Grocery Stokes Healthy Competition

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When low-cost natural foods grocer Henry’s Farmers Market was briefly owned by Whole Foods Inc., the latter’s chief executive said he wanted to get rid of it because its products weren’t very good. So Henry’s was sold off quickly to Commerce-based Smart & Final Inc.

Now, Henry’s is moving in on Whole Foods’ L.A. turf, slowly at first, but with plans to wage a bigger battle for market share. But it’s not stopping at Whole Foods. The chain hopes to slice away customers from Trader Joe’s and Ralphs as it opens up to a dozen stores in Los Angeles over the next two years.

The strategy for Henry’s is to offer organic, healthier fresh foods conveniently alongside basics such as whole milk and eggs all at discount prices.

Janet Little, Henry’s spokeswoman, said the competition will be intense.

“I think Whole Foods is scared,” Little said. “They didn’t know what to do with us and cast us off. But we are growing, we have better or just as good products, and are glad to go up against them any day.”

Henry’s newest store in Woodland Hills, which opened last week, places the chain in an area that could be called “Organic Avenue,” with a deluxe Ralphs Fresh Fare, Whole Foods Market and Trader Joe’s along a two-mile stretch of Ventura Boulevard.

“It’s a gutsy move,” said Phil Lempert, a Santa Monica-based grocery industry analyst better known as the “Supermarket Guru” for his national TV appearances and books on grocery shopping. “Farmers markets are on the upswing in popularity across the country, so this model may capitalize on an experience unlike your get-in, get-out kind of mentality.”

Henry’s fashions itself as an “indoor farmers market” with low prices on fruits, vegetables and meats, and a strong emphasis on the quality of its produce and bulk items, most of which are organic or locally grown, that comprise the centerpiece of the sales floor.

There are 29 Henry’s in Southern California with the opening of the Woodland Hills store, the chain’s second in Los Angeles. While its 30,000-square-foot stores are maybe half or one-third the size of such major grocery stores as Ralphs and Vons, each Henry’s location is designed to allow patrons to see clear across the store thanks to lower shelving. That allows more “breathability” like a farmers market, along with rustic touches such as woodlike flooring and barrels of produce.

“What is fascinating with Henry’s is that it has this down-home, ‘aw, shucks’ approach that customers who are turned off by the cost and image of Whole Foods might flock to,” said Kevin Kelley, principal of Shook Kelley, an L.A. consumer research firm that monitors grocery trends. “They have a marketing approach that I haven’t seen any other grocer in the area take on.”

With sales of bulk items and healthy living foods, Henry’s could be viewed as a downscale, wanna-be Whole Foods. But company officials reject the comparison. They don’t see themselves as downscale, they call it lower cost. And they point to the eclectic selection on their shelves: Just steps away from gluten-free products, organic vegetables and $20 bottles of olive oil are cases of Budweiser beer, gummy worms, and a variety of Asian and Latino foods usually found at other supermarkets.

“We see ourselves as a transitional store,” said Little, who is also chief nutritionist for Henry’s. “Henry’s is about catering to people who want to start eating healthier but still shy away from going all vegan or organic, and still want those indulgence items like cheap candy or beer.”

Henry’s opened its first Los Angeles County store in San Pedro in 2006, testing the waters. The company plans to open its third Los Angeles location in Monrovia by June and its fourth in Burbank by Christmas. Others will follow.

“They have the potential to cherry-pick what’s hot at each of the grocers in the Los Angeles market and shake things up,” said Jack Kyser, founding economist at the Los Angeles Economic Development Corp. “Or they could get lost among the fray, trying to be too much.”




San Diego roots

Henry’s grew out of a family-owned operation that first sold peaches on a street corner out of the back of a truck in San Diego in 1943. That business grew into the 29 stores now dotting Orange, San Bernardino, Riverside and San Diego counties.

Originally owned by Henry Boney and his family, it focused on San Diego but opened a handful of locations in Arizona. In 1999, Boulder, Colo.-based Wild Oats Markets Inc. acquired the Irvine-based Henry’s from the Boney family.

When Whole Foods Market, based in Austin, Texas, bought its rival Wild Oats in 2007, Henry’s came as part of the deal. A few months later, Whole Foods Market sold Henry’s with its 35 Farmers Markets along with Sun Harvest Market stores, another farmers market-style chain in Texas, to Smart & Final for $166 million.

Before the sale, Whole Foods Chief Executive John Mackey had written on his blog that the company had to get rid of Henry’s quickly because it sells “cheaper, and frequently lower quality produce, as well as a number of products that don’t meet the Whole Foods quality standards.”

George G. Golleher, chairman and chief executive of Smart & Final, said that Whole Foods’ loss was their gain. Smart & Final is a nonmembership warehouse grocer that offers products in large prepackaged quantities, and is now remodeling some of its stores to offer fresh produce and meats from some of Henry’s suppliers.

“We see Henry’s as a growth opportunity,” said Golleher, adding that company officials are working on opening seven to 10 Henry’s in 2010, mostly in Los Angeles.

Smart & Final and Henry’s “have different segments of the grocery industry market and operate independently,” Golleher said. “But we share knowledge and have learned much from them about quality produce, which comes from many of the same places Whole Foods’ does.”


Competition abounds

In a fight, Whole Foods has an advantage in size, with 275 stores compared with Henry’s 29.

But Little of Henry’s said her chain’s most formidable competition in Los Angeles will be Trader Joe’s. She said Henry’s has strong showings against the specialty grocer in San Diego.

But Lempert said that it will be challenging for Henry’s to repeat those results in Los Angeles, because the Monrovia-based Trader Joe’s chain, known for its low-cost, prepackaged foods, has a very loyal following. Trader Joe’s executives could not be reached for comment.

Linda Gutierrez, store team leader of the Whole Foods Market in Woodland Hills, said Henry’s entry to the area won’t be a major threat to their operations of 10 years there.

“We continue to have a long-term commitment to organics that is not about moving boxes but is about quality standards,” Gutierrez said. “Every time a new competitor enters the business, we just see it as an opportunity for us to learn from them and get better.”

Pricewise, Henry’s is comparable with Food 4 Less, a discount grocer off-shoot of Kroger Co. that also owns Ralphs. For example, four ears of sweet white corn cost $1 at both places. However, Ralphs is only two cents more when it comes to broccoli, which costs 97 cents a pound at Henry’s.

Last week, Whole Foods offered 10 mangos for $10, whereas you could get 20 for the same price at Henry’s. Whole Foods argues that its prices are higher due to superior quality.

Grocery analysts said Henry’s has another marketing tactic it can use in shoring up favorable attention: offering new jobs amid some of the highest rates of unemployment nationwide.

Each store on average employs about 100 people. With three new stores in Los Angeles this year, 300 local residents will get jobs. So far, Henry’s job fairs have brought out 800 to 1,000 people, with hires ranging from security guards as butchers to financial advisers as grocery clerks, Little said.

Kelley, the consumer researcher, said Henry’s is an exciting addition to the region’s already varied grocery selections, which include ethnic shops, conventional supermarkets and high-end gourmet stores.

“If they can pull off balancing quality products with low prices within a setting you don’t want to rush out of, then I think they will thrive,” Kelley said. “In this game, it’s the consumer who picks the best of the crop, so fresh ideas are always welcome.”

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