Miscellaneous Food Stores

Industry Snapshot

The specialty food store industry was valued at over $10 billion in the late years of the first decade of the 2000s according to a marketing report by D&B Marketing Solutions. The category was led by health food stores ($2.5 billion), health and dietetic food stores ($2.3 billion), and vitamin food stores ($2.1 billion). Other important subcategories included gourmet food stores ($707 million) and unprepared coffee ($630 million). Most operations were small, with nine employees or less, accounting for 94 percent of the industry's establishments and roughly 40 percent of industry revenues. The top 15 companies&just a fraction of the more than 38,000 establishment in the industry&generated over 20 percent of revenues. California was home to the most units with 6,852, followed by Texas with 2,820, Florida with 2,742, and New York with 2,272.

Los Angeles-based Herbalife International Inc., a developer of nutritional supplements, is a leader among health food and vitamin stores. Herbalife generated 1998 sales of more than $1.6 billion before floundering amidst plummeting stock prices and persistent allegations, including litigation by the California Attorney General, of running a pyramid scheme. A 1999 privatization bid left investors in the lurch, and Herbalife's growth slowed considerably. By 2005 Herbalife again announced sales of $1.6 billion, an increase of nearly 20 percent over 2004. The company continued to increase revenue annually, posting sales of $1.8 billion, $2.1 billion, and $2.4 billion in 2006, 2007, and 2008, respectively. Herbalife sells its products in 70 countries primarily through an extensive network of nearly 2 million individual distributors.

Pittsburgh-based General Nutrition Inc. (GNC Corp), the largest global specialty retailer of nutritional supplements, reported consolidated revenues of $1.55 billion in 2007. The privately held organization operates some 6,600 stores in the United States and Canada&nine times as many as its nearest competitor. GNC does business as company-owned stores, franchises, and a store-within-a-store in Rite Aid pharmacies. In addition, GNC operates its e-commerce operations at gnc.com. About 16 percent of GNC revenues is generated by franchise fees, retail sales account for 74 percent, and the remainder is earned through wholesale and manufacturing operations.

The two biggest natural foods market chains in the late years of the first decade of the 2000s were Whole Foods Market Inc., of Austin, Texas, and Trader Joe's of Monrovia, California. Whole Food Markets reported earnings of $7.95 billion in 2008 (up from $6.59 billion in 2007) and employed 52,900. The company operated approximately 275 stores in the United States, Canada, and the United Kingdom. In August 2007, Whole Foods purchased rival Wild Oats Market. However, the U.S. Securities and Exchange Commission challenged the acquisition based on antitrust issues, arguing that the acquisition would unduly limit competition within the health food market. In March 2009, Whole Foods settled the matter by agreeing to sell the Wild Oats brand, as well as 13 functions stores and 19 already-closed stores.

Privately-owned Trader Joe's, which had 310 stores in 2009, features a line of more than 2,000 private-label products that account for more than 70 percent of sales. Each Trader Joe's store is localized to reflect the community in which it serves. In March 2009, Trader Joe's celebrated the sale of over 400 million bottles of its signature wine, Charles Shaw, which sells for $1.99 a bottle. In 2008, Health magazine named Trader Joe's to its top ten list of healthiest U.S. grocery stores.

Despite a weak economy, the gourmet and specialty food sector continued to expand in the late years of the first decade of the 2000s. The overall specialty foods industry was valued at over $60 billion, according to Specialty Foods Magazine's State of the Specialty Food Industry 2009 report, as reported in The Food Institute's May 2009 issue. Supermarkets garnered nearly three-quarters of all specialty food sales, followed by specialty food stores with 18 percent of the market share, and natural food stores with 7 percent of the market share. The natural food stores category was the fastest growing, with a 39 percent increase in sales between 2006 and 2008.