Oregon Business: Are you still riding your bike to work these days?
Four times a week, and on the fifth day I do a Meals on Wheels route that I’ve been doing for years.
How many stores and employees are you up to now?
We have nine stores and about 1,800 employees, and we have signed a lease for stores numbers 10 and 11 (at 40th and Hawthorne and at Progress Ridge south of Beaverton). Both of those stores should open in 2009. That will put us over 2,000 new jobs.
Are you sharing revenue figures?
No. We’re happy with what we’ve got going.
The economy is contracting and prices are shooting up. How do you keep bringing in shoppers willing to pay a premium for quality?
I think people have a misunderstanding price structures. We do price checks every month, and item for item we are as inexpensive or less expensive than our competitors. If you’re gonna buy Best Foods mayonnaise, Bumble Bee tuna, a box of cereal, it costs about the same to buy it at New Seasons Market as it does to buy it at Freddy’s or Safeway or Albertsons.
Prices are going up but they aren’t going up any faster here than we are everywhere else. We’re right in the middle of the pack on pricing, which is where we want to be and where we need to be.
We think that we’re getting some of the restaurant business. People are trading down and feeling the pressure of more expensive food and fuel, but they still have to eat. Instead of going out to dinner a few times a week, they are making nicer meals at home. I think that we’re benefiting from that and we’re well positioned to continue benefiting.
We launched online shopping a year and a half ago and with the price of fuel going up we’re seeing a surge in online shopping because it’s a great deal. You pay 10 bucks and somebody shows up at your door with your groceries; pay five bucks and pull up to the parking lot and we’ll bring it out to you so you don’t have to go into the store. That was something we hadn’t planned on but we saw it as a business that was going to become increasingly important as the world around us changes, as the price of fuel rises. We have to pay for the fuel also, but we’re taking our van out and taking groceries to 10 people at once. As parking becomes more challenging and congestion becomes more challenging and fuel becomes more expensive, we think that people are going to do more online shopping.
No one is immune to fuel price increases. But is New Season less exposed than its competitors because of its “buy local” ethic?
Yes. Look at pork. Almost all the pork that comes to conventional grocery stores in Portland is being shipped here from the Midwest and from the Southeast. Depending upon the market, it could have cost our customers more to buy local pork because we set our prices with our producers at the beginning of the year and then we stick with those prices so they’re not caught in the vagaries of the market, they can get a reasonable return on their investment and they can borrow money. Now the differential is starting to see some equilibrium. Our pork is coming from 100 miles away; theirs is coming from 2,000 miles away, and the fuel costs are becoming a significant part of bringing the food to Oregon from elsewhere.
We’ve been singing the buy local mantra from day one, and some people thought that it was quaint or that it was a marketing position or that it was alarmist. But I think what we’ve seen is this is a food security issue. It is critical that we maintain a regional food system because the day will come when we will run out of fossil fuels. It wasn’t difficult to look ahead and see that oil is a finite resource and — econ 101, supply and demand — the days of $100 barrels of oil were going to come, and it was going to impact food pricing. What we didn’t realize was how quickly it was going to come, and that $100 wasn’t some magic ceiling. I don’t think anyone predicted how quickly it would go from $100 to $135, and now who knows where it’s going? But we’re pleased that there is a new awareness of the importance of our regional food system. And it’s not too late, because we live in an incredibly fertile valley and ag land is available, and people are realizing that there is value in holding onto it.
There’s been this incredible surge in popularity of farmer’s markets and we see that as a positive thing. We’ve been doing our best to help support it. We have a program called Pacific Village, our own label for milk and butter and pork and beef. We are in our second year of making grants through that program, and we just finished writing out $50,000 in checks to underwrite area farmer’s markets so we can help those guys create the infrastructure they need to become viable year after year after year. Putting a face on the farmer is one of the most important contributions we can make to continuing to nurture the food system. Creating that interest and the awareness that there are people behind this food will help develop demand.
Even though in the short term it may be a form of competition to New Seasons?
