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Tofu Fight!

The nation's top two natural-food chains have chosen the Chicago market for their first head-on battle. Some local operators are going to get hurt.



It must have been something you ate.

In the dream, you were piloting a grocery cart through the local Jewelnick's, only the store had changed a lot since your last trip. Where you used to gaze up at pyramids of waxy, eerily perfect produce, now there were mounds of organically grown fruits and vegetables, and you loved them. Loved them for their promise of garden-fresh taste never tweaked by science; loved them for their tiny blemishes, each one a sign that you wouldn't be dining on pesticide residues. In the bread aisle, there were no puffy, white food-tech wonders; in their place sat moist, brown whole-grain loaves. The meats all came from farm animals that had never been Schwarzeneggered. You rounded a corner and found half a dozen shampoos, all of them made without blinding any fluffy bunnies. Everywhere you looked, conventional grocery items had been replaced by healthier, happier, hipper stand-ins.

The dream came true for Chicagoans when the midwest's first Whole Foods store opened on North Avenue near Clybourn last March 29. Their suburban counterparts lagged by just a few months; in July, the Fresh Fields chain opened stores in Palatine and Naperville. The two grocery companies--the first is from Texas and has deep roots in the old hippie-heavy natural foods business, the second is a fast-moving upstart from the Washington, D.C., suburbs--have never before operated in the same metropolitan area, but they have a common goal: they want to be your one-stop nutritionally correct grocer.

But the entry of the nation's top two natural foods grocery chains into Chicago and the suburbs hasn't been so dreamy for the established natural foods boutiques here. It's been more like a squawking wake-up call. Their sales are down and their hackles are up. Stores like Sherwyn's, Foodworks, and Evanston's Oak Street Market have been sucked into a fiercely competitive whirlwind by the two big players. When the air settles, they won't all still be standing.

"A lot of these people with smaller stores have been doing it secondarily to make money," says Frank Lampe, editor of the monthly trade magazine Natural Foods Merchandiser. "It was primarily a life-style choice or a mission. But now they're going up against people for whom money is the primary driving force. It's going to mean major changes for them." In the industry, Fresh Fields is widely considered more a profiteer than an evangelist for tofu. And since Whole Foods went public to the tune of a $22 million stock offering in January 1992, it will unquestionably have to pay much closer attention to the bottom line than before.

The lightweight locals are trying to stand up to the hefty newcomers any way they can. Most report dropping their prices. A few have made sweetheart deals with wholesalers to nail down volume discounts like those the large stores get. Some have cut staff, the hours their staffers work, or the benefits they provide. Others disclose ambitious programs to upgrade facilities and services. One store owner even confides, off the record, that as part of his severe cost-cutting regimen he never set the thermostat on the store's air conditioner below 80 this summer: he's not going to sweat it out alone.

"March 29 was my first day in business--everything else is history," says Al Hartzman, whose 3,000-square-foot New City Market on Halsted is just three blocks from, and one-tenth the size of, Whole Foods. He says the newcomer has siphoned off at least a third of his business. "Thirteen years after we started this place, we have to do it all over again," he says. "And we have a short time to do it in, or we move on."

Hartzman isn't overreacting. He knows about the health food shops that Fresh Fields and Whole Foods stores have killed off in other cities. And he may have a second Goliath neighbor to contend with next year: several sources report that in 1994 Fresh Fields will probably set up its first Chicago store at Fullerton and Elston, just over a mile from Hartzman's outfit and from Whole Foods. And if the two big chains don't hunker down that close to each other on the north side in 1994, it almost certainly will happen in Evanston in 1995.

"The history of American business shows that competition has always benefited the consumer," says Mark Ordan, 34-year-old president of Fresh Fields, the Rockville, Maryland, company he cofounded three years ago on about $35 million in venture capital. "Good competitors adapt," he says. "It's obvious that you'll have more competitive prices if one store doesn't own the market."

