Natural foods remain a smoking hot category in the U.S. and some analysts believe the future bodes even brighter. Ironically, though the market for dietary supplements has softened during the last two years, sales of natural foods have skyrocketed. Many consumers can't seem to get enough real food -- organic produce, meat, milk, and more -- and other 'natural' grocery commodities packaged and promoted by health food purveyors. If this all sounds like hyperbole, keep in mind that Austin, Texas natural foods retailer Whole Foods Markets was named one of the 100 best companies to work for by Fortune Magazine for the sixth year in a row. In December 2002, the publicly traded company was listed on NASDAQ. Once again, the mega-star natural foods retailer turned heads within the natural foods and gourmet retail trades when it cut the ribbon on its crown jewel retail location in New York (Winter 2003). This new natural foods super outlet is proclaimed to be the nation's single largest natural foods mega-store. Whole Foods outperformed some mainstream grocers (2002 growth topped 18 percent), with fiscal 2002 and 2003 sales of $2.69 billion and $3.1 billion, respectively. Meanwhile, arch-competitor Wild Oats Markets, which is based in Boulder, Colo., also enjoyed a fiscally healthy 2003 with revenue topping $900 million.

According to the San Diego-based nutrition trade newsletter Nutrition Business Journal (NBJ), these results are hardly a flash in the natural foods business pan. Sales of natural and organic foods in 2002 in the U.S. topped $14.35 billion. NBJ forecasts solid growth for this promising sector with average annual growth over the next five years estimated to be between eight and 10 percent. NBJ also notes that organic food and beverage sales led the entire nutrition industry during 2002 with growth of 19 percent. The trade newsletter now reports that over 1,000 organic brands are vying for shelf space and more are on the way. Many of these 'natural' consumer products launch first in natural foods stores, fine-tune their marketing campaigns, and then those that thrive hop over to mainstream grocery and gourmet retail outlets. Indicative of this trend is the amount of acquisition activity occurring within the natural foods industry. Mainstream food mega-producer Dean Foods, which already owns the highly successful soy product producer White Wave, has also acquired Horizon Organic Dairy. Among other factors in Dean's decision to acquire Horizon was the fact that conventional milk sales grew less than five percent in 2002, while organic milk sales rose nearly 20 percent during the same time period. Hain Celestial is buying up natural foods companies at a record clip, while venture capital firms are investing in natural foods entrepreneurs nationwide. Specialty foods retailer Trader Joe's has deepened its commitment to natural foods by declaring it will no longer use genetically modified ingredients (GMOs) in its private label products. Simultaneously, the company is continuing to add dozens of organic products to its offerings. Trader Joe's epitomizes the coming wave of retailers who showcase products offering both gourmet and natural product attributes, and at fiercely competitive pricing.

Comparable, glowing results are being reported in many other natural foods branded products and retail channels. What distinguishes these and a handful of other natural food superstars from competitors is not always easily defined. Yes, many gourmet retailers and supermarkets offer exceptional service, nutri-gourmet fusion products (health, flavor, and sensory fun), and high-comfort environments, but some still lack the high-velocity growth enjoyed by their natural foods counterparts. Following are some methods leading-edge natural food retailers use to exploit their points of differentiation.

Motivated and Educated Floor Staff
Higher national unemployment rates have been a bonus to retailers willing to secure top-notch staff in exchange for higher hourly wages, bonus, and stock incentive programs. The natural food retailing superstars do much more with new staff than Old World "make-sure-you-smile" field training. In Search of Excellence author Tom Peters would salute the ongoing training programs these highly trained and motivated floor clerks constantly participate in. Many are offered incentives to attend natural products and gourmet trade shows, seminars, and in-store lectures staged by eager product brokers. Employees come to know products firsthand as free and deeply discounted samples flow abundantly from manufacturers to clerks. Customers are often asked if they need assistance at Whole Foods or Wild Oats before they've had time to formulate a question and find a clerk. As impressively, the clerk will probably possess in-depth knowledge about most items in his or her department. At Trader Joe's, customer impatience with long checkout lines is eliminated by clerks who are among the fastest at any retail chain. In minutes, purchases are rung up and bagged with minimal slowdowns or frenzy. Customers' valuable time is rarely wasted seeking products or answers, or standing in line at the leading-edge natural foods retailers now opening new chapters in successful American retailing.

One-stop Shopping
Consumers find the weekly ritual of stopping at multiple grocery destinations less necessary since natural foods retailers stock paper products, personal care, and pet products in abundant amounts. No longer solely the bastion of pills, powders, fruits, and veggies, the winning natural foods outlets carry an A-Z selection of products for every type of home and lifestyle. As most have added full-service deli operations, it's become even harder for 'old school' traditional grocery outlets to compete.

Gourmet Natural Foods
The natural foods deli in many world-class natural foods stores has progressed far beyond the early days of brown rice, tofu, and free-range chicken casseroles. Culinary institute-level chefs now staff these ready-to-eat kitchens, skillfully producing cuisine that is a fusion of gourmet and natural food ingredients. Another keyword in the 21st century deli department is 'fresh' . . . really fresh and constantly replenished.

Organic is Here to Stay
It's taken decades of slow, arduous plodding, but the suppliers of organic food fare may have won the war with the most critical consumers and media. Even amongst their own ranks, organic produce and meat offerings suffered from years of dubious reputations -- poor quality, high pricing, and questionable farming techniques were chief among the complaints. Now the industry is represented by everything from local truck farmers to international conglomerates committed to ensuring optimum quality, competitive prices, and agri-standards for every imaginable type of organic commodity. Passage of the USDA National Organics Program in 2003 not only helped boost consumer confidence, but also national awareness of organic commodities. The proof lies in the double-digit sales growth many organic products continue to experience in natural foods, grocery, and specialty food outlets.

High End, Low End
Whole Foods, Wild Oats, and their competitors are capturing both the high and low ends of local consumer populations by stocking brand-name products and more competitively priced "signature" or "house" items. Such house products are a far cry from the early-stage generic supermarket "cheapie" lines with their boring black and white labels. Quality, pricing, and merchandising are boosting sales and making higher-end natural foods brands keenly aware of this 'internal' competition. Natural food customers benefit once again from a highly competitive and creative natural foods landscape.

The Best is Yet to Come
The natural foods industry in the U.S. paid more than a few dues in the years between its germinal stages in the 1960's to its now ultra-comfortable, corporate retail chain stores of the 2000's. Along the way, natural food producers borrowed more than a little from their friends in gourmet food, including the vital importance of great flavor and enticing packaging. In turn, their counterparts in gourmet products have infused and value-added more than a few products with healthier ingredients and marketing that emphasizes nutrition. Despite inevitable doubts and delays from media, nutrition experts, and occasionally its own membership, the aging natural foods industry has done more than simply mature profitably. It has blossomed into a secure, thriving part of the complex American retail food landscape. Yet, millions of consumers have never ventured into a natural foods store, just as countless others have never savored a real truffle, exotic sauce, or fine cheese from the shelves of a gourmet retailer. These sizeable untapped consumer dollars offer a powerful economic draw for current and would-be players in natural and gourmet niche retailing of every possible incarnation.

Brian Keating is founder of Sage Group International LLC, located in Seattle, Wash., and is reachable at 206-282-1789. Sage Group provides market analysis and business development support services to natural food and beverage ventures worldwide.