People roll their eyes at the fact that we donate money to the farmer’s markets. We think there is a greater good that we are trying to accomplish. There is enough business for all of us. We are content to take a temporary hit. For example, the Beaverton Farmer’s market is unbelievable. There are thousands of people going through there. So are our stores around Beaverton a little slower on Saturday morning during the market season? Yeah, they are. But in the end it’s fine. It works.
The area around Happy Valley has been hard hit by the housing slump. How has this affected your Happy Valley store?
That store’s trajectory is just about where we expected it to be. The economy affects us in the same way it affects everyone else. The price of wheat doubles and we have organic bakeries and we need to make bread, so we’re feeling the pinches in our margins. But we just announced a new store last week, so that should give some indication of our confidence in our ability to attract customers.
Do you have plans to expand beyond Metro Portland, or to go public?
There’s no plan to go outside Metro Portland even though we get asked constantly. It’s just absolutely not in our business plan at all. Same thing with going public; we have absolutely no plans to go public. We are much more interested in being a great local company than in becoming a big company. There are not a lot of models out there of companies that have grown and spread out geographically and maintained the same level of quality as they have when they started. It’s difficult when they do that. You tend to lose control as things get bigger. We’re happy to have our stores in the Portland area and we think there’s still lots of opportunity.
We are regularly looking for places to open stores and we are regularly being invited into different neighborhoods to consider opening stores in their neighborhoods. We do our market studies and we take a look at our infrastructure, and if all those things line up and there’s a good site we go for it. But being a private company, there’s no imperative for growth. We just don’t have to. The same three families that founded the company still control the company and all three families have the same perspective, which is, we’re not trying to take over the world. We’re just trying to be a great local company. We only want to grow as fast as we can while maintaining the quality we have. If we stopped growing right now it would be fine.
Our horizon we’re talking about is 20 years not three months. We are really in it for the long run. And it’s a joy to operate a business with that type of perspective and with support from our partners and our board. It’s a joy.
At some point you’re going to start competing with your own stores.
Safeway and Freddy’s have 30-some stores in the Portland area. And they’re not appealing to a particularly different market than we are. For Portland New Seasons Market is just another neighborhood store. So I think there’s lots of potential for us to continue to grow. Our stores tend to be crowded. So when we can open stores and take a little load off the existing stores, that’s a good thing. It creates a better shopping environment for our customers. It’s easier to find a place to park.
Now that Whole Foods has taken over Wild Oats and the former Nature’s stores, how do you hold onto your market and expand it?
Our whole thing is, create a progressive work environment, have a really high focus on customer service, buy local food, give it back to the community. That’s what we’ve been doing since the first day we opened our store. We just continue to do that day after day. We’re just focused on that mission. It seems to work and we don’t see any reason why we would change that. Whole Foods has opened three stores in Portland since we’ve started it and it hasn’t had any impact on us. They’re a specialty store. They’re a high-end specialty store. We’re an inclusive neighborhood store. And I think we just have different business models and appeal to different people.
We got caught in the middle of that transaction when the FTC got involved. They subpoenaed all our records. We weren’t interested in sharing our records with the FTC or with anyone because it’s private information. But they specifically asked me, so what do you think? What’s gonna happen to you if Whole Foods buys Wild Oats? I said I didn’t think it would be a significant event for us.
In the absence of some huge paradigm shift don’t see why we would want to change at all. What we do is basic: take care of your staff, take care of the people who grow the food for you, take care of your customers. The rest of it seems to fall into place.
The rise of the sustainability movement has been so powerful that every business seems determined to get on board. How does New Seasons distinguish itself from all of the other companies promoting sustainability?
Everyone’s saying they’re sustainable this and sustainable that. It’s become such a buzzword. And some of this stuff, I just crack up at. I was looking at an article about some small restaurant and they were claiming they only sold local and organic items. But they had Coke on their menu.
I find it disturbing to go into restaurants and see on the menu that all of their meats are organic and all of their produce is local and organic when it isn’t the case. Next time you are in a restaurant and you see that on the menu and there are snow flurries coming down, ask the chef to come out to your table and tell you where they’re growing those local organic tomatoes. Where is that local organic lettuce coming from? Where are they getting the organic lamb? Because we think we know the market and we don’t know where the organic lamb is.
