Feeling the squeeze
The recent arrival of Whole Foods has put pressure on Greater Des Moines grocers to compete.
Friday, October 12, 2012 7:00 AM
When Paul Rottenberg and George Formaro opened Gateway Market in 2007, the duo’s high-end grocery store was the first of its kind in Greater Des Moines.
“Our goal was to bring Des Moines the kind of products that they’d see at a Whole Foods, but at the time couldn’t get because it was too small a market,” said Rottenberg, who also is president of Orchestrate Hospitality, which also manages downtown restaurants Centro and Django.
Five years later, Gateway Market is one of many in a continually increasing field of specialty groceries and natural food options in Des Moines.
Trader Joe’s Co., known for its inexpensive prices and interesting selection of goods, opened its doors in late 2010. Organic and natural foods giant Whole Foods Market Inc. took a bite out of Greater Des Moines’ market in late July. And Hy-Vee Inc.’s new Urbandale store, which opened in August of this year, boasts a large selection of prepared food, a dine-in restaurant and an extensive health food market.
“Everyone is getting in on the food market,” said Ron Prescott, a retail and small business specialist with Iowa State University Extension and Outreach and the university’s department of economics. “It’s becoming hugely competitive.”
The rise in options in Greater Des Moines and across the country has come in response to Americans’ increased interest in buying locally, sustainably and organically, Prescott said.
According to the Organic Trade Association’s 2011 organic industry survey, sales of organic foods and beverages have grown substantially in the last 20 years, rising from $1 billion in 1990 to $26.7 billion in 2010.
Sales grew 7.7 percent between 2009 and 2010 alone and now represent 4 percent of the $673 billion food industry.
Mass market retailers, such as supermarkets and warehouse stores, are the largest suppliers of organic foods, accounting for 54 percent of total 2010 sales, the survey found.
Whole Foods and Trader Joe’s are both cashing in on consumers’ preferences, with plans to open more stores across the country. Trader Joe’s website lists 18 new store locations coming soon and in June of 2011, Whole Foods reported that it plans to move up its store count from 300 to 1,000.
For an area to be considered for a Whole Foods store, the retailer requires a population of 200,000 people or more within a 20-minute drive and a large number of college-educated residents, according to its website.
“The (West Des Moines) site we found was perfect. It had everything we ask for,” said Kate Klotz, Midwest regional spokeswoman for Whole Foods. “But we also knew we had underserved Iowa; obviously, there were no stores in the state.”
Klotz said the company is happy with results so far and has plans to expand its reach.
“We haven’t signed any new leases yet, but our regional president has said he’d like to build at least one more store in the Des Moines area and maybe more elsewhere in the state,” she said.
To keep up, traditional supermarkets such as Hy-Vee and Dahl’s Foods have added larger produce and meat sections as well as health food sections, Prescott said. Some are even redesigning and redeveloping floor plans “to capture and focus on the organic market,” he said.
Hy-Vee built its largest supermarket to date when it replaced its Urbandale store with a new, larger store. The Urbandale Hy-Vee features artisan breads, cooking classes, gelato (an Italian style of ice cream) and a Starbucks coffeehouse. It also houses a large health food market, which Randy Edeker, chairman, president and CEO, said is one of the fastest-growing segments of the chain’s sales.
“We’re studying lifestyles of customers -- what are the foods that they want?” he said in an earlier interview. “They wanted more of a culinary focus. We’ve done a good job at improving how we approach food. And our customers are demanding that.”
Smaller stores also must find new ways to keep old customers.
“We’re learning to do better,” Gateway’s Rottenberg said. “We’re figuring out why customers would want to shop at Whole Foods and accepting some of the problem is demographics and focusing on growing the parts that only we can offer, including our whole kitchen side from takeout to catering.”
These are some of the reasons Michelle Hurd, president of the Iowa Grocery Industry Association, thinks more competition is a good thing for consumers.
“As retailers enter the market, there becomes more competition for all grocers, not just a particular segment,” she said. “Competition is always a good thing for consumers. It makes everyone better. It makes retailers more efficient.”
Hurd added that she believes retailers will keep an eye on their new competition and may make some changes, but they’ll mostly listen to what their customers want.
But what does the sudden increase in competition mean for retailers? Prescott said the answer to that is an easy one.
“Stores will close; that’s a given,” he said, noting that consumers have always and will always spend a large portion of their budget on food, but costs in other areas have gone up and salaries have not kept pace. “There’s only so many retailer dollars we have.”
And even if stores don’t close, he said they will see a decrease in sales.
Rottenberg said Gateway Market is already feeling the effect of Whole Foods’ entry into Greater Des Moines.
“Oh yeah, we’ve had a decline in sales,” he said. Shoppers in West Des Moines who used to travel to Gateway Market for specific products now have more options closer to home, he said.
He said Gateway Market went through a period of worry and hurt feelings when it first learned of Whole Foods’ plans. But now the company is just focusing on staying competitive. He also believes Greater Des Moines’ population has reached a point where it can absorb more retailers.
“It would be a different conversation entirely if Whole Foods was down the street,” he said. “But we’re fortunate (Des Moines) can support the competition.”
TIMELINE: Specialty grocery stores opening in the metro Area
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