The U.S. Health and Natural Product Stores Market

Published by: Packaged Facts

Published: Sep. 1, 1999 - 212 Pages

Table of Contents

I. Executive Summary

Introduction

• Market Definition
  
• The Philosophy of Natural Foods
  
• Historical Overview of Market
  
• Product Mix: Supplements Two-Fifths of Overall Sales
  
• Store Characteristics and Locations
  
• Store Profits and Profit Margins
  

Scope and Methodology

• Scope of Report
  
• Stores Differ in Product Mix
  
• Report Methodology
  

Size and Growth of the Market

• Market Reaches $12.6 Billion in 1998
  
• Sales to Top $21.5 Billion by 2003
  
• Table 1-1: The U.S. Health and Natural Product Store Market: Retail Sales, 1994-2003 (dollars)
  
• Number of Stores Climbs to 11,302
  
• Natural Food Supermarkets Lead in Market Share
  
• Table 1-2: The U.S. Health and Natural Product Store Market: Share of Dollar Sales by Outlet Type, 1998 (percent): Natural Food Supermarkets, Supplement Chains, Natural Food Stores, Supplement Stores, Natural Food Cooperatives
  
• Sales Boosted by Health-Aware Population
  
• Aging Baby Boomers Are a Growing Market
  
• Natural Products Seen as Alternative to Conventional Medicine
  
• Organics on the Rise
  
• Sales Growth for Natural Remedies
  
• Growth of Natural Products Is in Conventional Channels
  

The Retailers

• Natural Food Supermarkets: Over 860 in the United States
  
• Whole Foods Is Nation's Largest
  
• Supplement Chain Stores: More than 4,600 Nationwide
  
• Natural Food Stores: Over 2,500 Nationwide
  
• Supplement Stores: On the Decline, Less than 3,000 Nationwide
  
• Natural Food Cooperatives: 325 Nationwide
  
• Retail Competition Heats Up
  
• Whole Foods and Wild Oats Stake Out Space
  
• Smaller Stores Discover Niche Marketing
  
• Retailing Trends to Remain Competitive
  
• Category Management Helps Stores Merchandise
  
• Quick Meal Solutions Give Competitive Edge
  
• Growth of Private Label
  

Retail Competition

• More Natural Products Sold in Mainstream Outlets
  
• Supermarket Merchandising of Natural Foods
  
• Drugstores Target VSMs
  
• Mass Merchandisers Increase VSM Offerings
  
• Natural Product Marketers Target Mainstream Outlets
  

The Shopper

• 6% of Adults Regularly Shop at Health and Natural Product Stores
  
• Demographic Profile
  
• The Vitamin and Mineral Shopper at Health Food and Vitamin Stores
  
• Why Consumers Shop at Health and Natural Product Stores
  
• What Consumers Buy
  

II. Introduction

Market Definition

• Stores Defined by Product Mix, Suppliers
  
• Variant Views: The Meaning of "Health" and "Natural"
  
• Stores Distinguished by Commitment to Organic
  
• Service: A Unique Selling Point
  
• Retailers Set Product Parameters
  
• The Philosophy of Natural Foods
  
• Historical Overview: Industry Began at Battle Creek
  
• The First Health Food Stores
  
• World War II Spurs the Industry
  
• The First Modern Natural Food Stores
  
• More Stores Emerge as Expression of 1960s Counter-Culture
  
• Whole Foods Supermarkets Set the Pace
  

Types of Stores

• Five Types of Health and Natural Product Stores
  
• Natural Food Supermarkets
  
• Supplement Chains
  
• Natural Food Stores
  
• Supplement Stores
  
• Natural Food Cooperatives
  
• Adherence to Cooperative Principles
  

Store Characteristics

• Supplements Comprise Two-Fifths of Sales
  
• Increases and Decrease in Product Mix
  
• Table 2-1: U.S. Health and Natural Product Stores: Percent of Average Sales by Product Category, 1998-1997 (percent):
  
• 15 Categories
  
• Supplement: Number of Full Lines Carried
  
• Product Mix Changing
  
• Product Categories with Increased Demand
  
• Table 2-2: U.S. Health and Natural Product Stores: Percent Change in Customer Demand by Product Category, 1997-1998
  
• (percent): 18 Product Categories
  
• Product Mix Varies by Store Type
  
• Store Size Increasing
  
• Store Location
  
• Store Location by Region
  
• Beyond the West
  
• Florida a Major Market
  
• Store Profits and Profit Margins
  

III. THE MARKET

Market Size and Growth

• Market Tops $12.6 Billion in 1998
  
• One of Fastest-Growing Retail Segments
  
• 1998 Year of Competition for Health and Natural Product Stores
  
• Table 3-1: The U.S. Health and Natural Product Store Market: Retail Sales 1994-1998 (dollars)
  
