Chicago Tribune: Small specialty stores face fresh battle

Small specialty stores face fresh battle
Upscale chains pose a threat to some merchants:

Sarah Jersild, Special to the Tribune.
Chicago Tribune. Feb 23, 2004. pg. 1
Copyright 2004 by the Chicago Tribune)

Established specialty food shops have benefited from consumers' growing hunger for unusual treats such as chai mocha almonds and wasabi mayonnaise.

But as more chain grocery stores--and now a Chicago-based Trader Joe's--are jumping into the category, it may become a niche that will be hard to defend.

Trader Joe's, a grocery store with an almost cultlike following, has been hovering around the periphery of Chicago since 2000. Its Lincoln Park store opened in October, and area gourmet stores are feeling the pinch.

The taste of specialty foods, high-quality products produced in limited quantities, makes them a draw for shoppers, said Ron Tanner, a spokesman for the National Association for the Specialty Foods Trade.

"Products are a little bit better--there are not a lot of fillers or other things put in to keep the price down," Tanner said.

They are also big business, making up a $20 billion market in the United States. What's more, specialty food customers tend to spend more money on peripheral products, such as fresh produce, fresh flowers or specially cut meats.

It's no surprise, then, that about two-thirds of specialty foods are sold through supermarkets, Tanner said. The rest of the market is made up of specialty stores, natural-foods stores and even drugstores.

Trader Joe's has made a business out of targeting specialty-food customers, so much that "we're really in a category of our own," said Diane O'Connor, manager of media relations for Trader Joe's. About 80 percent to 85 percent of the products Trader Joe's carries are sold under its own label, O'Connor said.

Products include gourmet desserts, frozen ethnic meals, fresh breads and produce, exotic cheeses and upscale condiments. It is perhaps most famous for "Two Buck Chuck"--Charles Shaw table wines that sell for as little as $1.99 in California stores. In Chicago, Charles Shaw wines are priced about $3 because of transportation and other costs.

Buying costs add up

This focus on unique and gourmet-skewing foods may not put it in direct competition with Jewel or Dominick's, but it does threaten smaller neighborhood specialty stores. Because the chain buys in bulk and under its own label, it can offer items at lower prices than a standalone store. It also has much more room than a standard specialty-foods store. According to Tanner, most specialty stores run about 3,000 square feet, while supermarket-style specialty chains, such as Trader Joe's, occupy roughly 30,000 square feet.

"I do feel I haven't been getting as much traffic in the store [since] Trader Joe's opened," said Vivian Grimbau, who opened Dubby's Buy the Ounce in Wicker Park in 2001. Her store carries some of the same products Trader Joe's sources under its own label.

"I can't do the same pricing that a Cost Plus or a Trader Joe's does, because these companies are so huge that they can buy direct," Grimbau said.

Grimbau sees some direct overlap with her product line. Trader Joe's carries a wasabi mayonnaise under its own label that Dubby's sells under its manufacturer's name, Pacifica. Grimbau carries more products from the Pacifica line, however, and she hopes customers will seek out the products Trader Joe's doesn't carry.

Other store owners believe Trader Joe's arrival in the market has helped them draw customers by educating a new audience about what kinds of specialty foods are available.

Klaus Koetke said he's been seeing new clientele at Delicatessen Meyer, a German delicatessen and specialty store in Lincoln Square that he has run since 1998. The store has been in the same location since 1953.

"When Trader Joe's and big stores like this come in, they give European food more exposure," Koetke said. "Trader Joe's has some items, but we have more. If somebody gets a taste and likes what they try, they think `Where can I get more?' Well, Delicatessen Meyer is there for them."

During the past three years, Koetke said, the store's customer base has been getting younger. "I don't know if it's due to Trader Joe's," Koetke said, "but younger customers are rediscovering us."

That exposure can cut both ways, however.

"I feel like I educate people in here, and they're out there looking for a better price. For example, I'm selling white truffle oil. I'm educating people about white truffle oil, teaching them how to cook with it. If Trader Joe's started carrying it for $2 versus $8.50, people would be inclined to pick it up because they learned about it here."

The personal touch

Some business owners are betting on customers who are more interested in atmosphere and the experience of shopping than prices alone.

Rodney Alex's Bucktown store Taste sells "Fruity Wine, Stinky Cheese" to a neighborhood audience.

"I think there's a certain customer: There's a Trader Joe's customer, and there's a Taste customer. [My customers] are more interested in the experience rather than the price."

Alex bolsters that experience by hosting gallery shows and late- night deejay tastings. He also emphasizes the personal attention customers get in buying from a smaller store.

"[Regular customers] walk through the door. They say hello. I walk to the back and pull a wine and meet them at the front. I already know what they're going to want."

Grimbau also emphasizes the personal attention she and other small-store owners can pay to their customers. "To me there's nothing better than being able to walk into a store and talk to someone about the products, ask them how do you use it, how you cook with it."

But Trader Joe's has struck back with its own philosophy of personal service. While customers can't expect a cashier to meet them at the front with a case of Two Buck Chuck already in hand, the chain does follow a few practices common in specialty stores.

