3375 Mitchell Lane
We promise to provide our customers with the best selection of natural foods and health care products in an atmosphere of friendliness, eagerness to serve and readiness to educate. We are committed to making our stores a pleasant and exciting place to shop and work, and to be active, responsible contributors to the lives of our staff, customers and community.
Wild Oats Markets, Inc., is the third largest natural foods grocery chain in the United States. With over 9,000 employees, the company provides organic produce, steroid- and hormone-free meats, bulk foods, vitamins and herbal supplements, and other products in its 110 full-service grocery stores across the nation. Riding a wave of growth in the natural and health foods market, Wild Oats has expanded rapidly since its founding in 1984. Although the company has opened a significant number of new stores, its growth has come mainly through the acquisition of single health food stores or small grocery chains. Its stores, in 23 states, are run under the names Wild Oats Market, Henry's Marketplace, Sun Harvest, and Nature's Fresh; in Canada, the company runs a chain known as Capers. The health food market is a small but profitable niche, dominated by only three significant chains: Wild Oats; market leader Whole Foods Inc.; and Trader Joe's Co., which sells primarily on the East and West Coasts. Hoping to bolster profits, Wild Oats named a new president and chief executive officer in 2001 and announced plans to sell off unprofitable stores and revamp some store formats.
Strong Growth from the Start in the 1980s
The history of Wild Oats Markets can be traced to 1984, when Michael Gilliland and his wife, Elizabeth Cook, entered the food retail business. While most natural or health food stores are based on the owners' dedication to health foods and a commitment to the environment, Gilliland and Cook got started by purchasing a convenience store, which they bought with cash advances on 17 credit cards and a second mortgage on Gilliland's mother's house. After the purchase of two other convenience stores, the pair decided to buy a natural foods market, Crystal Market, which they felt would prosper in health-conscious Boulder, Colorado. The $300,000 purchase, completed in 1987, thrust the couple into an environment quite different from the junk-food focus of convenience stores, an environment that gradually persuaded Gilliland and Cook to become healthy eaters themselves. In that first store, Gilliland worked the counter, while Cook worked the deli. Soon, the couple had opened another natural foods store, on the south side of Boulder, called Wild Oats Community Market. As the Wild Oats business expanded, a holding company was formed, and Gilliland became chief executive officer and president, while Cook became vice-president and in-house attorney.
The store grew steadily the first few years. By the end of 1991, Gilliland and Cook had opened two other Wild Oats stores in Colorado as well as two in Santa Fe, New Mexico. Another was opened in Albuquerque in early 1992. The company had a stable base in the early 1990s that enabled it to take advantage of a boom in the consumption of natural and organic products. 'It's happening everywhere,' said Elizabeth Bertani, marketing director for New Hope Communications, a publisher of trade magazines for the industry. 'There's been a phenomenal upswing in natural foods consumption.' With $2 million in investor funds, Wild Oats expanded into Arizona and Missouri in 1992 and into California in 1993. With 650 employees and 1993 sales of $50 million, Wild Oats had become the third largest natural foods chain in the United States.
Wild Oats continued to exploit the phenomenal growth in what used to be considered a tiny niche. The Natural Foods Merchandiser reported that sales for the industry were up 18 percent in 1993, to more than $6 billion. And they continued to accelerate. By 1995, industry sales were at $9.17 billion, up 21.5 percent from the previous year. In comparison, food sales as a whole grew only 2.5 percent between 1993 and 1994. (With total food sales at $416 billion, however, natural foods still had plenty of room to grow.) Wild Oats paralleled this industry boom, growing at a rate of 544 percent between 1989 and 1993. In 1994, Inc. magazine included Wild Oats on its list of the 500 fastest growing small companies. As if to underscore the point, the company bought two Kathy's Ranch Markets in Las Vegas in July of that year, for a total of 16 stores in five states.
Wild Oats benefited not only from rapid growth in the industry, but also from the business savvy of Gilliland. Never a slave to one vegetarian ideology, Gilliland designed each store to cater to local tastes. For example, the market in Boulder was completely vegetarian and fostered a down-to-earth image, whereas the Santa Fe store sold meat and high-end, specialty items. In some places Wild Oats was advertised as a gourmet market rather than a natural foods market. 'I'm a great believer in figuring out where customers are and walking with them,' Gilliland said to Michele Conklin of the Rocky Mountain News. 'It doesn't do you any good to put a hard-core vegetarian market in the middle of Pasadena because you're going to go out of business.'
