« January 2008 Table of Contents
Case Study: Setting the bar
Post-Wild Oats acquisition, Whole Foods expected to innovate in seafood
By Lisa Duchene
January 01, 2008
Ten years ago, most grocery store seafood departments were
lackluster. Though solid movers of product, supermarket seafood
counters had grown stale.
Then Whole Foods became a national phenomenon. The natural
foods retailer opened stores in major U.S. cities, selling
beautifully displayed, high-quality fresh fish and shellfish.
Upper-income consumers, who spend the most on seafood, took
note, and in turn mass-market supermarket chains followed
"From a merchandising point of view, they've really shown
the way for a lot of traditional supermarkets," says Jim
Hertel, managing partner of Willard Bishop, a retail food
advising firm in Barrington, Ill.
Whole Foods has elevated seafood's presence with interesting
merchandising, cooking classes and special events. More
retailers pay attention to these things than five or so years
ago, says Mike Griswold, research director of the Retail
Strategies Group of AMR, an independent Boston research
Now, Whole Foods is taking its game to a new level. With
annual sales of $5.6 billion, the retailer in late August
acquired smaller rival Wild Oats with annual sales of $1.2
billion and 110 stores. The $565 million deal gave Whole Foods
307 stores. It quickly sold 35 stores and announced plans to
close nine of the remaining acquired stores.
Analysts say that despite the challenges the deal
represents, it will likely end up strengthening Whole Foods and
its influence over supermarket seafood and other perishables
"It would not surprise me to continue to see them push the
envelope with creativity and innovation with all perishables
and certainly within the seafood department," says
Two reasons to expect continued innovation, says Griswold,
are that Chairman and CEO John Mackey will continue to be at
Whole Foods' helm. The company's board of directors re-affirmed
its support for the visionary Mackey in early October,
following an internal investigation begun July 17 into Mackey's
anonymous postings on financial message boards.
The company also will benefit from ideas among the seafood
merchandisers at Wild Oats.
"I'm sure the folks at Wild Oats had a few things up their
sleeves before the merger," says Griswold.
One of those tricks may be how to improve upon Whole Foods'
seafood supply chain. A big part of the company's seafood
success has been holding subsidiary processors and distributors
that allow it to control some of its supply from boat to
But this setup may give Whole Foods too little flexibility,
says Joseph Sabbagh, a retail-seafood consultant and president
of Sax Maritime Associates in Los Angeles who has worked with
Wild Oats relies on a single-distribution system to deliver
frozen seafood to its stores, then used local distributors to
supply fresh product, says Sabbagh.
"[Wild Oats] is getting product to their stores as fresh as,
or fresher than [Whole Foods] and at much lower prices because
[Wild Oats] has a system that utilizes local vendors and isn't
locked into its own bad investments," Sabbagh told SeaFood
Business (see interview with Sabbagh in June '07, p. 46).
"If you're a retailer and you start getting into a situation
where you're cutting up fish and getting into seafood
processing, you're kind of getting away from what you want to
do," says Sabbagh.
Whole Foods has shined in staffing counters with experienced
seafood people while Wild Oats struggled with labor, says
Sabbagh, adding that Whole Foods had changed its
seafood-distribution setup within weeks of the merger.
Acquiring and integrating another company is nothing new to
Whole Foods. The company has grown by acquisition, swallowing
smaller natural foods chains like Bread & Circus and Fresh
Fields in the East, Bread of Life and Food for Thought in
Northern California and Harry's Farmers Market stores in
Atlanta. But Wild Oats represents its largest acquisition and
could be a distraction, says Hertel.
"Any time you have a merger and integration to worry about,
there are a lot of people who take their eyes off the ball,"
says Hertel. "It takes a lot of energy and people focused on
bringing the two companies together, making financial,
operational and political decisions."
Another challenge Whole Foods faces is a downside to its
growth strategy. As it acquired companies and stores, it also
built stores from the ground up, opening a record 21 new stores
in the fiscal year that ended in September. But its 263 stores
are spread out, which means it doesn't have much market share
in any one area, says Hertel.
When many traditional grocers upgraded their perishables,
Whole Foods was careful to still be price-conscious.
One sign that Whole Foods will put its new assets to work
and continue to innovate is its plan to convert an
18,500-square-foot store in Boulder, Colo. - a former Wild Oats
store on the company's home turf - to a "Whole Foods Market
Express," a convenience-focused concept with value-oriented,
"It's no coincidence that Whole Foods, Giant Eagle and
Wal-Mart are all coming up with smaller formats of 12,000 to
15,000 square feet, with Tesco coming [in November]," says
Tesco, a British retailer, offers high-quality, fresh
prepared foods at competitive prices in a small format and
opened six Fresh & Easy Neighborhood Market stores in
California on Nov. 8 and five in Las Vegas the following week.
A total of 50 stores are scheduled to open by February.
The next key to seafood success, it seems, is which retailer
makes the most of seafood in smaller, convenience-focused
stores and can do it in a price-conscious way.
Contributing Editor Lisa Duchene lives in Bellefonte,