This has happened before. Have you been to a corner drugstore lately, or do you count on Osco, the people who care? More recently, Barnes & Noble rolled into Chicago and Guild Bookstore rolled up its rugs. Wal-Marts sprout on the carcasses of small-town Main Streets. Osco isn't a villain, and neither are Barnes & Noble and Wal-Mart. They're known in the retail world as "category killers"--they sell so much stuff at such good prices that competitors, especially small ones that might have gotten used to a cozy, sleepy market, have to kick themselves in the butt to keep up. Some aren't that agile.

Nearly every local natural foods entrepreneur offers the same two opinions about the recent arrivals: (1) It's bad for my business, but (2) it's great for the business. For most of them, introducing people to soy-based cheese substitutes or breakfast cereal made from organically grown blue corn started out as their mission and only later became their career. So the advent of stores that look and feel like mainstream grocers but without the artificial preservatives, artificial sweeteners, and artificial music confirms that they were in the right line all along. Nobody minds too much that along the way the food co-op got co-opted, because it means that the market for natural foods products may now grow even faster than it has for the past decade.

"Their ad dollar gets the information out on natural foods," says Bob Macfarland, who with his wife, Barbara, has been selling natural foods since 1975, first from the Rainbow Grocery and now from Foodworks, on Diversey. Whole Foods, a mile and a half due south, has cost Foodworks at least 15 percent of its business, but Macfarland hopes for a long-term gain anyway. "It's the educated buyer who buys natural foods," he says. "So if their advertising expands the market, that sells our product, too." When the tide comes in, all the boats go up.

"If you believe in promoting sustainable agriculture, if you believe in expanding the awareness that eating whole, natural foods contributes to good health, then you have to see Fresh Fields and Whole Foods as a good thing," says Dave Goetz, who bought a half interest in Evanston's Oak Street Market in July, after working there since it opened in 1982. When word arrived that Fresh Fields had signed for a gargantuan space just five blocks from his store and plans to open it this winter, he went on a reconnaissance flight through a Fresh Fields store. "Who I saw in there was mainstream Americans concerned about cholesterol and fat," he says, "people trying to clean up their act." Shoppers who initially hit a Fresh Fields or Whole Foods trolling for reduced-fat desserts or breads that don't spark their wheat allergy might soon turn on to eggs from free-roaming chickens whose beaks aren't shaved off in gothic factory farms, or to tempeh, a versatile soy-based meat substitute that's a distant cousin of tofu but doesn't look like vanilla jello.

Two-thirds of the grocery shoppers in this country say they could eat healthier diets, according to the Food Marketing Institute, a major trade organization that rolls out a cartload of statistics on the industry each year. FMI's January 1993 survey indicated that 79 percent of shoppers consider pesticide and herbicide residues in their food a serious hazard. That figure is down from a high of 82 percent in 1989, but still nothing for a grocer to sneeze at (one produce-section annoyance the FMI didn't ask about). Fifty-five percent consider antibiotics and hormones in poultry and livestock a serious hazard, and another 34 percent call them "something of a hazard." Artificial colorings are feared as either a serious hazard or something of a hazard by 70 percent of shoppers. For two decades natural foods stores of all sizes have aggressively tried to minimize or ban all these evils.

The industry has gotten vastly more consumer-friendly. Ten years ago, an awful lot of the items sold in natural foods stores tasted as if they should have been fed to horses--and some looked as if they already had been. Today, stores are filled with tasty entrees in colorful packages, thanks to dozens of entrepreneurs who have cooked up inventive products, many of them close analogs of conventional products but without the industrial ingredients. Macaroni and cheese, meat loaf, cheese enchiladas, chicken salad, chili, pizza--every one now comes in at least a few meatless, wheatless, or junkless brands. A natural foods store's product line may change as much as 40 percent in a year, thanks to the steady stream of new or improved products.

