Analysis: What ails the health food market?

Julian Graves administator Deloitte admitted on Monday that the retailer had been impacted by the tough economic climate. Owner NBTY Europe said it had fallen victim to a “perfect storm” of reduced consumer spending and “rocketing” commodity prices.

Less than 48 hours later the UK division of organic food retailer Whole Foods filed a poor set of results on Companies House. The company, which has yet to make a profit in the UK, reported a £4.4m loss for the year to September 25 2011, up from £3.1m the previous year.

Neil Saunders, managing director of retail consultancy Conlumino, said the news wasn’t surprising given supermarkets were increasingly taking a larger slice of the organic and health food market.

“Supermarkets are expanding their offers in this area and they’ve been very successful at merchandising this and pushing it in their marketing communications,” he said. “When trying to tackle the UK consumer one thing they’ve both come up against is that once a week consumers go to a supermarket and get all their food items, so there’s no need to visit them.”

This view was echoed by David Gray, retail analyst at Planet Retail. “Supermarkets are being more flexible [in their offers] and growing the more premium end of the market as well as the bottom end,” he said. “For example, Marks & Spencer is doing a lot more when it comes to innovation and keeping customers interested, such as refreshing its ranges.”

Referring to Whole Foods, Saunders said he believed its flagship Kensington store still presented a challenge for the retailer. “The big problem is that the space is very expensive and people visit on foot or use public transport so transactions can only be of a low value.”

The two pieces of news made for bleak reading for the market until Julian Graves sister company Holland & Barratt gave it a boost by posting a 19.4% surge in pre-tax profit to £60m – just a day after its younger sibling fell into administration.

However, Saunders believes Holland & Barrett has more of a USP to be able to hold its own against supermarkets. “The grocers might offer a few supplements but they don’t specialise in it the way Holland & Barratt does. There’s a real need to go to Holland & Barrett [compared to Whole Foods and Julian Graves].”

Whole Food nonetheless appears optimistic on its future in the UK, with three new stores scheduled to open in its 2013 financial year.