Sizing up Your Growth Strategy,
Natural Foods Merchandiser - Joel Warner
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Expansion. It's likely the most exciting, but intimidating, milestone in the lifespan of your business. Whether you’re looking to add a second location, expand an existing store or just increase your product offerings, growing your company comes with risks—but also sizeable potential rewards. “Expanding boils down to one question,” says Tom Sokoloff, president of Paradise Health and Nutrition, a three-store chain in Brevard County, Fla. “Are you ready to have your life changed?” If you are ready to make the leap for your business, questions abound: What’s the smartest way to go about an expansion? How do you determine the right spot for a new location or the products and services to feature in an enlarged retail space? And how do you know if it’s really time to grow?
Here are some tips on what to do—and not to do—from retailers who’ve successfully expanded.
Know when the time is right. It’s easy to think that once your store has reached a certain level of sales, it’s time to grow. But Dean Nelson, owner of Dean’s Natural Food Market, says he had different reasoning behind expanding his flagship store in Ocean Township, N.J., from 5,800 to 7,500 square feet and adding smaller locations in nearby Shrewsbury and Basking Ridge. “Just because you’re busy doesn’t mean you should expand,” he says. “You expand when you think you are not hitting a particular market in your store. Are you driving consumers elsewhere because you can’t meet their needs? That’s really the expansion question.” Store expansions, after all, mean not just major capital expenses, but also sizeable increases in overhead costs, and you have to be sure the potential increase in market share is worth it, Nelson says. That’s why, before he expanded his operation, he consulted with outside experts. “I don’t usually believe in consultants,” he says. “But I think there are times when you need to reach outside of your knowledge base and get some guidance, so you can make a decision on quantifiable information, and not just your gut.”
Consider new locations. “We used to be able to draw people from up to 15 miles away routinely, because if they wanted good natural, organic products, they didn’t have another choice,” says Terry Brett, owner of the Kimberton Whole Foods chain in Pennsylvania. “But as mainstream stores started to add more and more natural and organic lines, I saw we were going to lose a lot of these customers. They were going to drive three miles to Wegmans to do their natural foods shopping, rather than drive another 12 miles to our store.” Today, the reality is, if retailers want to keep these customers, they have to go to them. That’s why Kimberton currently boasts five locations. But how do you determine where to plant your flag these days, especially when there aren’t many communities left that aren’t already serviced by natural options? One way is to design new stores that build upon, instead of dominate, the existing natural retail landscape. For Sizing up your growth strategy example, Donnie Caffery of Good Foods Grocery in Virginia, made sure his two small-footprint stores were part of the regional “natural food circuit” by focusing on an area untapped by his competitors: bulk food offerings, including 450 bulk bins and 350 jars of spices and herbs. “Nobody else around here is moving that department forward,” he says. “We’ve found a niche within a niche here.” Niche positioning is also the reason why Brett’s ongoing expansion strategy entails moving closer to bigger retailers such as Wegmans, Trader Joe’s and Whole Foods Market, instead of away from them. According to Brett, the presence—and success—of such stores suggests there’s an existing market for high-end natural foods, one that could also support smaller, independent stores like his that offer a specialty selection. “There’s a huge movement to buy local,” he explains. “We can focus on sourcing products locally or regionally and have a number of products you can only get at a smaller independent because the vendors can’t supply these larger chains. We are going to be the ‘town grocery store’ to a certain degree. So many small mom-and-pops have been knocked out of business by the big chains. There’s a chance for small-footprint retailers to come in and become a local community market.”
Nail down a plan. Having a well-reasoned expansion plan in place is essential, says Shannon Hoffmann, co-owner of GreenAcres Market. For example, as GreenAcres grew from a single store in Wichita, Kan., to a second store in Kansas City, Mo., and then a third in Jenks, Okla., the business made sure to nail down its inter-store organization and communication systems. “We needed to know how the stores would communicate, how they were related and how the central staff would work equally between all stores,” Hoffmann says. “You don’t want to fall into an out-of-sight, out-of-mind syndrome,” in which one location ends up attracting greater managerial attention to the detriment of the others. At the same time, GreenAcres put together solid ground teams for each store, crews that understood the unique needs of their location. “The local community needs to feel that the store is their store,” Hoffmann says, and not an operation that is being managed from afar. For Sokoloff, careful expansion planning also meant having a savvy financial strategy in place. For his first store expansion, he secured a bank loan. But he found he didn’t like being in debt, nor did he enjoy supplying the bank with his financial records each year. So when it came time to expand again, Sokoloff saved up as much cash as he could so he could cover the cost all at once. That resulted in a lower price tag because “you can get contractors to work a better deal if you are willing to pay cash when they finish the job,” he says. But the most important thing to plan for, says Sokoloff, is for not everything to go as planned. “Realistically, there will always be things that end up taking longer than you think,” he says. “Even when you plan out everything six months in advance, something will always delay the operation, whether it’s nuances of the inspection process or certain building materials not being available. The biggest lesson is to be patient with all of these factors.”
Maximize your existing location. “Bigger is not always better,” Hoffmann warns. “You really need to look at what you’re already offering and be maxing out what you’ve already got.” Even when it seems like your store is bursting at the seams, “it’s amazing how you can find room,” she points out, by cleaning out the back room or using sales data to identify and remove slow sellers. In Nelson’s case, expanding his flagship Dean’s Natural Food Market wasn’t simply about creating more space for existing offerings, but also branching out into new services. Because many natural retailers’ center-store product lines are under fire thanks to conventional retailers’ forays into natural products, Nelson decided to go in the other direction, making room for peripheral offerings such as a juice bar. “We identified something that Wegmans and Whole Foods and Trader Joe’s don’t do, which is fresh juice,” he explains. Foodservice is an exciting peripheral to consider while expanding, but it’s a move that shouldn’t be taken lightly, warns Caffery. “The minute you step into foodservice, you are stepping into a new arena,” he says. From ingredient prep to menu pricing to marketing considerations, the operation is more like a restaurant than grocery store. “Unless you have a foodservice background, you should have a manager who understands that world,” Caffery says.
Enjoy the results. Yes, a store expansion can be a trying experience. But for Caffery, once the dust settled, the results paid off. “Nothing’s more rewarding than when you make that expansion and your customers walk in the door at the grand opening and are so excited for you,” he says. “It has been so worth it.”
Joel Warner has written for Wired, Businessweek, Grantland, Slate, Westword and many other publications. He is co-author of The Humor Code, a global scientific exploration of what makes things funny, to by published by Simon & Schuster in early 2014.