Because we were doing sustainability before it was a buzzword, we’ve established a reputation as a company that has it as part of our ethic, our DNA. It’s just who we are. I think people will always associate us with being a sustainable company. We’re fortunate to live in a part of the country where the citizens are pretty well informed about issues like this, and their bullshit meters work. They can tell the difference between something that’s genuine and something that’s not genuine.
Someone asked me why we didn’t have a director of sustainability so I started looking at that, and I found that a lot of the directors of sustainability were people who had been the marketing directors and they just kind of changed their title. For us, everybody here is engaged in sustainability. It’s not an initiative. We don’t have customer service initiatives, we don’t have staff appreciation days, we don’t have sustainability initiatives. We created a progressive work environment for our staff, and we focused seriously on sustainability from the first day that we opened our stores.
I’m not annoyed at all by people who are really doing it. If one of our competitors is genuinely engaged in doing something with sustainability and it’s not just marketing, I am thrilled by it. Many of us who work here have been in the organic food business for three decades and 30 years ago people thought we were a fringe group and we didn’t know what we were talking about. Now you can buy organic food everywhere. Some people complain about that and worry about it, but the way I look at it is, hey, we won. It’s a victory. If our goal was to try to move organic, sustainable agriculture into the mainstream, to protect our soil quality and protect the quality of our water, to make sure that farm workers are not handling poisons, we have made huge strides. To object to that seems hypocritical. My view is that it’s a victory. I am inspired by it.
The price of organic produce seems to be much closer to conventional produce. I’ve even see organics selling for less.
Economy of scale is a fantastic thing. As more people make the transition to organics the price comes down. There was a period last year where the organic milk was less than the conventional milk. In the summer, in the heart of the season, if you walk through our produce aisles you will see that the local organic produce will be selling for less than the conventional. That goes back to fuel prices. That’s another reason why it’s a good thing when the large national companies get into sustainable organic agriculture, because it creates an opportunity for scale to get larger and prices to come down.
As long as it’s transparent, right?
There’s a balance between economies of scale and industrial organic farming. That’s why we’re so passionate about country of origin labeling. We helped lobby for it because we feel it will help local farmers. We label our products voluntarily and our customers appreciate it. The thing that cracks me up is the grocer associations are so against it because they say it will be so expensive, and we said, hey, got on an excel spread sheet and when the buyer switches from farm Y to farm Z we just make the change on the spread sheet. We print out a label. It’s really not that complicated. If this little chain of stores in Portland, Oregon can do it, then you guys that have thousands of stores around the world are capable of doing it. But it’s been a point of contention. We have dropped out of both of the trade organizations, the Northwest Grocers Association and the Food Marketing Institute. We dropped out because we found significant philosophical differences between what we do and what they are lobbying our elected officials for.
They want to reduce the minimum wage. Go live on that minimum wage for a month and tell me you want to reduce the minimum wage. Our minimum wage at New Seasons is $10 an hour. They want to relax the ergonomic work rules and we think it’s really important that somebody who is standing there hour after hour doing repetitive functions should be protected. That is what our government is supposed to do. They are opposed to country of origin labeling. We think it’s critical. They don’t want to increase the amount of recycling that happens at the stores and we think it’s critical to increase recycling. We decided we don’t feel right using our money to pay dues to these organizations that hire lobbyists to advocate for things we completely disagree with. So we dropped out of both groups.
Now you don’t have a trade group representing you.
When we think something’s important, I just pick up the phone. I call our legislators and tell them I think it’s important. That seems to work very well. Ben Cannon is the state rep for my district and so I just call and talk to him. It looks like Jackie Dingfelder is going to be my new state senator and I have a good relationship with her. Congressman Blumenauer is happy to hear from us, and Senator Wyden, also. One of the advantages of being a large Oregon employer is that our elected officials are interested in what we have to say.
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