Despite its rapid expansion, Wild Oats in 1994 was still far behind the nation's top-selling natural foods grocery chain, Austin, Texas-based Whole Foods Markets. With sales of $300 million, Whole Foods also surpassed the next largest competitor, Fresh Fields, based in Rockville, Maryland. Wild Oats' most intense competition, however, challenged it much closer to home: Boulder, Colorado-based Alfalfa's Markets. After years of head-to-head competition, Wild Oats acquired Alfalfa's in 1996.
History and Acquisition of Alfalfa
Founded roughly the same time as Wild Oats, Alfalfa's had followed a similarly rapid growth curve. Mark Retzloff and Sahid Hass Hassan had cobbled together funds from investors, the Small Business Association, and themselves to open Alfalfa's Market in 1983. Retzloff told Claudia Ventura-Abbott that he 'wanted to deliver high-quality, natural foods to people. ... I was very environmentally conscious. It always seemed right to me to be involved in this business. It was a conscious type of work; it was making changes.' The store shelved only products with no artificial additives, then looked for pesticide-free produce and steroid-free beef. The company worked directly with farmers and ranchers to encourage the production of and provide a market for natural products. This commitment led Alfalfa's to work with 1,000 suppliers, compared with the supermarket average of 60 suppliers. Not the usual tiny health food store, Alfalfa's became a full-service grocery store. 'When we started out,' Retzloff said to Ventura-Abbott, 'we wanted to be a transition-type of market. We didn't want to be classified as a health-food store. We wanted to provide an atmosphere that people would feel comfortable in. We knew we'd have to carry a full line of products&mdash′oduce, fish, meat, deli, and bakery, as well as convenience products, paper goods, and cleaning supplies.' The company added an in-store café in 1985 and hosted a cooking school with professional cooks and guest chefs. By 1989 Alfalfa's was one of the top five natural food retail stores in the United States and had annual sales of $19 million.
In late the 1980s and early 1990s, Whole Foods tried to take over Alfalfa's Markets several times, culminating in a bid in July 1991 that was on the verge of acceptance when Alfalfa's stockholders balked at a condition that 51 percent of Alfalfa's stock be converted to Whole Foods. The company continued to grow, taking advantage of the same market wave that Wild Oats was riding. 'There is a window here. You can't grow if the demand is not there, and now seems to be the time,' Hass Hassan said to Jim Sheeler of the Boulder Daily Camera, 'There is an opportunity now and within the next two years. Five years ago, there were few communities that would support a concept like this. Now there are hundreds.' Alfalfa's reached sales of $30 million in 1991, with 500 employees; it then reached $48 million in sales in 1993. The company arranged additional financing to expand further, adding several stores in Colorado, including stores in Denver, Littleton, Fort Collins, and Vail. By 1994 Alfalfa's had six stores in Colorado and had acquired Vancouver, Canada-based Capers, with two stores and two more soon to open. Alfalfa's competition with Wild Oats then grew more fierce as it opened a store in Santa Fe, New Mexico, in 1995, where Wild Oats already had a store.
In addition to being based in Boulder, Colorado, Alfalfa's and Wild Oats had much in common. Their commitment to providing wholesome, natural foods was joined with their commitment to their employees and the community. Both stores had profit-sharing plans; at Wild Oats this took the form of bonuses if the employee's store hit its financial goals. Wild Oats also paid $200 annually to each employee toward a 'wellness purchase,' such as massages or a bike. Both companies were involved in the community: Wild Oats paid for one hour out of 40 of employee volunteering and gave 7.5 percent of pretax profits to environmental and social causes.
Despite their similarities, the two companies took pains to distinguish themselves, particularly in Boulder. Gilliland explained to Tammy Tierney of Denver Business Journal, 'They take the high end; we take the low end. We have lower prices, are more low key, and are not so inclined to gourmet items.' Elizabeth Cook expanded on the difference to Tierney, 'We're a hard-core natural foods store. They concentrate on food service. We concentrate on bulk and mainstream grocery.' In addition to competing for customers head-to-head in several cities in the West, the companies competed in their acquisitions. Both reportedly bid for the Kathy's Ranch stores in Las Vegas. 'I think we both learn from each other,' Gilliland said to Sheeler. 'There's a certain amount of competitiveness that has kept us going, and if it were just us or them, I don't think we would have expanded so quickly.'
