Natural Retailers Share Strategies for Today’s Economic Headwinds
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This article originally appeared in Presence Marketing’s March 2022 Industry Newsletter
By Steven Hoffman
As the country and world emerge from the global COVID-19 pandemic, in 2022, the economy is now facing a new set of challenges, including food inflation, supply chain woes and rising energy and transportation prices costs. We asked a few retailers and others in the natural products channel to share some thoughts on how they are dealing with today’s business headwinds, and we are pleased to share their responses, below.
Ben Nauman, Senior Director of Purchasing, National Co+op Grocers (NCG)
National Co+op Grocers (NCG), based in Minneapolis, MN, is a business services cooperative for retail food co-ops located throughout the U.S. The organization represents 149 food co-ops operating over 200 stores in 38 states with combined annual sales of $2.4 billion and serving over 1.3 million consumer-owners.
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
Over the last few years we’ve greatly expanded our efforts to seek out diverse candidates for roles at NCG in alignment with our broader DEI (diversity, equity, and inclusion) initiatives. This has caused us to rethink many of our hiring practices and processes and these efforts are paying off. We’re increasingly sought out, we’re reaching new talent pools that we weren’t tapping into previously, and the mix of experience and skills we’re bringing into the company are both broader and deeper than what we’d seen previously. I’m amazed by the talent that we’ve seen join our team over the last couple of years!
At retail the “operative” has been flexibility. Our co-ops have been called on to be adaptive in the last twenty-four months like never before. They’ve had to shut down entire areas of the store, reconfigure them, introduce new programs, safety protocols, etc. Though it’s absolutely exhausting for our retailers, I’m continually impressed with how the leaders in these independent community-owned businesses have not only taken so much in stride, but also been leaders in keeping their staff and shoppers safe while keeping their community well-nourished. In some instances flexibility has meant reducing operating hours; in others it’s meant more flexibility in scheduling or the number of hours the team members work as they navigate child care, schooling, etc. As is the case across the retail landscape, some co-ops have had to make adjustments to their compensation and benefits packages in order to recruit and retain and job fairs and off-site recruiting events have become more frequent. Because so many co-ops pay a “livable wage” my suspicion is that some of the market forces at play haven’t negatively impacted our co-ops quite as much.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
As with the labor challenges, flexibility has been key and for this challenge I would add “communication.” Our Category Managers are in regular contact with brands about the challenges they are experiencing and our friends at top notch brokerages like Presence/Dynamic Presence are of great help. Our Supplier Programs Managers are meeting a few times each week with our distributors on their challenges, and our retailers are being transparent with their customers about the challenges. When we’re at our best, our retailers are solutions-oriented and reallocating shelf space, identifying new sources, and offering up alternatives to popular products that are out-of-stock. The biggest challenge has been in distribution, where we saw greatly diminished capacity in the fall of 2021 and this is especially tough because it hits so many product segments all at once. It has helped us immensely over the last year to have established a relationship with KeHE as a secondary supplier and our purchases from them have grown a few hundred percent in under a year.
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
Aside from pricing volatility, especially in fresh Produce, we’ve seen mostly short-term impacts so far. We’ve seen severe weather (not sure that we can directly correlate climate change to these instances yet) knock out a supply chain or set back a manufacturer for periods of weeks to months, and also negatively impact the logistics network of the distributors we rely on.
- How do you see things improving on the horizon? How can the industry be proactive in the future?
Very slowly! I think we’re going to see elevated rates of out-of-stocks and a greater degree of volatility in the availability of resources, be they raw materials, packaging, transportation, etc. for quite a while. Though we saw some recovery in the late spring/early 2021, to even think of it as recovery was only relative to what we’d experienced over the course of the prior twelve months. And service levels were already a challenge for our industry before the start of the pandemic. What I think we can say with confidence after what we’ve seen over the last two years is that consumer interest in natural, organic, and “better for you” products is only going to continue growing. We saw a lot of conventional/mass market retailers jump off the bus in 2008 with the downturn in the economy, which was good for our business. Nearly two years in now demand remains at sustained elevated levels and the industry can’t keep up.
Fairly early in the pandemic, when it seemed obvious that available historical data was of limited utility, I saw a lot of organizations try to leverage available “intelligence” from field experts on what they were seeing. This seemed to be a real positive and I think was critical to helping many in our industry adapt to the shifts in demand and consumer behavior we were seeing. Where I think we’ve stumbled is to create any sort of enduring roundtable or dialogue among industry leaders about how we can address some of the more intractable or systemic issues we’ve seen as it seems like we’ve largely shifted our focus back to what we needed to do to ride out this storm in our own businesses. It’s also surprising to me that we’ve not been quick to adopt more technology given all the uncertainty. How is it possible that I can order a pair of swim-trunks and know where that shipment is at nearly every stop en route to me, but when it comes to a $20K multi-pallet order from the largest food distributors in the country I’m in the dark until it hits my dock?! This has to change.
