May 25, 2006
Whole Foods vs. the Outpost
I maintain a page on being a vegetarian in Milwaukee. On that page, I discuss a local natural foods grocery chain, the Outpost, and the eagerly-anticipated arrival of Whole Foods. I wrote: "When Whole Foods gets here, I don’t know how the Outpost is going to successfully compete" because the Outpost is very expensive and Whole Foods has such a strong brand.
In response, I got an email from Lisa Malmarowski, Director of Brand and Store Development of the Outpost Natural Foods Cooperative. With her permission, I'm quoting her response:
"I really wanted to communicate with you personally about your question regarding how Outpost will compete with the national chain Whole Foods moving into our market.
It's no secret that Whole Foods has been looking for a site in the Milwaukee area for more than 10 years. During that time, we haven't been content to rest on our cooperative, community owned laurels. We've been actively improving our operations, opening new locations and striving to lower prices without compromising quality.
Outpost currently employes more than 350 people, we're a UFCW union workplace too (unlike Whole Foods), we expect to net more than 22 million in sales from our three locations, magazine operations and catering division this year and we're co-owned by nearly 13,000 area residents. We're not going anywhere! We're in a stable position, ready to compete - not just with the nationals, but also with places like Pick N' Save, Sendik's and other strong regional players.
We are also connected with other food cooperatives across the nation via the National Cooperative Grocers Association. Co-ops nationally are second only to Whole Foods in their buying power and are still viable, vibrant businesses. For example, the Riverwest Co-op is one of many new co-ops that have opened across the country.
We plan to compete by offering a unique shopping experience, a fast in an out trip and excellent customer service. The Milwaukee grocery market has become increasingly competitive in the last 5 years with new grocery stores opening (Sendik's expansion), the Public Market, Pick N' Save's new locations and others. Yet we have still grown.
In other markets with strong cooperative groceries where Whole Foods has opened, these stores have survived and thrived, sometimes seeing an initial nominal drop in sales, but then a sales increase. Whole Foods positions themselves to compete w/ big stores, especially those that feature gourmet, fresh selections. They also do a great job of increasing awareness for natural foods and savvy retailers can draft off this awareness.
Hopefully you've stuck with me through my marketing discussion. What you said struck a cord in me and reminded me of that famous quote by Mark Twain, "The rumors of my demise have been greatly exaggerated.” We'll do okay, and even Beans & Barley will do okay, because the main part of their business is the service restaurant. Sure, folks will check out the new places, but I imagine that many Milwaukeeans will want to continue to patronize the places that make and keep Milwaukee unique - that's a position that Whole Foods can't own since they're a national chain."
I think it would be great if Whole Foods has a tentpole effect of stimulating demand for natural foods across-the-board. At the same time, while Milwaukee isn't California, there's a lot more options for the natural foods consumer than we imagined there would be. Not only are there venerable institutions like the Outpost and Beans & Barley, but as Lisa says, there has been an expansion in the market, such as the new Riverwest Co-Op, the new Public Market (which is terrific, BTW) and the expansion of Sendik's. The market has gotten noticeably richer in the past 4 years, even without the arrival of Whole Foods. In any case, Milwaukee is lucky to have the Outpost, and I hope it continues to thrive.
Thanks for your detailed and thoughtful response, Lisa. And good luck to you and the Outpost!
We had occasion to visit the Whole Foods in our old neighborhood in Saint Paul this past weekend, and one of the things we noticed was that many of the prices there were higher than at Outpost. It's always seemed to me that the only place Whole Foods consistently beats its co-op competitors on price is with respect to its house-brand products.
More generally, the evolution of the market in Saint Paul (which is at least roughly similar to Milwaukee) supports the idea that Whole Foods won't seriously damage the Outpost, and might even help it by raising demand. About five years after Whole Foods' arrival the local co-op opened an additional, much-larger location due to increased demand. Although that decision nearly turned out to be a disaster due to poor execution, my understanding is that demand has continued to grow, and in any event both co-op locations still appear to be going strong.