The time seems right for mainstream consumers to start flowing through the doors of natural foods markets. But "we're still just a boil on the ass of the supermarket industry," says Lampe, of Natural Foods Merchandiser. Just 4 to 8 percent of all grocery shoppers use natural foods stores, he says. Conventional grocery stores rang up over $315 billion in 1992 sales, compared to a mere $5.2 billion by natural foods stores. That's more like a hair than a boil, Frank.

Jewel and Dominick's aren't concerned about splitting hairs. Jewel, with 170 Chicago-area stores, and Dominick's, with 86, are the region's 800-pound and 400-pound gorillas. According to their spokespeople, both companies are content to let the two new kids monkey around on the fringe of the market.

"Certainly when they operate in our market they're a serious competitor to be taken seriously," says Jewel sales manager Dianne Maffia. "But we still are a traditional retailer appealing to a broad market. We recognize that the market in general is moving toward a healthier diet, and we have taken steps to accommodate that." She says individual stores near the newcomers have made adjustments but won't say precisely what they are. "All of our stores offer fresh seafood, skinless poultry, and organic produce in the farm-stand section," Maffia says, stopping just shy of bursting into a rousing rendition of "Take a new look at an old friend--Jewel!"

Dominick's public-relations manager Rich Simpson says their stores near the new arrivals have increased the selection of organic fruits and vegetables and have bumped up mentions of the stuff in local ads. "We introduced organics in the 1980s because we had seen them in other markets and in the health food stores," Simpson says. "But they haven't done very well." The affected stores have also started stocking organic produce loose instead of packaged in Styrofoam and shrink-wrap. "We'll see if that changes the sales," Simpson says. "Maybe the customer who wants that kind of produce is thrown off by packaging."

Jewel and Dominick's are the kind of places where the natural foods industry's biggest successes wind up. Yogurt, whole- grain bread, rice cakes, and even fat-free cookies first tasted stardom in weirdo food co-ops. Today the aisles of Foodworks and Sherwyn's, like the streets of Nashville, are lined with prospective crossover sensations. Spelt, kamut, and quinoa--three ancient grains that could spell relief for those with wheat allergies, which could be on the rise as a result of centuries of hybridizing the plant--are some critics' picks to be the next yogurt, the next Dolly Parton.

Whole Foods and Fresh Fields bear a faint resemblance to locally grown Treasure Island stores, which inflated another small breed--the gourmet- and imported-food boutique--into a supermarket format. Chris Camberos, president of the family-run company, which has stumbled through partnership problems for the past few years, is tweaking his 40,000-square-foot store on Clybourn, four blocks north of Whole Foods, to keep customers from straying. "We don't think our customer can get everything she wants over at Whole Foods," Camberos says. "But she might spend as much as $20 of her $100 there, and come over here to get the rest." He wants to slow the drift toward Whole Foods. The size of the organic and natural foods section at the Clybourn store has been doubled and now includes a 12-foot refrigerator case for natural and organic frozen foods. The store also bakes a dozen varieties of bread, Camberos says, using "organic, or unbleached, or whatever the damned word is on flour now." Organic fruits and vegetables won't be displayed next to their conventional cousins anymore but kept in new, separate cases to guard against creeping pesticide residues. "Now my customer can come in and see that there's even less reason for her to go over to Whole Foods," says Camberos.

One thing that inhibits mainstream acceptance of natural foods stores is the lingering perception that "we're all hippies selling lentils out of trash cans, and John Q. Average Citizen does not want to go into a place like that," says Whole Foods president Peter Roy, who freely confesses that there are some trash cans in his past. His company--which has mushroomed from one Austin, Texas, operation launched in 1978 to today's 32-store chain flanking the two coasts and Texas--started to penetrate the midwest this spring with its Lincoln Park store and another in Ann Arbor. "Part of our mission has been to have an effect on how people choose food and how the agricultural process works in this country," he says. "If our goal is trying to get more people eating this way, we have to provide the right retail outlets for them. If we open a store in Berkeley we don't have to teach people much about the food, but in Richardson [a Dallas suburb] we have to spend some time building a constituency."

