An apple a day may keep the doctor away. But apples priced at only 99 cents a pound, six organic romaine hearts advertised at $5, and a pound of ground turkey for $1.99 keep the customers coming back in droves.
At least that’s the hope—and hoopla—fueling Fresh Thyme Farmers Market, an upstart grocery chain that’s looking to steal thunder from fresh-food- centric stalwarts such as Whole Foods and Trader Joe’s and carve out a healthy niche in the Midwest.
Led by president and CEO Chris Sherrell and backed by investors who are leaders of Grand Rapids, Mich.-based Meijer Cos., Fresh Thyme Farmers Market was born two years ago. The company is the offspring of a merger between Sprouts Farmers Market (which has more than 150 locations across the country) and the now-defunct Sunflower Farmers Market (a chain of 38 stores formerly headed by Sherrell), all based in Phoenix.
Fresh Thyme’s initial rollout has been slow and somewhat under the radar. So far it has opened only three stores, all in 2014: two locations in the Northern suburbs of Chicago and one in Indianapolis. But this little endive that could has big plans for a stronger saturation throughout the Midwest, with plans for 60 stores and 5,000 jobs by 2019.
Plans are to penetrate key markets across the central United States, including outlets in or around East Lansing, Mich.; Minneapolis-St. Paul; St. Louis; Colum - bus, Cincinnati and Dayton, Ohio; Milwaukee; and more locations throughout the Chicago area and Indiana. (Company executives declined an interview request.)
The centerpiece of Fresh Thyme Farmers Markets’ 24,000- to 28,000-square-foot stores is the plentiful produce, which includes locally sourced and organic vegetables and fruits. Other highlights include:
▶ Fresh Thyme Kitchen, offering healthy prepared salads and meals along with made-to-order sandwiches, a full salad bar and a bakery boasting artisan breads.
▶ Several aisles of groceries and healthier frozen foods.
▶ Full dairy section sourcing local Midwest items.
▶ Butcher shop providing more than a dozen varieties of all-natural sausage, made by hand onsite daily, as well as natural meats raised without hormones.
▶ Seafood flown in daily.
▶ More than 400 bins of organic and natural bulk items and small-batch, locally roasted organic coffee beans.
▶ Specialty items such as dairy-free and gluten-free foods.
▶ More than 7,000 varieties of supplements, vitamins and natural body care products.
▶ A Hops and Grapes department with an extensive array of local craft beers and wine.
▶ Reusable grocery bags in place of plastic and paper bags.
CONTINUED: Fresh Focus. Healthy Halo
Fresh Focus, Healthy Halo
Fresh Thyme is “operating what I’d call a ‘produce-first strategy,’ ” says Jon Hauptman, partner in Willard Bishop LLC, Barrington, Ill. “The foundation stones of their offering—space, assortment, pricing and merchandising—are focused on creating a differentiated, destination produce department.”
One-third to one-half of the store showcases fresh fruits and vegetables, floral, bulk items and other related products. “And shoppers are hit with large, abundant produce and floral displays when entering the store, thereby reinforcing a strong ‘fresh’ image,” he says.
The chain also is drawing shoppers with sharp deals on popular produce items and other edibles, Hauptman says. At the time of this writing, cherries were priced at 97 cents per pound; celery and bunched spinach were 77 cents each; all- natural boneless, skinless chicken breasts ran $1.77 per pound; and 22-ounce deli salads could be had for $3.99 each.
“The message they’re sending is that you can eat well affordably and enjoy quality foods that are synonymous today with ‘fresh’ in the minds of consumers,” says Jay Jacobowitz, president of Retail Insights in Brattleboro, Vt., a natural- products-industry consulting firm. “Their target shopper is the everyday shopper, not necessarily the foodie. The focus here is fresh for the masses. And I believe it’s a winning strategy.”
Jacobowitz says Whole Foods paved the way years ago in popularizing the concept, upsetting the conventional super - market business model to promote the idea of quality equals fresh, and vice versa.
“[Whole Foods] said it’s no longer acceptable to consumers as a grocer to just offer a bunch of shelf-stable items with a smattering of perishables,” Jacobowitz says. “Now, 70% of what Whole Foods carries is perishable.