- Are you there any other comments, observations or thoughts you would like to share?
The one thing that you didn’t ask about but might have, considering what is occupying the focus and attention of so many in our industry right now, is food inflation. Though inflation made headlines for nearly 2/3 of the year last year without really hitting supplier’s invoices (outside of animal proteins), over the last few months we’re seeing price increases like nothing we’ve seen in my time in the industry. This has meant that not only do merchants need to adapt to ever-changing public health guidelines, supply conditions, and a challenging market for talent, but they’ve also got to be on top of their pricing game like never before. We understand entirely the need for many manufacturers to increase their prices to us given the increased costs many have seen, but what has really impressed me over the last few months is the number of manufacturers who have not just increased their prices, but who are also working with us to mitigate some of the cost increases through strategic pricing investments tied to improved distribution of their products. I think the brands that are not just thinking “cost recovery” but are playing the long game in partnership with retailers will prove themselves to be the winners.
Alan Lewis, Director of Government & Industry Affairs, Natural Grocers
Founded in 1955 as a door-to-door sales operation by Margaret and Philip Isely, Natural Grocers, based in Lakewood, CO, today a publicly traded company with 162 stores in 20 states.
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
Even though we operate on slim retail margins, we keep our wages and benefits competitive. We also want full time employees with health insurance and other benefits. In the midst of the fragile gig economy, having a real job with a supportive employer is very appealing.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
We are in constant communication with vendors and distributors to balance incoming deliveries to keep shelves filled. If a store is demanding one exact SKU and only that SKU, they may end up with empty shelf slots for extended periods. Being flexible with short term substitutes keeps customers content, and we can use it to test new products or versions until regular deliveries resume.
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
Weather has always been a challenge in global logistics, and the industry continues to adapt to increasingly severe events. For growers, we hear that unexpected crop failures due to wind, fire, flood hail and drought are happening more often than in the past. Many times, organic farms fair better during these events than conventional industrial monoculture. That's reassuring. It has seemed to get harder to source substitute ingredients to cover random shortages. However, everyone is wide awake to climate change mitigation at this point.
- How do you see things improving on the horizon? How can the industry be proactive in the future?
We know farmers who manage ten thousand acres, but those acres are never contiguous or planted with the same crop. To hedge against climate and the market, they are all about diversifying on all levels to lower their overall risk. In the same way, natural products retailers need to become agile: know what alternatives are available and nurture relationships with multiple sources. Emphasize products that are less likely to be harmed by logistical, political, weather, and disaster events. Begin educating customers that some once-reliable offerings may become available only occasionally.
- Are you there any other comments, observations or thoughts you would like to share?
Our customers are well aware of all the challenges we face. The more we communicate transparently with them, the greater understanding and patience people have. It also motivates them to change their purchase choices to support resilience and food security. It's not someone else's problem any more -- it's all of ours.
Justin Jackson, COO, Jimbo’s Natural Foods Grocer
With four stores and strong ties with local organic farmers and natural food vendors, Jimbo’s is the leading independent natural foods retailer in San Diego County, CA.
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
In all honesty, it hasn’t been possible to fully address some of the staffing needs. It has gradually improved over time as more and more people appear to have decided to rejoin the workforce. With that said, we have taken steps to show our staff how much we value them by increasing their wages, continually showing our appreciation for the work they do, increasing their bonus potential, having food truck lunches at least once a quarter and thanking them every day for all that they do and have done each day to make Jimbo’s a place where our community wants to come and spend their time.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
Biggest thing here is communication and a continuing commitment to our producer and vendor partners. Our Merchant Team spends a great deal of time trying to get ahead of issues so that we can mitigate problems as much as possible when they arise. We have also fully encouraged our folks to get products from whomever we can if our primary is out of stock. If it isn’t on the shelf we can’t sell it. The best plan is to have a plan B!
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
What severe weather—we are in Southern California---it is about 75 degrees today 😊. This has not been a significant issue as of yet. There have been some shorts here or there and seasonality has moved in a few cases. But where this ends up will likely come into a much clearer focus in the years ahead. We recognize that this is a critical national issue.
- How do you see things improving on the horizon? How can the industry be proactive in the future?
We believe very much in what we do and remain committed to continuing to drive a conversation on how what we do impacts the environment around us. When I say the environment, that truly means the ecological environment.
- Are you there any other comments, observations or thoughts you would like to share?
We remain committed to Natural and Organic and we are now putting an emphasis on Regenerative Organic: taking our commitment to sustainability a step further! Our ask would be for the industry to continue to move in the same vein.
Gabe Nabors, CEO, Mustard Seed Market
Founded in 1981 by Philip and Margaret Nabors, Mustard Seed Market is the largest locally owned natural products retailer in Ohio. With the company since 2001, Gabe Nabors serves as CEO for the family-owned business.