A spoonful of unrefined sugar helps the herbal medicine go down. By building a store that's big and full enough to appeal to American consumers' abundance mentality, by dressing up the food like conventional groceries, and by providing lots of free parking, Whole Foods and Fresh Fields can tap into a vast but so far uncounted reserve of shoppers who've wanted to buy healthful groceries but were afraid they'd go home smelling like patchouli. But if they have a similar target, the two big chains have very different histories and management styles.

Whole Foods has expanded with the natural foods industry itself. That explains the futons in the employee break room and the corporate leaders who, when they list Whole Foods stakeholders, include "the environment" as well as customers, employees, stockholders, and the surrounding community. Store managers are called store team leaders, and employees can wear whatever they want to work--nose rings included. Whole Foodies fondly point out that at their store, employees can accrue paid time off to do volunteer work, and that the store occasionally forks over a percentage of a day's proceeds to local nonprofits.

"We're here to create a win-win situation for everybody in the industry," Mary Kay Hagen says in the Quixotic Cafe, the second-story eatery at Whole Foods on North Avenue. As midwest president of preternaturally decentralized Whole Foods, Hagen is the de facto top dog for the company's Chicago and Ann Arbor stores, and for the River Forest store opening in 1994. "I feel like this whole coming in of Fresh Fields and Whole Foods into Chicago is creating a kind of synergy toward this type of food," she says. "I see organic produce at Dominick's, and I think, 'Good!' If people develop a better style of eating and shopping, we've served our purpose. The big stores could have put us out of business ten years ago by doing what we do."

Fresh Fields, on the other hand, is the brainchild of three conventional entrepreneurs who, seeing that the mainstream was seeping over toward natural foods, jumped in. In 1991 the company sprang fully formed from the heads of Ordan, an investment banker; Leo Kahn, the prosperous CEO of a conventional grocery chain and founder of a national office-supplies business; and Jack Murphy, who'd managed operations at Kahn's grocery stores. "We saw a terrific idea," Ordan says in the cafe at his Palatine store. "What we saw was a growing and, we thought, permanent concern for healthy eating." They planted their green flag ahead of the market by creating stores--most of them in suburban, family-dense locations--where people could painlessly make the step from fatty, chemically altered, and irradiated food with a shelf life longer than Nancy Reagan's to food that's cleaner and more nutritious.

After Ordan explained that Fresh Fields stores appeal not only to natural foods fans but to people with food allergies, cholesterol problems, and a slew of special dietary needs, I asked which category he's in. His response: "That's personal."

There are no futons in the break room at the Palatine Fresh Fields store, but there is a suggestion box with a sign that says, "If you have a idea on how to increase sales or make us a funner TEAM, put it in the box we'll do our best to make it happen."

The two companies' approaches toward local competitors also differ. Several local entrepreneurs recall Whole Foods honchos taking them to lunch to chew the fat and offer business tips. Nobody mentions such collegial warmth from Fresh Fields people. Before the Whole Foods grand opening, local colleagues were invited in for a look-see. As is customary, they brought along notepads and calculators and toured the entire facility, including the backstage operations. For the equivalent Fresh Fields unveiling, notepads and calculators were not allowed, and the tour encompassed only the public areas of the store. Of course customers don't see managerial style when they stroll through the automatic doors at Whole Foods or Fresh Fields.

Very few small natural foods stores are still run--or decorated--as they were in the 1970s and early 1980s. Most now have professionally printed signs, check-cashing cards, and sale come-ons in end-of-aisle displays--just like the big guys. Studded with restaurant-style metal shelving and hanging plants, some look like standard gourmet specialty shops. Perceptions lag behind reality, however. Oak Street's Goetz says he keeps close tabs on how often the store music, selected by employees, features the Grateful Dead.