“But Fresh Thyme is bifurcating the Whole Foods strategy by offering a relative value price point for the masses,” he continues. “They see a gap they can exploit with fresh offerings, particularly in the Midwest. The low-hanging fruit (real-estate locations) on the East and West Coasts have largely been taken and absorbed, but the Midwest has not yet seen critical mass of this model.”
Neil Stern, senior partner with McMillan Doolittle LLP, Chicago, says Fresh Thyme borrows heavily from the successful Sprouts chain out West, which leads with low-priced farmer’s market produce and surrounds it with complementary healthy categories, including vitamins, meats and deli.
“For Sprouts, about 25% of their sales comes from fresh produce, which is similar to the percentage Fresh Thyme is targeting. The amount of retail merchandising area for all produce is also significant at Fresh Thyme stores, amounting to at least 20% or more of floor space,” says Jacobowitz.
Better-for-You Bandwagon
Jacobowitz says market research today indicates that a strong majority of house - holds—as high as 70% in some surveys—desires to eat healthier. “Fresh Thyme’s hope,” he says, “is that this aspiration for healthy eating resonates with the critical mass of households in the Midwest.”
Bonnie Riggs, restaurant industry analyst for The NPD Group’s foodservice division in Port Washington, N.Y., expects the chain to particularly attract shoppers in their 20s and 30s, who have cut back significantly on dining out at restaurants and are eating more frequently at home.
“[The Fresh Thyme] concept would have high appeal among millennials because of its healthy/fresh positioning and price-to- value relationship,” says Riggs.
While it’s wise for Fresh Thyme to target urban and dense suburban locales, its customers and their demographics are less important than the eating occasions that can be tapped into, says Michelle Barry, CEO of Centric Brand Anthropology, a Seattle-based research firm. “This strategy is more aligned with how food culture is changing and taps into the cultural trend of how people are craving more freshly prepared items across most eating occasions,” she says.
CONTINUED: Outshining Its Rivals
Outshining Its Rivals
Based on its model, Fresh Thyme can hold its own in territories already staked out by Whole Foods, but it’s conventional supermarkets such as Kroger and Jewel- Osco that will take the biggest hit from the entry of Fresh Thyme into these markets, Jacobowitz predicts.
“They compete fairly directly against Whole Foods, but with a less expensive offering; and Trader Joe’s, but with a fresher focus,” says Stern. “I think they are expanding in the Midwest to try and get in front of Sprouts, who is not in those markets.”
Fresh Thyme’s market is a niche one, centered on fresh over conventional prepackaged. “Additionally,” says Hauptman of Willard Bishop, “their high level of friendly, knowledgeable personal service exceeds that of most traditional grocers.
“It appears that Fresh Thyme is trying to attract shoppers with remarkably low prices on selected perishables, but is committed to keeping these shoppers with outstanding service across the store.”
And there’s another edge, Hauptman points out: Fresh Thyme’s commitment to nutritional products, including a broad array of vitamins and herbal supplements. “The store is a great destination for shoppers desiring a ‘natural’ lifestyle,” he says.
Ultimately, however, Fresh Thyme’s strongest competitive advantage is its positioning within the health-and- wellness space on a budget, according to Riggs of NPD.
“Offering deals like three mangoes for $1 in its current ad will bode very well in today’s marketplace of high food inflation,” she says. “Consumers are looking for produce and fresh foods, but at reasonable prices, which is why discount grocers like Aldi do so well.”
Fresh Thyme’s vast produce section may stand out as the biggest differentiator from many of its rivals, “but it’s also selective in other fresh and prepared-foods areas to keep labor and costs down,” Stern says. “Additionally, there is a big emphasis on self-service bars to offer variety without a lot of labor and prep.”
A manageable box size is another key to Fresh Thyme competing successfully with its rivals. “They’re not building 80,000-square-foot supercenters with large hard goods and a huge showroom for mainstream manufacturers,” Jacobow itz says. “A smaller-sized box means less overhead, easier acquisition of real estate, and less risk.”
