New gourmet, organic stores will heat up competition

The supermarket wars in the Des Moines metro used to be a battle among the big players: Hy-Vee, Fareway, Wal-Mart, Target and Dahl's Foods, now Price Chopper.

But with a change in customer demands and a growing specialized grocery industry, the scramble for market share is heating up.

Three national gourmet and organic grocery stores will open here in the next year, bringing shoppers an array of new products, organic produce, dairy and meats, and prepared gourmet dishes.

They also bring added pressure for the city's existing grocery stores.

The new additions include:

• The Fresh Market, scheduled to open late this year in the new Mills Crossing retail development being built at South 60th Street and Mills Civic Parkway in West Des Moines.

• Fresh Thyme Farmers Market, a newcomer to the specialty market category, set to open early next year in the former OfficeMax space in Clocktower Square at University Avenue and 28th Street in West Des Moines. The fledgling company has committed to fast expansion with 100 new stores in the next six years.

• Natural Grocers, a Denver-based company that plans to build a new store in the parking lot of the former Dahl's at 86th Street and Hickman Road in Clive. It will offer a large selection of vitamins and supplements in addition to groceries.

They join a growing number of gourmet grocery stores in the metro, including Whole Foods, which opened in West Des Moines in 2012, and Trader Joe's, which debuted in 2010.

"Ten years ago, those kinds of specialty stores only appealed to certain kinds of people. Since then there's been a growth in general appeal for those products," prompting a surge of new players, said Rod Hawkes, senior extension associate of the Dyson School of Applied Economics and Management at Cornell University. Consumers are more concerned about healthy food options, and retailers are responding, he said.

"One of the advantages natural and organic chains have is that they are able to address consumers' concerns about health and wellness but also help sort out confusion over things like non-GMOs (foods without genetically modified organisms) and fair trade options," Hawkes said.

Des Moines has long featured a smattering of specialty grocers, mostly ethnic markets catering to Asian and Hispanic communities. And independent health food stores like Campbell's Nutrition and the now closed New City Market had loyal followings when Gateway Market and Cafe, a mid-sized organic and gourmet grocery store, opened in 2007 just west of downtown Des Moines.

Two of the new stores opening in West Des Moines — Fresh Market and Fresh Thyme — will bring offerings similar to Gateway Market, with organic produce and meats and high-end natural grocery brands.

"Each of these stores has pieces of what we do," said Paul Rottenberg, president of Gateway's parent company, Orchestrate Hospitality. But Gateway's large cafe and its catering business differentiates it from competitors, he said.

"Our location on MLK (Martin Luther King Jr. Parkway) makes us a convenient stop for commuters," he said. "But we anticipate that somebody's going to open in our neck of the woods."

There has been speculation that potential development along nearby Ingersoll Avenue could include a specialty grocery store.

Rottenberg said Gateway will succeed by building brand loyalty. "We all hate competition, but it's silly to think it's not coming," he said.

Gateway lost some business when Whole Foods opened, but it has regained that market share by responding to customer demands, he said. The store has added more traditional groceries and brands since it opened eight years ago, and it continues to expand its organic produce, another customer request, Rottenberg said.

Mom-and-pop natural food stores have been at the forefront of the organic, local food and non-GMO movement for decades, said Diane Lahodny, owner of Campbell's Nutrition.

"We have been educating communities one customer at a time. That being said, I am unsure that the market can support us all," she said. "Across the country other retailers just like us are figuring it out. Some have been successful and some have not. My hope is that we can adjust and that our suppliers and community continue to support us."

New City Market, a 27-year-old natural market on Des Moines' west side, closed last month. Owner Jim Raife cited growing competition from new stores like Whole Foods and expanded natural and organic sections at traditional grocery stores as a contributing factor.

In recent years Hy-Vee has expanded its offerings of natural, organic and gluten-free products in its HealthMarket sections. The company also has increased its selection of organic produce, meat and dairy products.

The new competition doesn't rattle the West Des Moines-based retailer, said Laura Fulton, senior vice president of operations for Hy-Vee's northern region.

"We believe competition is good for everybody," she said. "Of the items those stores carry, we already have the majority of them in our stores."

Hy-Vee customers will shop the new markets, she said. "People are always curious and will go see what the new stores have to offer. For us, it's a matter of how we have taken care of them in the past" that will determine if they return.

The higher prices and limited selection of things like paper products, canned goods, household items and snack foods in the specialty stores will bring shoppers back to traditional supermarkets, said Jim Hertel, a supermarket industry analyst and managing partner of Willard Bishop, a consulting firm in Barrington, Ill.

There's concern amongst some analysts that the natural and gourmet market could become overcrowded.

"It has gone from a limited number of stores to a much more broad-based part of the grocery segment," Hawkes said. "There could be a point where there are too many of these stores in Des Moines."

But the Fresh Market sees plenty of opportunity for growth in Iowa, said Amy Donati, district manager. The North Carolina-based company opened its first Iowa store in Cedar Rapids in October.

"This was the litmus test for the state," she said. "And this store has exceeded our expectations." Des Moines could support more than one store, she said.

Michelle Hurd, president of the Iowa Grocery Industry Association, agrees.

"If you consider that the population of the Des Moines metro area has increased 19 percent since 2000, it would be fair to say that the grocery industry is just keeping pace with population growth," she said.

Statewide, there are about 550 full-service, conventional grocery stores, according to the Iowa Department of Public Health. That's one grocery store for every 5,636 Iowans. In the Des Moines-metro area — Polk, Warren, Madison, Dallas and Guthrie counties — there are 98 grocery stores, or one store for every 5,813 people.