Even when they're not peopled by tie-dyed throwbacks, small natural foods stores can still be uncomfortable. Try to steer a shopping cart down an aisle at Foodworks when somebody else is pushing one in the opposite direction. A shoehorn won't help. Then try the same traffic maneuver in a Whole Foods aisle. For shoppers just darting in to pick up a carton of Edensoy nondairy pseudomilk, the space issue might not matter; but for someone on a weekly grocery safari, Whole Foods wins easily.

The other perception that's kept mainstream consumers from embracing small natural foods stores is that prices there are sky-high. That, after all, is what boutiques are for. Organic produce especially is commonly believed to cost way too much to be worth the health benefits. Lampe says studies indicate that if the price for organic produce is more than 50 percent higher than for conventional counterparts, most buyers will opt for the brightly colored, chemically engineered stuff. But no accurate measure of the spread between conventional and natural grocery prices has been made; estimates run from 10 to 100 percent, most of them hovering in the 15-to-30 range. Here, too, Fresh Fields and Whole Foods have helped close the gap. All the store managers I spoke to within competitive distance of a Whole Foods or Fresh Fields here said they had cut prices to meet or beat the Terrible Two.

At Sherwyn's, for example, a bag of Hain mini rice cakes used to sell for the suggested retail price of $2.35, with an occasional sale price of $1.79. Since Whole Foods opened just under two miles away with the identical Styrofoam go-cart wheels priced at $1.59, Sherwyn's has had the same price, and for a while priced them at two bags for $2.35, or roughly $1.18 a bag. Aside from making rice cakes more affordable--don't blame him if they're still hard to swallow--store owner Sherwyn Cotovsky has also hatched plans to expand the store and to make its prices generally more competitive. In the past, general manager Neil Levin handled most business affairs of the store, which employs 55 people and rings up something like $5 million in sales per year. But since Whole Foods came to town Levin's entire job is to cut deals with wholesalers and distributors to trim prices and to advertise those prices like crazy.

It's difficult to determine precisely how far the small stores have come down in price, because most are understandably sheepish about confessing how much flab they were able to get rid of. Most will at least say that their cuts are the direct result of comparison shopping in the big stores. For my own comparison, I put together a shopping list of 22 items that are found in few or no conventional stores but are mainstays of the natural foods industry. The list includes entrees and snacks to satisfy one adult and one baby, as well as products for cleaning their faces (Kiss My Face olive oil soap), kitchen (Earth Rite all-purpose cleaner), and colons (Swiss Kriss herbal laxative, "known worldwide as the smoothest most satisfying laxative"). Here's how the stores did:

Whole Foods $55.01

Sherwyn's $55.71

Foodworks $56.60

Oak Street Market $57.75

Fresh Fields $59.30

Blue Sky Natural Foods $62.41

Whole Foods slid in just under its two local competitors, and considerably--almost 8 percent--below Fresh Fields. (Of course, the two don't compete head-on yet.) The only local store in my survey whose prices were higher than those at Fresh Fields was Blue Sky, a nine-year-old Palatine store directly across a street and two big parking lots from Fresh Fields.

A dark cloud passed over Blue Sky the day last December when the first sign went up announcing that Fresh Fields was on its way to the former site of a Spiegel outlet store near the corner of Rand and Dundee roads. And a Fresh Fields employee passed through the very next day, as Blue Sky employees tell the story. "After the first one, you started seeing them all the time," one employee says. "They'd come in writing down prices and talking into tape recorders and being rude to us." Several months and a 25 percent sales drop later, a bunker mentality pervades the place. In the 15 minutes I spent writing down prices, two different staffers sidled up to me and said, "You're from across the steet, huh?"