A more moderate footprint also creates favorable perceptions among patrons, says Riggs. “Many people believe the food is fresher when the store is smaller than a big box,” she says, “and that the produce will be rotated more often and is more likely being sourced from local growers.”
Barry agrees that building a right-sized store is important in this competitive landscape. “Big-box grocers are finding that large footprints and designs are difficult to manage operationally, and consumers have to take a lot more time and energy to navigate those spaces, which detracts from a convenience element,” says Barry. “Things become more organized in a smaller store, and shoppers can often better interact with products—which is a truism that can be applied to c-stores, too.”
Recipe for a Healthy Future
Despite all the apparent advantages, it is premature to laud Fresh Thyme’s story.
“The model has worked elsewhere under different owners. But Fresh Thyme must execute well, pick the right real estate and make sure it adapts to Midwest tastes,” says Stern.
Jacobowitz agrees. “If they don’t deliver on their promises, if the produce looks subpar, if they price higher than they’d hoped, if cleanliness, service and the in-stock rate are weak, they’ll stumble,” and it’s crucial for Fresh Thyme to choose ideal locations, he says.
“They have to examine adjacencies and ease of access carefully, and put themselves in trade areas with enough population densities,” he continues. “Once you move out of urban areas and into smaller suburbs and towns, there’s a danger of having stores that underperform.”
And the marketplace for fresh is becoming more crowded, with players such as Mrs. Green’s Natural Market, Pete’s Fresh Market, Mariano’s and others staking wider claims in Midwest territories that Fresh Thyme covets.
“Fresh Thyme won’t have the playing field to themselves in the Midwest,” Jacobowitz says. “That may produce competitive pressures to sign leases that don’t work out so well for them.”
Hauptman envisions Fresh Thyme excelling in Chicago within areas not already served by Whole Foods or Mariano’s. “Also, in Ohio and Indiana, they can do well as a natural/organic and produce-focused alternative to Kroger. However, Minneapolis might be a little more difficult for Fresh Thyme,” he says. “That market is already well served by Whole Foods, Lunds, Byerly’s, and local natural and organic co-ops; there does not appear to be as much white-space opportunity there.”
CONTINUED: Lessons for Convenience Retailers
Truisms for Convenience
C-stores should take a page from Fresh Thyme’s playbook, say the experts.
“There are several things that convenience retailers can learn from Fresh Thyme,” Hauptman says. “First, focus on something in which you can be a leader—such as produce. Second, deliver exceptional service, because leveraging service is a key to bringing shoppers back to the store on a regular basis. Third, attract shoppers with remarkably strong promotions on just one or two items. And fourth, hit shoppers with appealing displays as they enter the store.”
Rob Razowsky, president and CEO of Rmarts LLC in Deerfield, Ill., which operates five c-stores in the Chicago-area market (see relate story), says Fresh Thyme raises the bar on consumer expectations for freshness—expectations that can extend into the convenience retailing sector.
“They’re making consumers more aware of the healthier options out there,” says Razowsky. “For c-stores to participate in this healthier and fresher food trend, however, the challenge they face is conventional lines of distribution. I don’t know if our wholesale distributors are prepared to provide [convenience operators] with a high level of organic produce or varieties of fruits and vegetables. We have to find a way to source that stuff.”
In addition, with any fresh program you’re running, “you need to ensure that you have enough volume to support it,” Razowsky says. “That’s one of the big challenges in this space.”
Consumers’ perceptions of and expectations for fresh have changed dramatically in recent years, and c-stores need to keep up with those changes, Jacobowitz says.
“Society has changed in its outlook on fresh, and the convenience store industry will not be immune to this effect,” says Jacobowitz. “Convenience retailers have made strides by infusing larger offerings of fresh foods, including freshly prepared foods, and have demonstrated that they won’t lose their shirts on shrink with quality execution.
“But it’s a tougher road to travel because, traditionally, convenience retailing follows a shelf-stable model. There are steep learning curves ahead for c-stores attempting it, but it’s worth it in the long run.”
