Six months ago, Loveland-based paleo snack bar company Wild Zora Foods LLC was in a thousand stores, up from just 80 the year prior.
But although Wild Zora’s sales were higher than they had ever been in four years of operating, the natural-food company found it wasn’t making the profits it expected with those kinds of sales.
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“With our retail expansion, we found our distributors and retailers required refills, shelving fees, mandatory ads spent, coupons, demos and fees for brokers,” Joshua Tabin, Wild Zora co-founder, told BizWest. “There was no end to the fees. So our sales grew nicely, but the profits didn’t come.”
For Tabin, the solution was to take sales into the company’s hands. Although they had been focusing on distributing to retailers, Wild Zora had a pivot: It would sell online.
Wild Zora isn’t alone. With the tides shifting on brick-and-mortar retail in favor of e-commerce, many industries, including natural and organic food, are finding their ways off of shelves and onto pallets in distribution centers.
E-commerce giant Amazon, for example, has more than 13,000 items listed as “organic” in its online grocery. To keep up with the demand for groceries ordered online, the company even launched AmazonFresh, which delivers groceries, including in the Denver area. Other online retailers, such as Thrive Market, which was started in 2014, sells only natural and organic items.
A big reason some natural-food manufacturers are shifting toward less-traditional methods of sales and distributions is because previous channels are diminishing.
One such method is the Whole Foods path. After rocky times for Whole Foods, including financial struggles, the store announced that it would change its purchasing strategy. Previously, Whole Foods stores at local and regional purchasing power: Local managers could pick items their store would carry. It was a major foot in the door for local food startups to get on the shelves at Whole Foods, and then expand to other regional stores and possibly even nationally. However, Whole Foods recently announced that it would have a hybrid model, with some local purchasing decisions but most purchasing done through the company’s headquarters.
It’s a blow for the natural and organics industry, who saw Whole Foods as a major player for growing the movement.
“Whole Foods really supported local brands in Boulder and through the Rocky Mountain region. It has had a big role in helping startup brands get into distribution,” said Carlotta Mast, president of the Naturally Boulder board and executive director of content & insights for New Hope Natural Media, a natural-foods solutions and market analysis firm.
Mast said Whole Foods has been integral for helping startups — which she herself had before the company sold — learn about price points and what consumers were looking for right in their own backyard before moving onto regional sales.
“Whole Foods has an important role in the ecosystem,” she said. “They also had a local loan-producer program that helped support brands financially that they believe in and carry in their stores. They’re an important part of the local ecosystem here in Colorado but also nationwide.”
There’s fear that with Whole Foods changing its purchasing model, that will change. Fortunately, there are other stores — many of which are local, such as Lucky’s Market and Alfalfa’s — that are just as integral to getting on retail shelves as Whole Foods.
That’s important, because Mast doesn’t see natural and local foods as an industry going anywhere.
“More and more consumers want to spend their money on local brands,” she said. “Local brands have strong appeal for consumers. Retailers are very supportive of local brands because of consumer demand.”
Although Wild Zora has shifted to selling online — through their own website and Amazon — it can still be found in some stores.
Tabin said that he and his wife, co-founder and the eponymous Zora, met with the company’s retailers and told them that instead of using the existing model of brokers and fees, they should buy products directly from Wild Zora and then sell them for a profit.
“About 80 percent of them went away,” Tabin said. “But amazingly, about 15 to 20 percent said they would try it. Our retail growth hasn’t stopped, but it’s slowed and is more selective. And I’m happy to do that.”
Tabin said now he focuses on online marketing and managing online sales. The results have been in the numbers: The company is much more profitable, and sales have grown about nine times what they were in just six months. Meanwhile, local retailers such as Natural Grocers, are not only still carrying the product, but also are participating in promotions with the company.
Arron Mansika, managing director of Naturally Boulder, said he expects more distribution options to come available as natural foods continues to grow.
“There are some innovative companies that are shifting their strategies to online,” he said. “And there are other retailers beyond Whole Foods that are looking to go regional or national. And even national [organic] distributors are getting very connected now with stores like Krogers and Safeway. As to Whole Foods, I don’t think it’s the only game in town like they had been.”
Mast added that big grocery chains, such as Krogers, have been noted for stepping up their support of local and regional brands.
Tabin said he is continuing to urge fellow startups to consider selling online, where they can control their inventory and margins better.
“We try to tell every manufacturer we can to sell online,” he said. “Stop paying those fees.”
In the future, Mast said she expects the solution for natural-food startup growth to be a blend between traditional retail and more-creative methods.
“I think the smart brands are really looking at how they can diversify and create a distribution strategy that is harmonious between online and brick-and-mortar,” she said. “We’re seeing brands figure that out and get much saavier.”