Blue Sky is typical of the breed. It's stocked to the rafters with everything from meatless bologna substitutes to organic corn chips, from low-fat, wheat-free cousins of the Pop-Tart to Creamy Tofu Stroganoff. Everything a natural foods shopper craves. Fliers for political and health events abound. Two drawbacks, also common: the lights are a little dim, and the twisted, confusing floor plan would throw Rand McNally into a fit.

Across the street at Fresh Fields the layout is tidier, even finicky, like a British maze of hedges or a downtown of only one-way streets. No matter what you're here for, you have no choice but to start your tour in the Museum of Produce. In this S-shaped opening run, mounds of gorgeous fruits and vegetables sprawl atop homey wooden bins like the ones Farmer Bob sets up on the two-lane road that runs past his sheep pasture. In the middle of the Museum is a juicing bar where aproned employees squeeze the guts out of citrus fruits, carrots, or any other produce you'd rather drink than peel. Murals of perky free-ranging farm animals grace the walls. Around the periphery of the store are full-service seafood, meat, soup-and-salad, deli, and bakery counters, each pumping out its own come-hither aromas. Two middle-aged customers in glittery designer sweatshirts coo at each other over racks of fresh-baked bread, the only kind Fresh Fields sells. One says, "What did I tell you? We're not living in a food wasteland anymore!"

Jay Angel quit an electronics job with Borg Warner in 1984 to get Blue Sky going. After some initial slow times, the store grew at a rate of 10 to 15 percent a year--roughly the same as the pace of the industry itself--through 1992, when sales were just over $1 million. Ironically, the store was doing so well that two years ago Angel briefly considered moving across the street to a larger spot, right next door to the one Fresh Fields eventually took. Now he's looking for a new space again, but this time it's because he desperately needs to get out from under the Fresh Fields shadow.

"When they come in, you have to go out of business or move, which is expensive enough to weaken you," Angel says.

In the meantime Angel's assistant manager, Nancy Wood, has been busily cutting prices to match those across the street. That's tough for a small-volume buyer. Since the 1920s, supermarkets have relied on high volume to keep prices low, pushing huge quantities of product out the door. Wholesalers and distributors thank them for the constant flow with rock-bottom prices. A tiny player like Blue Sky plainly can't compete on the same terms. But Wood says her suppliers have been generous because they don't want the little places to dry up. "The people in this industry back each other up, because they're in it for a reason," Wood says. "They know what's going on across the street, so all I do is ask and they kick in. It's like a Christmas movie." Every time a bell rings, an angel eats some tofu.

Wood says some of the lost flock have already started coming back to Blue Sky. She hopes eventually to regain most of them, and maybe to get a whole new batch of customers. "People go into Fresh Fields and they see the wood floors and the bright lights and say, 'oooh,'" Wood says. "A pretty package like that is a good middle step for people who have been eating Wonder bread and Twinkies. But then the better they start eating, the more aware they become of what they ought to be eating, and that's when they'll get tired of the pretty box and come over here."

But Chris Kilham has some curt advice for optimistic natural foods entrepreneurs who expect the wave of lost business to wash back over them: "Don't even kid yourself." Kilham, who runs a Massachusetts natural foods consultancy called Cowboy Marketing, has put 23 years into the business, 5 of them as the marketing guy for Bread & Circus, a New England chain that turned down entreaties by Fresh Fields but later allowed itself to be purchased by Whole Foods. His clients have included both Whole Foods and Fresh Fields. Kilham's advice to Blue Sky: "Move."

"Those stores do put smaller stores out of business," Kilham says. "They are gorgeous, and that's tough to fight." An old-line store in Rockville, Maryland, reluctantly closed a few months after the first Fresh Fields store opened in the same suburb in 1991. This summer in Mill Valley, California, the owner of Living Foods blamed a new Whole Foods store for draining 70 percent of his sales, then finally gave up.

