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Whole Foods finds success in smaller cities

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BOISE, Idaho » A local illustrator’s chalk portraits of workers hang inside the store, where the same artist’s murals decorate the wall behind the cheese case.

Meat and bakery cases feature exclusive foods made with the state fruit. Holding up a chain of sausages that include it, a worker joked: "We pick the huckleberries on our way in to work."

In another aisle, Mary Cogswell, the owner of the Wildflour Bakery a few miles away, visits daily to restock the table where her cookies — Oatmeal Cranberry Walnut and Everything, among others — are sold.

At this time of year, the first Whole Foods Market in Idaho, population roughly 1.6 million, sells products from some 60 local vendors, including turkeys from the A+ Ranch that are billed as organic and certified as raised under humane conditions.

Two years ago, when Whole Foods announced that it wanted to expand to 1,000 stores from a little more than 300 and open in places where it was assumed that consumers had never heard of kale and wouldn’t dream of spending $6 for a pound of humanely raised pork, some investors scoffed. Its traditional grocery store competitors snickered at the strategy. And even those on Wall Street enamored with the chain’s success expressed doubts that its forays inland into smaller, less urban markets would succeed.

Idaho, for instance, is the potato capital of the country, if not the world, home to the J.R. Simplot Co., supplier of the parboiled, frozen potato strips that become McDonald’s french fries — not exactly the sort of food Whole Foods sells, though it does stock locally grown organic spuds.

"I really did wonder what they were thinking," said Meredith Adler, an investment analyst at Barclays Capital who follows the company. "But at this very early stage, the strategy does appear to be working."

Like most grocery chains, Whole Foods does not release sales data on individual stores. But two years after disclosing its plans, it turns out that more shoppers do want, say, soda pop with no artificial coloring and flavoring and specialty meats, more than the experts had banked on. Cities like this one with its 212,000 residents, many of them college students and migrants from the cities where Whole Foods raised the bar on the grocery business, are embracing the company with an enthusiasm that has confounded the naysayers, propelled its stock price to heady highs and surprised even its executives.

"I was so excited when I heard it was coming here I even bought the stock," said Beth Brigham, who drives about a half-hour — a trek by Boise standards — to get to the store that opened here a year ago, combining the trip with her exercise schedule. "I really like organic, healthy stuff, and the selection in other stores here was much more limited."

Anne Madsen had come hoping to find baby artichokes for a recipe she wanted to try. She was not disappointed. "I do shop at regular groceries, but I like organic products and often am looking for things that are a bit unusual," Madsen said.

The two shoppers exemplify the trends that Walter Robb, co-chief executive of Whole Foods, said were driving the company’s success overall, and particularly in smaller markets where shoppers might once have rolled eyes at a store promoting the virtues of locally grown quince and fava beans.

Roughly one-third of the stores Whole Foods plans to open will be in cities like this one. This month, it opened one in Lincoln, Neb., population 260,000.

One sign of the Boise store’s success: Trader Joe’s plans to open here next year.

"Farmers’ markets were nonexistent 10 years ago in most places, and no one was talking about local food," Robb said. "There is a whole revolution going on around food now that isn’t limited to the coast. Consumers know more about food, where it comes from, what’s in it and the connection between diet and health."

In Boise, Bruce Green, the store’s team leader, and Matt Collins, its marketing specialist, spent a year before this site opened wooing civic leaders, identifying potential suppliers and familiarizing themselves with the city’s food scene.

They then assembled a community advisory board to help them determine which nonprofit groups, local vendors and civic activities would be supported on the days when 5 percent of sales are donated to a nonprofit or events needed a sponsor.

"This never would work in the eastern part of the state," said Amy Larson, a food writer and blogger who lives in Boise. "They really did their best to make sure this was the right place for them and then to learn the community once they had decided to come."

Boise is the most remote city of its size in the country, the closest metropolitan area being Salt Lake City roughly 340 miles southeast.

And it is home not only to Albertsons, which has more than 1,000 stores in 29 states, but also to WinCo Foods, a regional grocery chain with more than 80 stores in eight states.

But Joe Dobrow, a former marketing executive at Whole Foods, Sprouts and other retailers, noted that the company had more experience operating in smaller markets than many assumed.

"Remember that Whole Foods started as a suburban business, and it wasn’t until they acquired Bread and Circus and Fresh Fields that they learned how to operate in urban areas like Boston and Washington, D.C.," he said.

Similarly, the acquisition of Wild Oats in 2007 gave Whole Foods a window onto the operation of smaller stores in smaller markets like Santa Fe, N.M., and Bend, Ore., said Dobrow, whose new book, "Natural Prophets: From Health Foods to Whole Foods," will be out in February.

"At first I thought the whole local thing was maybe just good PR, but they are really sincere about it," said Cogswell, who is being encouraged by the company to develop a new line of jam-filled scones for its Denver-area stores. "I do feel like they are invested in my success."

Several people noted the influence of Whole Foods here on the city’s other grocery stores, whose sales dipped at first. Albertsons spruced up three stores in the neighborhoods around Whole Foods, adding a broader variety of organic and "natural" products and giving its produce departments a makeover. It also lowered prices on more than 1,600 items, including staples like eggs, milk and bananas.

Susan Morris, president of the intermountain region of Albertsons, said it was difficult to distinguish which changes were responses to Whole Foods and which occurred once the private equity firm Cerberus acquired some of Albertsons stores that had been owned by SuperValu. "Becoming a mini-Whole Foods is not who we are and not what we should do," she said.

Ben Kuzma, general manager at the Boise Co-op, originally feared that his store would lose as much as a third of its business to Whole Foods, but the impact has been less and in some ways, positive. "They definitely have expanded the market for the types of things we sell, and that’s good," Kuzma said. "It hasn’t hurt us as much as it could have."

The Co-op expanded and rebuilt the space it devotes to fresh produce and worked hard to bring in specialty items, like quince. It built a "dry wall" with bins of nuts, beans and grains, and it has stopped buying meats and other products from food supply companies, replacing Foster Farms chicken, for example, with meat from locally grown birds. It has promoted products like tom kha gai soup, sold in glass jars, and roasted carrot guacamole, which the co-op makes itself.

"We’ve gone from being a gourmet store with some natural products to being a natural products store with some gourmet items," said Matt Fuxan, the co-op’s fresh foods manager.

One mainstream grocery competitor recently criticized Whole Foods’ new small-market stores, calling them "really just pricey restaurants," and even Green, the Boise store’s team leader, said he was surprised by how much business was done in selling prepared foods and in its upstairs bar area, where customers can eat foods they’ve bought in the store and enjoy a local craft beer or glass of wine.

And despite the chain’s expanding its private-label 365 products to offer deals, some shoppers still find the inventory too expensive.

"There have been a few people coming in asking where’s the Tide, where’s the Coke," Green said. "I just try to explain what we see as the health and environmental benefits of the products we do carry and offer them a 365 cola."

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