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
You have to start with the basics: treat people well and be competitive on pay rates. After that it’s all about building a team environment. Cross train, update your team on sales but especially when they are doing well. It’s about creating a positive environment when we all know we are down people. We buy random lunches for all staff at our stores on big sales days or after holidays, for example.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
You have to be diligent on checking multiple suppliers and eat margin sometimes and order from the higher cost distributor or make the tough call to replace the item with another one that is in stock. The worst thing you can do is leave a tag up and it’s continuously empty.
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
Yes, the key is to order extra heavy on key items before the storm hits.
- How do you see things improving on the horizon? How can the industry be proactive in the future?
I expect things to get better with supply chain but our cost increases are skyrocketing and that’s my biggest concern. I am personally getting more involved on the buying side with my team which is an area I typically had little involvement in.
- Are you there any other comments, observations or thoughts you would like to share?
Stay positive and remember, as a leader you are always on stage. Instill positivity and be solution oriented with your team.
Debra Short, Executive Director, SENPA, and Mari Geier, Co-owner, Nuts and Berries Healthy Market (SENPA Member)
SENPA, the Natural Industry Alliance, is a non-profit organization based in New Port Richey, FL, with a focus on strengthening the success of independent natural retailers and aligned manufacturers, and a leading voice, supporter and advocate for the natural-products industry. With two stores, Nuts and Berries Healthy Market has served the Atlanta, GA, area since 1980.
“We shared your questions with our retail board and they were in agreement that it is a challenging environment in the independent natural products retail store these days. For the most part, our retail membership is experiencing staffing issues across the board. The baby boomers of our industry are finding an extended work schedule at their stores, and with companies embracing the opportunity to visit stores once again, to continue product education there is still a gap to recruit and educate any new staff member. We see a strong need for our membership to network with their peers, and based on recent surveys, our retail membership is asking for more business seminars and tools to help with the trying times. The SENPA Business Summit at SOHO Expo and SOHO Healthfest focus on addressing those needs with our retailers.”
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
This is the million-dollar question, isn’t it? First, we pay a livable wage. We are a small enough business to understand how increase one employees base pay by $2-4 per hour would impact our bottom line and so we strategically raised prices on a few of our highest moving items by $0.50 to $1.00 to fund the increase. Then we treat our employees well. That seems like common sense, but we don’t look at our employees as assets, but rather like family. So, when they need help with something in their life, we use any and all resources we have to help them. From helping them get new tires on their car to supporting them when they are sick. And beyond this, we are always hiring because as good as we are, the younger generation is always looking for their next job.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
We start by stocking manufacturers that support independent stores. That helps us to develop relationships with the people running those companies. Those open lines of communication are key during these ever-changing times. We also make sure to keep several companies for each of the top movers so that if one company runs out of stock, we have a backup. Also, we sell a lot of local products (over 1000 between over 100 vendors). This allows us to circumvent many of the supply chain issues.
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
We are in the Southeast, so not as much as some other parts of the country. But when there are delays due to weather in the northeast, that often impacts shipping times, and our products are delayed. We have overcome this by knowing where our vendors are located and paying attention to what’s happening in their neck of the woods. If there is a big storm in the pacific northwest, then we stock up for 3 weeks instead of 1 week worth of inventory.
- How do you see things improving on the horizon? How can the industry be proactive in the future?
I think the silver lining of these supply chain issues are the improved relationships we have developed with our key suppliers. Things will improve, but that may take a while. Many of our vendors have developed streamlined ways to communicate products as they come back in stock, so our buyers know to order. But most importantly, manufacturers need to remember that it is the independent retailers that often drive trends and supporting independents by giving them equal access to product and sometimes priority over big box stores will keep the roots of the natural products industry fueled.
- Are you there any other comments, observations or thoughts you would like to share?
As independent retailers, we have to support the suppliers that have been there for us through the past several years. Those that made getting us product their priority. Many have not and we can reward those that did support us with our loyalty.
Jan Chernus, SVP of Sales, Bob’s Red Mill Natural Foods
Employee-owned Bob’s Red Mill, based in Milwaukie, OR, is a leading provider of natural and organic cereals, grains, baking mixes and related products. The company was founded in 1978 by Bob and Charlee Moore.
- How are you retaining and recruiting talent and ensuring shifts are covered in a period where labor has been challenged?
We work hard to attract and maintain great employees. Not only do we offer very generous compensation and benefits, but we also operate as an ESOP – Employee Stock Ownership Plan. That allows all eligible employees to have additional retirement benefits above their 401k plan. We promote recognition for great work, a greener work environment, a cause that matters – the manufacture and sale of healthy, natural foods, healthy lifestyles and lifelong friendships.
- How are you working with partners to relieve supply chain, transport and distribution issues and ensure the products your customers want are on the shelf?
Constant communication with suppliers and customers is important to keep the business moving forward during challenging times.
- Are you noticing that severe weather and/or climate change is affecting your business in any way?
Yes, many commodities have been impacted by drought, especially oats. Last year’s oat crop came in much lower than expected.