Whole Foods Already Causing Ripples in Local Food Market

Whole Foods Market is not expected to open its doors in Fayetteville until fall next year, but, in important ways, the organic food retailer is already here.

People are talking about prices, local farmers are weighing their vending options, and the unavoidable question is being asked: Can homegrown Ozark Natural Foods survive with a competitor like Whole Foods just 2.2 miles up the road?

Joshua Youngblood, the president of the board of directors for the local food co-op, says it’s not even a question. Ozark Natural Foods, composed of thousands of owners across Northwest Arkansas, will do much more than survive.

“We’ll always be in Fayetteville,” Youngblood said. “We’re going to thrive.”

The co-op rang up $14.1 million in sales last year, and, having paid $2.1 million in 2012 to close out its mortgage and related early-payment penalties, Ozark Natural Foods finds itself in a unique and enviable position: debt-free and flush with cash.

The co-op might consider a second location or might even expand into a vacant space the co-op owns next door to its store in the Evelyn Hills Shopping Center, Youngblood said.

Ozark Natural Foods is flexible and enjoys community support, and, once consumers see and feel the difference between a local co-op and a mega-retailer like Whole Foods, Ozark Natural Foods will find its niche and flourish in a $35-billion global market that’s expected to grow for the foreseeable future, Youngblood said.

But he also conceded that Whole Foods will bite into the co-op’s bottom line, as did The Fresh Market in Rogers when it opened in June 2012. The co-op will also be competing with Wal-Mart Stores Inc. and its organic brand, Wild Oats, and Springdale-based Harps Foods Stores, which will continue to increase its specialty offerings, primarily in produce and dairy, at locations across Northwest Arkansas.

“Are we worried about lost sales?” Youngblood said. “Yes. Are we worried about growth opportunities? Yes. We’re going to take a big hit. We just don’t know what it’s going to be.”

Markups and Margins

Now that the stage is set for what could prove to be a war within the region’s organic foods industry, the issue that’s emerged with a clear target on its back is the Ozark Natural Foods price margin. A known source of resentment for years — particularly among a number of owners who shop there on a regular basis — the loose consensus in Northwest Arkansas is that the co-op’s prices have to come down or the store will sag under its own weight and die.

Michael Crane, co-owner of Dripping Springs Garden in Carroll and Madison counties, has sold produce and fresh-cut flowers on the Fayetteville square for 30 years and has been a vendor at Ozark Natural Foods for 20.

He said he has a great working relationship with the co-op and plans to continue his association with Ozark Natural Foods. But from a consumer’s perspective, Crane stated the obvious when he said: “Competition would be good. Having two large stores in town would make the prices come down.”

According to the co-op’s 2013 annual report, the store markup was reduced by an entire point last year due to savings in the co-op’s supply chain. In the annual report, co-op general manager Alysen Land said the store has been chipping away at a 39-percent markup since 2006. Still, a staple like a gallon of milk is $7.69 and ground beef can retail for as much as $6.69 per pound.

Youngblood said the price margin is not the real issue. He said the co-op is already comparable to Whole Foods locations in Tulsa and Little Rock. He predicts Whole Foods will arrive with flashy sales and great prices in the beginning but will ultimately push those prices back up, once the store is rooted in the market.

“We’re not going to be out-priced by Whole Foods, at least not in the long-term,” Youngblood said. “After the buzz wears off, the margin will take over and [Whole Foods’] prices will begin to rise.”

Pickled Pigs Feet

Another issue Ozark Natural Foods must deal with is how to handle its 70-plus local vendors. While Ozark Natural Foods bought more than $1.6 million worth of products last year from area farmers, the local offerings are still a fraction of what is shipped to the store by United Natural Foods Inc., which serves the co-op from a warehouse in Dallas. And with only one store, the co-op gives local producers a limited platform from which to sell their products.

Whole Foods, on the other hand, offers local farmers a huge market — the southwest region, composed of Texas, Louisiana, Oklahoma and Arkansas — for those who can meet the Whole Foods standards for volume and quality.

One farmer who is working to put her products into Whole Foods is Rose Konold, who raises bacon pigs at her Mason Creek Farm a few miles southeast of Fayetteville.

A mainstay at the local farmers markets, Konold also sells to Bentonville restaurant Tusk and Trotter American Brasserie, as well as Ozark Natural Foods. At the co-op, she’s been able to place an assortment of bacons, a pepperoni and a hickory-smoked ham in the store’s cooler and a breakfast sausage with the deli. But with Whole Foods, Konold has a chance to sell all of her products that include bratwurst, ribs, Polish sausage, chops and maybe even pickled pigs’ feet.

“This is huge,” Konold said of Whole Foods’ arrival. “It broadens the possibilities of how you can sell the product, and I want to sell all of my products.”

Konold is in the process of trademarking her pigs, a Tamworth-Berkshire cross, as the Boston Mountain Hog and wants to create an infrastructure here so this area can become known for humanely farmed, high-end pork. She’s also considering partnerships with other pig farmers to meet more demand.

While she’s focused on her own opportunity, Konold said she’s certain other farmers in the region will at least give Whole Foods a long, hard look and consider stocking items there in addition to, or perhaps even instead of, Ozark Natural Foods.

“I think the vendors will be looking for a consistent avenue to sell their product,” she said.