• Number of Stores on the Increase
  
• Table 3-2: Number of U.S. Health and Natural Product Stores, 1995-1998 (number and percent)
  

Market Composition

• Natural Foods Supermarkets Lead in Sales; Growth Slowing
  
• Table 3-3: The U.S. Health and Natural Product Store Market: Sales by Outlet Type, 1997-1998 (dollars and percent): Natural Food Supermarkets, Supplement Chains, Natural Food Stores, Supplement Stores, Natural Food Cooperatives
  
• Natural Food Supermarkets Account for Largest Share of Sales
  
• Table 3-4: The U.S. Health and Natural Product Store Market: Share of Dollar Sales by Outlet Type, 1997-1998 (percent): Natural Food Supermarkets, Supplement Chains, Natural Food Stores, Supplement Stores, Natural Food Cooperatives
  
• Natural Food Supermarkets Account for Half of Growth
  
• Table 3-5: U.S. Health and Natural Product Stores: Share of Market Growth by Outlet Type, 1997-1998 (dollars and percent): Natural Food Supermarkets, Supplement Chains, Natural Food Stores, Supplement Stores, Natural Food Cooperatives
  
• Supplement Chains Lead in Number of Outlets
  
• Table 3-6: U.S. Health and Natural Product Stores: Number of Units by Outlet Type, 1997-1998 (number and percent): Supplement Chains, Supplement Stores, Natural Food Stores, Natural Food Supermarkets, Natural Food Cooperatives
  

Factors Affecting Market Growth

• A Health-Aware Population
  
• Nutrition a Consumer Priority
  
• Aging Population Boosts Sales
  
• Table 3-7: Percent Distribution of U.S. Population by Age Bracket, 1995-2005 (percent): From Age Under 5 to Age 65 and Over
  
• Natural Products Seen as Alternative to Conventional Medicine
  
• Growing Interest in Vegetarianism
  
• Organics on the Rise
  
• FDA Ruling Increases Awareness of Organics
  
• High Prices for Organics Not Impediment
  
• Positive Studies Boosts Sales Growth for VSMs
  
• More Consumers Using VSMs
  
• Younger Generation Has Growing Interest in VSMs
  
• Vitamins and Supplements More User-Friendly
  
• Consumers Willing to Spend More
  
• Mainstream Media Positively Affects Dietary Supplement Sales
  
• Changing Consumer Habits Boost Supplement Sales
  
• Growth of Health and Natural Products in Conventional Channels
  
• Herbals Moving to Mass Market
  
• Supermarkets Learn How to Merchandise Natural Food
  
• Lack of Trends Softens Health and Natural Product Store Sales
  
• New Products Increasingly Available in Conventional Outlets
  

Projected Market Growth

• Steady Growth to Push Market Past $21.5 Billion by 2003
  
• Dollar Growth from Larger Retailers
  
• Table 3-8: The U.S. Health and Natural Product Store Market: Projected Retail Sales, 1998-2003 (dollars)
  
• Stores to Number More Than 13,500 by 2003
  
• Table 3-9: Projected Number of U.S. Health and Natural Product Stores, 1998-2003 (number and percent)
  

IV. THE RETAILERS

Natural Food Supermarkets

• Largest and Fastest-Growing Sector
  
• Two Major Competitors
  
• Whole Foods Is National Leader . . .
  
• . . . Followed by Wild Oats Market
  
• Local Chains Fight For Regional Market Share
  
• Table 4-1: Top U.S. Natural Food Supermarket Chains
  
• (Number and Dollars)
  
• Retailer Profile: Whole Foods Market, Inc.
  
• Retailer Profile: Wild Oats Markets
  
• Retailer Profile: Mustard Seed Market
  
• Retailer Profile: Chamberlin's Natural Food Market
  
• Retailer Profile: Earth Fare Markets
  

Supplement Chains

• A Continually Expanding Sector
  
• GNC: Retail Powerhouse
  
• Other Supplement Chains
  
• Retailer Profile: General Nutrition Companies, Inc.
  