Kilham, who acknowledges that his relationship with Fresh Fields has been "acrimonious" since he quit consulting for the company, claims that Fresh Fields carefully hunts for locations as near as possible to existing natural foods stores. "That's the MO there--they want to cannibalize your business," he says. He claims to have witnessed the strategy twice in the Washington, D.C., market. "Both times they were very careful to portray their real estate finds to me as ineluctable luck," Kilham says. "They did a really amazing song and dance, but it's too much of a pattern. These guys are kick-ass free marketers, and if they can reduce their risk in opening a store and building up clientele to a break-even point, they'll take your business."

Whole Foods, by Kilham's reading, is no ass-kicker. "What you find in the people running Whole Foods is a real life-style connection," he says. "The nature of the industry is providing life-engendering products. There's an ecology of mind that recognizes that doing things that are generative promotes health and well-being." The Mill Valley Living Foods store owner, Lampe says, had several opportunities to prop up his business against the Whole Foods competition but didn't take any of them.

Ordan bristles at the idea that other stores die so his can live. "We go into relatively densely populated areas," he says. "There are few areas like that where there are not health food stores. There's probably a Circuit City near every one of our locations, too." In Naperville, Fresh Fields is about half a mile down Ogden Avenue from Natural Health Foods, a 22-year-old outfit. Ivan La Fave, who owns the store with his wife, Anita, says Fresh Fields has had no material effect on business. The Fresh Fields store in Devon (one of Philadelphia's Main Line suburbs) is within five miles of at least four natural foods stores. Managers of three report sales drops, but none says any lethal damage has been done.

Fresh Fields is just smart in its real estate choices, Ordan suggests: if there's already a natural foods store in the area, that indicates there's a customer base. "I can understand that the Blue Sky people are not gleeful about us being here," he says. "But look at the size of our store, and look at them." (Fresh Fields: 30,000 square feet, 175 employees. Blue Sky: 7,000 square feet, 20 employees.) "Why would we possibly think it's a benefit to be across the street from a small health food store?" he asks. "Why would a store that does a multiple of your volume think that because they are near you they'll be successful?" Blue Sky's volume was slightly over $1 million in 1992, Angel says. Fresh Fields doesn't divulge any sales figures.

The next battleground between the Davids and the Goliaths is Evanston, where Fresh Fields will open a store sometime this winter in space now held by a Toyota dealership at Green Bay, Ridge, and Emerson. The space is five blocks from the Oak Street Market and about ten from Green Earth, a smaller venture. At Oak Street, co-owner Goetz is planning for the new arrivals as if they were Huns coming over the wall.

"I feel like I've been pricked in the butt," Goetz says from his battle station, an office tucked under the rafters. "I'm not going to sit still and let them take over." He rattles off a list of upgrades that should soak up $125,000 and be complete by November. Pointing to the northeast corner of the store, where the service deli and refrigerator cases are, he says, "All that gets replaced and moved around." Then the south wall, lined with produce bins that are 12 years older than the store. "We're getting all new ones there." Then at two employees stocking produce who are wearing green aprons: "We started a dress code today." A couple of shoppers pushing carts are playing chicken with each other in an aisle three feet wide. "Everything will be five feet wide, for two carts." The parking lot, where drivers trying to snatch a parking space routinely risk the lives of hapless pedestrians, is Goetz's biggest hassle. The U.S. Postal Service, whose Evanston temple is across the street, leases 24 city-owned parking spaces beside the market. Goetz has 20, and wants the Postal Service's 24.

Big signs are going up in the Oak Street Market, a $7 million-a-year operation, to explain the store's philosophy. They're a direct response to the placards Fresh Fields puts up that outline the store's impressive guiding principles, which include: no growth hormones, no synthetic preservatives, no artificial flavors, no phosphates, no animal testing, no refined sugars or synthetic sweeteners. If you're looking for Ho-Hos, you're in the wrong place.

Goetz also wants to install more service counters and product-sampling areas, two features Fresh Fields has refined to perfection. "I want our entire store environment to be much more groovin' and cool before Fresh Fields gets here," he says. "I know we'll lose some people to Fresh Fields, but I think we can survive."