However much Gilliland appreciated the competition, he was willing to forego it. In 1995 he began negotiations to acquire Alfalfa's. That year, Wild Oats had expanded to 21 stores and had reached sales of $100 million. Although Alfalfa's had only 11 stores that year, it reportedly had also reached $100 million in sales in 1995. The merger would make Wild Oats the second largest natural food chain, outpacing Fresh Fields. The potential merger ran into a couple of problems. New Mexico raised questions about whether the merger would violate antitrust regulations. It eventually recommended that Wild Oats sell one of its stores in New Mexico but did not actively challenge the merger. In addition, Whole Foods Markets reportedly renewed its own efforts to buy Alfalfa's, leading to rumors of a bidding war. Although Whole Foods had lost its previous three bids to buy Alfalfa's, it had the money to make a sweet offer. With 42 stores across the United States and sales of $500 million in 1995, it had the resources to out-muscle Wild Oats.
Wild Oats prevailed, however, and the merger went through. The final agreement stipulated that the company would be based in Boulder and take the name Wild Oats, although existing stores would operate under their original names. The merger created a company with $200 million in sales and 3,600 employees in 39 stores in the United States and Canada. Gilliland remained CEO and Hassan served as president of the new company. The merger was completed in July 1996, with Gilliland and Cook owners of 30 percent, investors owning approximately 50 percent, and Wild Oats and Alfalfa's officers owning the other 20 percent.
Going Public in 1996
After the acquisition of Alfalfa's, Wild Oats concentrated on its next major goal, that of offering shares of the company on the public market. On October 23, 1996, the company achieved that goal, offering 1.69 million shares of stock on the NASDAQ. Speculation had been high that the stock would soar at the initial public offering(IPO), but with an offer price of $25, trading was low and the stock closed the first day at only $25.38. Jon Lieber, a broker at A.G. Edwards, considered the initial price too high, but also speculated that New York's biggest brokers did not understand Wild Oats' philosophy. 'I'm from Manhattan,' he said to John Accola of the Rocky Mountain News, 'and, believe me, health food is definitely few and far between. You walk out of any exchange at noon, and they are inhaling hot dogs, pizzas, and gyros.' Gilliland had expressed some concern about this to Conklin at the Rocky Mountain News before the IPO: 'The biggest challenge will be balancing Wall Street but staying true to our mission. Is Wall Street going to appreciate that we have guest practitioners (such as nutritionists) on staff that we're not making money off of?'
The stock slipped after the IPO, coming to rest for the next few months around $17 to $18 a share. Then, in mid-January 1997, an analyst downgraded her rating of the company two notches based on information that Whole Foods intended to challenge Wild Oats by opening stores in Boulder, Denver, Santa Fe, and Salt Lake City--traditional Wild Oats territory. The stock fell 26 percent in one day, to $13.13.
Wild Oats ended 1996 with strong growth figures. Sales had risen to $192.5 million, largely because of the opening of seven new stores and the acquisition of 13 stores in 1996. The company did report a net loss for the year, however, of $4.5 million. The company attributed the loss to nonrecurring charges related to acquisitions, the closing of some stores, and the consolidation of corporate headquarters after the Alfalfa's acquisition. Without these nonrecurring charges of $7 million, company profits would have been $2.5 million, up from $779,000 in 1995. In addition, same-store sales, which only measure sales from stores the company has owned for at least a full year, rose 3.8 percent, almost double the figure predicted by analysts.
These figures did not raise market confidence, however. The day Wild Oats announced its final quarter numbers, its stock actually fell $.25, to $13.88. Gilliland responded to continued concern about Whole Foods' proposed new stores by citing the double-digit gains in the natural foods market, which he felt assured Wild Oats room for continued growth, even in a more crowded marketplace. In addition, he was quoted by Lisa Greim in the Rocky Mountain News as saying, 'We do very well against them in California. I think Whole Foods is going to be disappointed.'
