Dive Brief:
- Natural Grocers will build fewer stores this year than initially planned following disappointing Q2 results, but the company maintains that sales will bounce back in the second half of the fiscal year, according to Supermarket News.
- The Lakewood, CO-based retailer is now planning to open between 15 and 17 stores in 2017, at least three fewer stores than what it previously forecast. CEO Kemper Isley said in a conference call Thursday that Natural Grocers has signed 13 leases and will be "flexible" with unit growth plans.
- “It is clear that the food retailing environment remains challenging broadly and competition within the natural and organic segment remains high,” Isley said. “However, we have had time to adapt to the new environment and are beginning to see the benefits of the operational and marketing initiatives that we have implemented."
Dive Insight:
Deflation is putting pressure on Natural Grocers, a problem many retailers are struggling with as more competition from online grocers and niche retailers take away market share. While the grocery remains bullish about the outlook for the next quarter, the fact that its adjusting its growth strategy makes it clear these are serious company concerns.
Natural Grocers needs to find the right balance between the demand for natural products and the desire for low prices, especially as discount retailers like Lidl enter the fold. Whole Foods has struggled to find a happy medium in the natural foods space, opting instead for a high-price, high-investment model that has led to six straight quarters of sales declines and pressure from investors to sell.
This isn't to say that Natural Grocers is foundering, however. Same-store sales only dropped 1.7% while total revenues improved 8.3% to $375.8 million in Q2. A strong marketing push by the retailer should get those numbers back up — a strategy the company has already invested in.
The retailer's recently launched "Here vs. Here" ad campaign highlights the differences between conventional farming and natural and organic methods, and is meant to lure consumers to the natural grocery space. The marketing blitz includes a series of print, billboard and video ads, giving shoppers a visual representation of what organic and non-organic products really are.
It will be interesting to see if this campaign successfully converts shoppers who are on the fence about spending extra on organic products, and if it draws people away from rival companies like Whole Foods. Regardless, it's likely that the chain will continue an aggressive growth pattern in the years ahead in order to remain a leader in the natural and organic grocery space.