• Retailer Profile: NBTY's Vitamin World
  
• Retailer Profile: VitaminCity Nutritional Essentials Discount Club
  

Natural Food Stores

• An Emphasis on Food over Supplements
  
• Focus on Personalized Service
  
• Retailer Profile: Healthy Pleasures
  
• Retailer Profile: My Organic Market
  

Supplement Stores

• VSM Emphasis, Small Store Size
  
• Increased Competition Thwarts Supplement Store Growth
  
• Profits Lower Because of Discount Chains
  
• Selection Lacking as Competition Edges In
  
• Retailer Profile: Washbrooks Health Foods
  
• Retailer Profile: Moonrise Herbs
  

Natural Food Cooperatives

• Alternatives to Business as Usual
  
• Member-Ownership Determines Product Mix
  
• Retailer Profile: New Pioneer Co-op
  
• Retailer Profile: Oneota Community Co-op
  
• Retailer Profile: Ashland Community Food Store
  

Competitive Trends

• Targeting the Mainstream Shopper
  
• Niche Marketing by Smaller Stores
  
• Battle of the Giants: Whole Foods vs. Wild Oats
  
• Acquisitions Continue
  
• Buying Small Stores and Local Talent
  
• The Fight over Independent Stores
  
• Eliminating Local Competition
  
• Independent Stores Selling to Distributor Group
  
• Move into the Heartland
  
• Still Some Battle in Boston
  
• Remodels and Relocations
  
• Natural Food Cooperatives Expand Services
  

Marketing and Retailing Trends

• Increased Customer Service
  
• Knowledgeable Employees Are Key
  
• Good Benefits Keep Employees
  
• Offering Information to Customers
  
• Discounting a Common Promotion
  
• Everyday Low Prices
  
• Category Management Based on Research Data
  
• Structure/Function Category Management
  
• Slotting Fees
  
• Strong Use of Signage
  
• The Presence of Organic
  
• The Move Toward Gourmet
  
• More Freezer Space
  
• Prepared Meals Profitable
  
• Home Meal Replacement Fits Consumer Needs
  
• Hot-and-Cold Take-Out Items Still Hot
  
• Growth of Private Label
  
• Private Label Receives Special Treatment
  
• In-Store Franchising
  

Retail Advertising and Promotion

• Newspaper Advertising Limited
  
• Distributor and In-Store Newsletters
  
• In-Store Magazines
  
• Samples and Demos
  
• Internet as a Tool
  
• Store Tours
  
• Event Sponsorship
  
• Hosting Regular Seminars
  
• Cooking Classes
  
• Frequent Buyer Cards
  
• Examples of Promotional Materials
  

Distribution Trends

• Types of Distributors
  
• Consolidation Continues
  
• Distributors Diversify
  
• Growth of Distributor Brands
  
• Sister Companies Supply Private Label
  
• Setting New Stores and Category Management
  
• In-Store Flyers
  
• Streamlining Operations
  
• Distributor Profile: United Natural Foods, Inc.
  
• Distributor Profile: Tree of Life, Inc.
  
• Distributor Profile: Nature's Best
  
• Distributor Profile: Blooming Prairie Warehouse, Inc.
  

V. RETAIL COMPETITION

Mass-Market Overview

• More Natural Products Sold in Mainstream Outlets
  
• Natural Products Increasingly Important to Mainstream Stores
  
• The Main Competition: Supermarkets a Growing Threat
  
• External Competition Both Hindrance and Help
  

Competition for Food Product Sales: Supermarkets

• Supermarkets Eye Growing Industry
  
• Higher Margins Lure Retailers
  
• Competition from Natural Food Supermarkets
  
• Natural Food Supermarkets Foster Mass-Market Opportunities
  
• Supermarket Interest in Organic Driven by Consumer Awareness
  
• Consumers Seek Organic from Supermarkets
  
• Supermarkets See Green with Organics
  
• Competition through Extensive Organic Sections
  
• Organic Produce Merchandised as Center of Section
  
• Natural Food Marketers Target Mainstream Outlets
  
• Consolidation Builds Clout
  
• A More Reliable Supply of Natural Foods
  
• Table 5-1: Supermarket Sales for Leading Natural Food Brands:
  
• 1997 vs. 1998 (dollars): 11 Brands/Products
  
• Conventional Marketers Put Natural Spin on Products
  
• Chains Select Certain Stores for Alternative Shoppers
  
• Education and Information Key
  
• Supermarkets Cut Margins on Higher-Priced Naturals
  
• Natural Items Infiltrate More Categories
  
• Segregation of Natural Items
  
• Success Due to Size and Service
  
• Integration Preferred by Many
  
• Whole Health Format
  
• Supermarkets Help Fuel Distribution Boom
  
• Natural Product Distributors Play Both Sides of the Market
  
• Table 5-2: Recent Natural Food Activity by Selected U.S. Supermarkets and Grocery Stores (50 Supermarkets, Locations, Types of Activity)
  

Competitive Profiles: Supermarkets

• H.E. Butt Grocery Co.
  