Despite the apparent lukewarm confidence of the stock market and the specter of increased competition from Whole Foods, Wild Oats continued its aggressive pattern of growth through acquisitions. The company completed a deal with Wholly Harvest in Florida in early 1997, trading stock for two stores. Wild Oats also moved into the Northwest, purchasing two natural food supermarkets in Eugene, Oregon, in March 1997. With the purchase of two stores in Memphis, Tennessee, the number of stores owned by Wild Oats rose to 47, a number the company planned to raise even higher in the coming years.
Competitive Landscape in the Late 1990s and After
Competition between Wild Oats and Whole Foods intensified in the late 1990s. Whole Foods opened its Boulder store in early 1998, and Whole Foods' chairman John Mackey announced (as reported in Supermarket News, March 30, 1998) that his firm was 'seeking head-to-head competition.' Not only were both stores in many of the same markets, but they both stocked almost all the same things. Whole Foods made its mark by being bigger. Its stores on average were 24,000 square feet, with a mix of jumbo stores, like the Boulder branch, which was 39,000 square feet. Whole Foods commanded an estimated eight percent of the natural foods market by 1998, while Wild Oats had captured about two percent. Wild Oats distinguished itself from Whole Foods by aiming for a less traditional consumer. It wanted to be perceived as a natural foods store, not a specialty supermarket. Its stores generally followed two formats, a medium and a small. Most of its stores were around 15,000 square feet, and the small-format stores were only about 8,000 square feet. Chain-wide, Wild Oats's most profitable area was its Natural Living department, which sold herbs, vitamins, and personal care products. This one department accounted for almost one-quarter of the company's sales. After Whole Foods opened its huge Boulder store in 1998, Wild Oats announced it would open new, larger stores, of about 25,000 square feet, while also continuing to build small-format stores in certain markets. Meanwhile, by the end of 1998, rumors appeared in the business press that Whole Foods was ready to acquire Wild Oats. While Wild Oats executives refused to comment, Whole Foods CEO Mackey told Supermarket News (November 16, 1998) that it had no plans to buy its rival.
Wild Oats continued to make its own acquisitions, buying up two smaller chains in 1999. It paid $21.5 million for a Texas chain of nine Sun Harvest Farms, and then took over the San Diego chain of farmer's market-type stores called Henry's Marketplace. All told, Wild Oats merged with or acquired 41 stores in 1999. By 2000, Wild Oats had grown to over 100 stores. And the natural foods category continued to boom, keeping up a growth rate of close to 20 percent annually. Wild Oats's sales growth outdid the industry. Sales hit $721 million in 1999, a 36 percent rise over the year previous, and profits too grew 23 percent, to $17.8 million. A growing customer base and high mark-ups in the profitable niche seemed to promise great things for Wild Oats. Yet in some ways the chain was clearly not doing as well as Whole Foods. In terms of sales per square foot, the average traditional supermarket brought in $487. Wild Oats topped this easily, bringing in $538 per square foot, but Whole Foods was managing to make $826 per square foot.
By mid-2000, Wild Oats began to talk about adopting a new strategy, planning first to increase the average size of its stores, bringing them up to between 28,000 and 30,000 square feet. The company also decided to stock a different mix of products, bringing in more of the gourmet items the consumers were demanding as well as fresh bakery items and flowers. Also among the company's early growth plans was the expansion of the Henry's Markets chain, from 12 units to 18 by the end of 2001.
By the end of 2000, however, financial results were less than impressive, and Wild Oats management decided to close eight stores and take a $14--$15 million write-down. The company also said it would move to discount more items, while increasing its advertising budget. Speculation arose again that the chain was up for sale. Wild Oats reported a fourth quarter loss in 2000 and predicted flat sales for 2001 because of the store closings. The firm ended 2000 with sales of over $838 million, but it posted a net loss of $15 million. Comparable store sales, a measure of sales at stores that have been open for at least a year, also fell off, dipping 2.6 percent for 2000. Without fanfare, Wild Oats named a new president and CEO in March 2001. The company chose Perry D. Odak, who had previously held the same post at Ben & Jerry's Homemade Inc., the well-known ice cream company. The company continued its expansion, with plans to open ten new stores in 2001. One of these was a new prototype, a 26,000-square-foot store that would devote 20 percent of its floor space to made-to-order food.
Principal Subsidiaries: Wild Oats of Texas, Inc.
Principal Competitors: Whole Foods Market Inc.; Trader Joe's Co.