He'll probably have to go a few rounds with Whole Foods too, which had dibs on the Toyota site but got shouldered aside by Fresh Fields. Because the usual policy at Whole Foods is to add one store per region per year, Whole Foods now won't get to Evanston until 1995; 1994 is the year for River Forest. Hagen says, "We're definitely still looking for a spot in Evanston." The town is prime turf for a large-format natural foods store because it's home to two receptive tribes--college students and North Shore rich people.

But Fresh Fields and Whole Foods could wind up firing close-range at each other before 1995. Although Ordan and Fresh Fields regional manager Joseph Macchione have said repeatedly that Evanston, Palatine, and Naperville are enough Chicago locations for now, several sources say that Fresh Fields will soon ink a deal on a spot at Fullerton and Elston, in the new retail development behind the Midtown Tennis Club. That would put the two stores just over a mile apart, closer than they've ever been before.

In September, a Whole Foods executive told Brandweek magazine that the "true competition between Whole Foods and Fresh Fields is for location, not for customers." The idea is that the first to nail down a location with this pioneering format can score major points simply for opening shoppers' eyes and appear--to new converts especially--to be the One True Store.

But the two chains seem to be testing that premise. Whole Foods staked out the north side's zone of hipness first, then tried to claim Evanston. But Fresh Fields snatched Evanston, and now may jump onto the north side. It's an expensive chess game: Lampe, of Natural Foods Merchandiser, says the cost to open a store is $2 million to $3 million. Counting acquisitions of three smaller chains, Whole Foods now has 32 stores in six regions (nature-loving California counts as two, but the entire midwest is one); future plans call for conservative growth of one new store per region per year. Fresh Fields has opened 12 stores since 1991 and won't specify how many more are in the works, or where they'll be.

"There was a time when people in the industry would all have dinner together and talk locations," Whole Foods' Hagen says. "Five years ago I'd have said, "I'm looking at this corner, or that one.' That's not going to happen anymore. The industry is changing."

Both teams say they won't alter their game plans materially even if the two end up operating within competing distance. Lampe suggests Fresh Fields might be playing with a bigger handicap. "A natural products store can usually expect to break even in one year," he says. "Because Fresh Fields is really not interested in that dedicated natural foods shopper but in the other 90 percent of the population, it has a longer learning curve at each store. They have to count on about two years, and from what I hear they're not hitting that at most of their stores. Whole Foods usually hits its numbers within a few months." Scott Beckman, the Whole Foods team leader in Lincoln Park, says that store was originally projected to make $13 million or $14 million in its second year; but less than seven months after opening, he says, the store seems likely to pass $13 million in its first year. Ordan will say only that the two Chicago-area Fresh Fields stores are doing "as well as expected."

There's no overall battle to the death going on between the two biggies, however. Most observers expect the general public's interest in natural foods to continue growing, which would mean room for both Whole Foods and Fresh Fields.

And the small stores that figure out how to play by the new rules can ride the same wave. The consensus among industry watchers is that the little places can hang on by emphasizing one-on-one service or by scratching out a niche. Sherwyn's has been pushing its vitamins and supplements harder--the original core of its business and an area in which both Whole Foods and Fresh Fields lag behind. The New City Market may turn up the wattage on its macrobiotic offerings. Oak Park's Whole Food and Grain Depot, immediately across the street from the planned River Forest Whole Foods store, will goose its herbal and homeopathic remedies before the big store shows up.

"Cowboy" Kilham, the consultant, says tight focus is the way for small places to ride out the storm--and pioneer potentially lucrative new formats. "Be the local natural pharmacy," he says. "Be the natural beauty-supply store. Be the natural deli." Here's a peek at the hot franchising concept of 1998: Free-Ranging White Hen Pantry.

Sweet dreams.

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