• Retail Profile: Trader Joe's
  
• Retailer Profile: Genuardi's Family Markets
  

Competition for Food Sales: Other Outlets

• Big Box Discounters Get in on Action
  
• Farmers' Markets on the Rise
  
• CSAs Increase
  
• The Future of Catalog Sales
  
• Foods Follow VSMs to the Web
  
• Other Cyber Food Ventures
  

Competition for Vitamin, Supplement, and Mineral Sales

• Health and Natural Product Stores Remain Single Strongest Outlet
  
• Combined Mass Market Accounts for Nearly Half of VSM Sales
  
• Table 5-3: Share of Vitamin, Supplement, and Mineral Sales by U.S. Retail Outlet Type, 1994-1998 (percent): 8 Outlet Types
  
• Products Differ by Outlet
  
• Pharmaceutical Giants Introduce Herbals
  
• Natural Marketers Begin to Gain Mass-Market Shelf Space
  
• Mass Merchandisers Increase VSM Offerings
  
• VSM Largest OTC Category in Drugstores
  
• Drug Chains Expand Herbal and Homeopathic Offerings
  
• Drugstores Increase Staff Education
  
• Literature and Technology Aid In-Store Education
  
• Independent Drugstores Discover Niche Market
  
• Franchise Lines Help Drugstores Differentiate
  
• Direct-Sales Players
  
• Direct Selling Gets Mixed Response
  
• Supermarkets and Natural VSM Products
  
• Mail-Order Sales Declining
  
• VSM Offering on the Internet
  

Competition for Health and Beauty Care Sales

• Salons and Boutiques Still Stiffest Competition
  
• Ambiguity of "Natural" in Mass-Market Outlets
  
• Drugstores Slow to Offer Natural HBC
  
• Dorothy Lane Market Exception
  
• Department Stores Minor Players
  
• Aveda Premiere Natural Salon Line
  

Health and Natural Product Stores Respond

• Health and Natural Product Stores Profit from Competition
  
• Selection and Service Key to Differentiation
  
• Broad Selection Holds Customer Appeal
  
• Some Price-Cutting Practiced
  
• Private Label Offers Pricing and Choices
  
• Paying Closer Attention to Customers
  
• Offering More Information and Education
  
• Fighting Back with Free Samples and Coupons
  
• Table 5-4: Health and Natural Product Stores: Types of Promotional Activities Used (percent): 9 Types of Activity
  
• Competition for Prepared Food Sales
  
• Stores Selling Non-Perishables on the Internet
  
• Private-Label Items Dominate Web Sites
  
• A Variety of Cyber Selections
  

VI. THE SHOPPER

The Health and Natural Product Store Shopper

• The Simmons Consumer Survey
  
• 6% of Adults Are Regular Customers
  
• More Women Than Men Are Customers
  
• Over Age 45 More Likely to Shop
  
• Part-timers and Households without Children
  
• College-Educated Know Where to Shop
  
• White-Collar Workers Are Important to Market
  
• Single- and Two-Person Households
  
• Lifestyle Changes
  
• Western Region Leads the Way
  
• Table 6-1: Demographic Characteristics Favoring Regular Shopping at Health and Natural Product Stores (U.S. Adult Population)
  
• The Whole Foods Survey of Better Nutrition Readers
  
• Nearly One-Half Shop Once a Week or More
  
• Majority of Respondents Are Women, Aging Baby Boomers
  

The Supplement Store Vitamin Shopper

• Buyers of VSMs through Health Food or Vitamin Stores
  
• Age 45-54, Followed by Age 25-54
  
• College-Educated Make Informed Choices
  
• Full-timers, Moderate Income, Westerners
  
• Two-Person Households
  
• Table 6-2: Demographic Characteristics Favoring Vitamin/Mineral Purchases at Health Food or Vitamin Stores (U.S. adult population)
  

Consumer Attitudes

• Fundamental Shift in Attitudes Toward Health
  
• Influencers Use Alternative Therapies
  
• Health and Natural Product Store Shoppers Are "True Naturals"
  
• Buying for Health Improvement
  
• Store Areas Where Customers Seek Improvement
  
• Beyond the Counter-Culture Movement
  

What Consumers Buy

• Two-Thirds of Americans Have Purchased "Natural" Products
  
• Use of Alternative Remedies Increasing
  
• Amount Spent at Health and Natural Product Stores
  
• Herb Tea Remains Most Popular among Spectrum of Foods
  
• Waxing and Waning Food Products
  
• Table 6-3: Foods Purchased in Health and Natural Product Stores: By Percentage of Shoppers, 1999 vs. 1997 (percent):
  
• 59 Types of Food
  
• Multiple Formula Is Most Popular Among Supplements
  
• Supplements Showing Increases and Decreases
  
• Two Up-and-Coming Supplements
  
• Table 6-4: Vitamins and Other Supplements Purchased in Health and Natural Product Stores: By Percentage of Shoppers, 1999 vs. 1997 (percent): 45 Types of Vitamin or Supplement
  
• Echinacea Leads among Herbal Products
  
• Tea Tree Oil Products Lead among Personal Care Purchases
  
• Literature and Homeopathics Are Popular Purchases
  

Appendix I: Examples Advertising and Promotions

Appendix II: Addresses of Selected Retailers and Distributors

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