Natural Food Supermarkets Gain Popularity

August 10, 1999

Natural food supermarkets are achieving record growth as they gain acceptance from more and more health-oriented consumers, says a new report from USDA. Health food store sales reached $8.4 billion in 1997 compared to $7.6 billion in 1996.

Chain stores, such as Whole Foods Market and Wild Oats, the two largest retailers in the segment, were responsible for an estimated $2.3 billion in 1997 sales. Natural foods supermarkets are pursuing aggressive growth strategies and opening larger, full-service stores. Prior to the early 1990s, relatively few natural food stores in the United States were large enough to meet the supermarket definition of $2.5 million or more in annual sales.

Price premiums often associated with natural foods dictate that stores be located near households with above-average incomes which are generally found in major metropolitan areas. And because natural food products generally cost more, retailers must price them accordingly to cover store operating costs.

Aside from the produce department, bulk foods are very limited in traditional supermarkets, yet many natural food shoppers are accustomed to purchasing grains, seeds, cereals and dried fruits in this manner, the report says. Produce receives a greater share of natural food shoppers' dollar, as expected, while only about one-third as much fresh meat, seafood and poultry are sold in natural foods supermarkets.

Surveys indicate consumer interest in natural and organic food products is becoming more widespread. Consumer interest in alternatives to traditional supermarket offerings, coupled with the expected approval of federal organic-certification standards, likely will result in natural food products capturing a larger share of the mainstream consumer food dollar.

Changes in consumer preference can be found in efforts of traditional supermarkets to introduce more organically grown foods, including packaged products, the study says. Some of the largest food retailers are expanding natural food offerings in their stores. Traditional retailers also are experimenting with different ways to display natural foods, whether mixed with conventional counterparts or grouped together with distinct labeling and signs in the aisles.

Wild Oats added 13 stores and entered four new states in 1997 and had contracts to open eight new locations in 1998. Whole Foods Markets wants to add 25 new stores by 2000 and by 2003 plans to operate more than 140 natural food supermarkets in metropolitan areas across the country.