines here you can buy only in restaurants,” Matte said.
Organic Growth
Overall organic product sales have grown at least 20% annually since 1990, resulting in an estimated $4 billion in annual retail sales, according to data compiled by the Greenfield, Mass.-based Organic Trade Association.
About 75% of natural foods are sold through chains such as Whole Foods and Wild Oats. The rest go through supermarkets, mass merchandisers and discount drug stores. For retailers, the attraction is clear: natural foods command 5% to 8% gross profit margins, vs. 1% to 3% for conventional foods in grocery stores, according to San Diego-based Nutrition Business Journal.
Other specialty grocery stores operating in OC include Mothers Market and Kitchen with four OC stores, and El Segundo-based Bristol Farms, a privately held chain with a dozen specialty grocery stores, mostly in the Los Angeles area. Bristol Farms, which sells upscale groceries and beverages, operates three OC locations.
Encino-based Gelson’s Market, a subsidiary of Arden Group Inc. in Compton, operates 16 stores, including its new Dana Point location. It has plans for a 17th store in Pasadena. Another player is South Pasadena-based Trader Joe’s Co., which counts 10 OC stores, including an Irvine location that opened in August.
“We are aware of market conditions, but our customers seem to patronize us in all kinds of market conditions,” said Trader Joe’s Pat St. John, vice president of marketing. n
