Competition slows Natural Grocers by Vitamin Cottage

“Competition” was the keyword Nov. 17 as Natural Grocers by Vitamin Cottage reported its fiscal fourth quarter and year-end results and provided its 2017 outlook.

Kemper Isely, co-president of the Lakewood, Colorado-based company, called 2016 a challenging year but said he was pleased with how the New York Stock Exchange-traded health food store chain “adapted.”

“While we must navigate competition, we are clearly in the right space,” he said.

Net sales for the chain increased 11.5 percent to $181 million in the fourth quarter and increased 12.9 percent to $705.5 million in fiscal 2016.

But a look at same-store sales highlights the challenges in natural retailing today. Daily average mature store sales decreased 1.8 percent in the fourth quarter of fiscal 2016. Mature stores are those open during or before fiscal 2011.

Comparable store sales grew 0.3 percent in the fourth quarter, compared with a 6.2 percent increase in the fiscal 2015 fourth quarter. A 1 percent increase in average transaction size period-over-period was partially offset by a 0.7 percent decrease in average customer count.

Looking to fiscal year 2017, Natural Grocers expects daily average comparable store sales growth to come in from negative 1 percent to 1 percent. After aggressively growing its store base by 22 percent with 23 store openings in 2016, it will slow that rate to 12 percent to 16 percent, with plans to open 15 to 20 stores.

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Natural Grocers by Vitamin Cottage has, and will continue to, open in markets where competitors such as Whole Foods Market, Sprouts Farmers Market and Trader Joe’s are, but management has learned from opening against itself. Meanwhile, the chain faces unexpected competition as conventional grocery stores increase their natural and organic retail offerings and new online competitors such as Thrive Market gain attention.

“We have to make money, so we can’t compete with people that have a business model of not making money,” Isely said referencing Thrive Market.

More aggressive and diverse marketing will tell the Natural Grocers story in 2017 as the company focuses on social media, direct-to-consumer communication, billboard, radio, community outreach and custom magazine and digital offerings to tout its standards, education and pricing.

“Every new competitor has a small piece,” Isely said. “You have to be nimble and you have to keep on innovating to survive, and that’s what we intend to do.”