Fresh Thyme Farmer’s Market by the Numbers
▶ Founded: 2012
▶ Top executive: Chris Sherrell, president and CEO
▶ Headquarters: Phoenix (with relocation to the Midwest planned eventually)
▶ Number of stores: 3 now open (2 in Illinois, 1 in Indiana); 23 total by 2016; 60 total by 2019
▶ Markets targeted over next 5 years: Chicago; Indianapolis, Ft. Wayne, and Lafayette, Ind.; East Lansing, Mich.; Minneapolis/St. Paul, Minn.; St. Louis; Columbus, Cincinnati and Dayton, Ohio; Milwaukee.
▶ Investors: Leaders of the Grand Rapids, Mich.-based Meijer Cos.
▶ Store sizes: 24,000-28,000 square feet
▶ Employees expected by 2019: 5,000
▶ Major competitors: Whole Foods, Trader Joe’s, Kroger, Aldi, Jewel-Osco, Mariano’s Fresh Market, Costco
▶ Sales by category: Produce: 25% (vs. 8%-13% for traditional grocery stores); perishables (pro - duce, meat, etc.): up to 50%
▶ Projected shrink level: 3%-5% (vs. 12%-15% for traditional grocery stores)
Sources: Fresh Thyme Farmers Market website; Natural Foods Merchandiser; Crain’s Chicago Business. Numbers as of July 2014.
CONTINUED: Five Tips for Stock Fresh Produce
Have Produce, Will Travel
Michelle Barry, CEO of Centric Brand Anthropology in Seattle, suggests the following rules of thumb when merchandising produce in a c-store:
- If you have gas pumps, refrain from displaying fruits and veggies outside near fuel, which is a turnoff to shoppers. Instead, bring the produce closer to the register, within 10 feet of the entrance.
- Avoid stocking it in a corner or cool case, which significantly decreases its discoverability factor.
- Think outside of the apples-and- bananas-only box by carrying oranges, dried fruits and sliced and pre-packaged fresh fruits and salads, including fruit cups with an attention-getting topping such as coconut shavings.
- Ease into fresh offerings—without making too large of an initial, risky commitment—by implementing additive measures around core competencies. For example, provide additional fresh options such as fresh dips, condiments and rolls at the foodservice stations.
- Remember that providing “fresh” isn’t merely about offering more produce options. “ ‘Fresh’ is about an experience—it’s about tight signage, effective organization and good ideas. It extends into other areas, such as offering fresh condiments at the hot dog station and juice smoothies as an alternative to slushies,” says Barry.
Upscaling the Offer
Many convenience stores have already successfully “upscaled the offer” by providing perishables and fresher food choices to customers, according to Steven J. Montgomery, president of b2b Solutions LLC in Lake Forest, Ill.
“Upscaling appeals to the traditional c-store base and attracts customers who might not traditionally shop at convenience stores,” says Montgomery. “This can be a successful strategy if done well.
“But,” he quickly adds, “putting i n produce changes the consumers’ percep - tion of a convenience store. Produce is very easy to do badly, and it takes work to do it well. Overly ripe bananas leave a bad impression, for example. Lending yourself to healthier, fresher lifestyles via fresher products is an evolution, not a revolution, in this industry, and it takes time.”
Having a strong supply chain is critical, as some of those best at fresh can tell you. Companies such as Sheetz, Wawa, QuikTrip and Kwik Trip are vertically integrated. Others have partnered with distributors for frequent deliveries of produce and other fresh items.
“If you’re going to offer fresh, you have to have more frequent deliveries than just once a week,” says Montgomery. “This requires a tremendous investment in trucks, staff and other resources.”
The rewards of these aforementioned efforts can be significant. Of all the retail channels, c-stores have the greatest potential for revenue gains with healthy options outside the morning meal occasion, says Bonnie Riggs, restaurant industry analyst for The NPD Group’s foodservice division in Port Washington, N.Y.
In fact, consumers responding to a recent NPD Group survey indicate they would be willing to pay significantly more for healthier food options at c-stores at each day-part: 8% more in the morning, 13% more during lunch, 18% higher for an afternoon/evening snack and 21% more at dinnertime.
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