Although it does not allow customers to sample every product, like Grimbau does at Dubby's, many of its products are available for tasting. And, like Taste, customers can return any product they decide they don't like ... no questions asked.

It's that combination of lower prices and specialty-store attention that has made Trader Joe's such a threat to smaller stores like Dubby's.

"What is amazing to me is that people are not more dedicated to small businesses," Grimbau said. "The public doesn't get that by supporting small businesses, they're helping themselves."

As in many areas of business, location is everything.

"I think what happens when a place like Trader Joe's comes in is they draw some of their sales from supermarkets and compete impressively with natural foods stores," Tanner said. "It can be a problem if the specialty shop is right in the same shopping center or in close proximity--then Trader Joe's will take a good deal of their business."

In such a situation, Tanner urges specialty-food sellers to focus.

"We always tell people that you as the store owner specialize in something. When you see competition come in, the best thing for you to do is stress what you do well already. They shouldn't try to emulate Trader Joe's, to buy private label stuff. They should just try to keep plugging away at what they do best," Tanner said.

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Small specialty stores face fresh battle Upscale chains pose a threat to some merchants: Sarah Jersild, Special to the Tribune. Chicago Tribune. Feb 23, 2004. pg. 1 Copyright 2004 by the Chicago Tribune) Established specialty food shops have benefited from consumers' growing hunger for unusual treats such as chai mocha almonds and wasabi mayonnaise. But as more chain grocery stores--and now a Chicago-based Trader Joe's--are jumping into the category, it may become a niche that will be hard to defend. Trader Joe's, a grocery store with an almost cultlike following, has been hovering around the periphery of Chicago since 2000. Its Lincoln Park store opened in October, and area gourmet stores are feeling the pinch. The taste of specialty foods, high-quality products produced in limited quantities, makes them a draw for shoppers, said Ron Tanner, a spokesman for the National Association for the Specialty Foods Trade. "Products are a little bit better--there are not a lot of fillers or other things put in to keep the price down," Tanner said. They are also big business, making up a $20 billion market in the United States. What's more, specialty food customers tend to spend more money on peripheral products, such as fresh produce, fresh flowers or specially cut meats. It's no surprise, then, that about two-thirds of specialty foods are sold through supermarkets, Tanner said. The rest of the market is made up of specialty stores, natural-foods stores and even drugstores. Trader Joe's has made a business out of targeting specialty-food customers, so much that "we're really in a category of our own," said Diane O'Connor, manager of media relations for Trader Joe's. About 80 percent to 85 percent of the products Trader Joe's carries are sold under its own label, O'Connor said. Products include gourmet desserts, frozen ethnic meals, fresh breads and produce, exotic cheeses and upscale condiments. It is perhaps most famous for "Two Buck Chuck"--Charles Shaw table wines that sell for as little as $1.99 in California stores. In Chicago, Charles Shaw wines are priced about $3 because of transportation and other costs. Buying costs add up This focus on unique and gourmet-skewing foods may not put it in direct competition with Jewel or Dominick's, but it does threaten smaller neighborhood specialty stores. Because the chain buys in bulk and under its own label, it can offer items at lower prices than a standalone store. It also has much more room than a standard specialty-foods store. According to Tanner, most specialty stores run about 3,000 square feet, while supermarket-style specialty chains, such as Trader Joe's, occupy roughly 30,000 square feet. "I do feel I haven't been getting as much traffic in the store [since] Trader Joe's opened," said Vivian Grimbau, who opened Dubby's Buy the Ounce in Wicker Park in 2001. Her store carries some of the same products Trader Joe's sources under its own label. "I can't do the same pricing that a Cost Plus or a Trader Joe's does, because these companies are so huge that they can buy direct," Grimbau said. Grimbau sees some direct overlap with her product line. Trader Joe's carries a wasabi mayonnaise under its own label that Dubby's sells under its manufacturer's name, Pacifica. Grimbau carries more products from the Pacifica line, however, and she hopes customers will seek out the products Trader Joe's doesn't carry. Other store owners believe Trader Joe's arrival in the market has helped them draw customers by educating a new audience about what kinds of specialty foods are available. Klaus Koetke said he's been seeing new clientele at Delicatessen Meyer, a German delicatessen and specialty store in Lincoln Square that he has run since 1998. The store has been in the same location since 1953. "When Trader Joe's and big stores like this come in, they give European food more exposure," Koetke said. "Trader Joe's has some items, but we have more. If somebody gets a taste and likes what they try, they think `Where can I get more?' Well, Delicatessen Meyer is there for them." During the past three years, Koetke said, the store's customer base has been getting younger. "I don't know if it's due to Trader Joe's," Koetke said, "but younger customers are rediscovering us." That exposure can cut both ways, however. "I feel like I educate people in here, and they're out there looking for a better price. For example, I'm selling white truffle oil. I'm educating people about white truffle oil, teaching them how to cook with it. If Trader Joe's started carrying it for $2 versus $8.50, people would be inclined to pick it up because they learned about it here." The personal touch Some business owners are betting on customers who are more interested in atmosphere and the experience of shopping than prices alone. Rodney Alex's Bucktown store Taste sells "Fruity Wine, Stinky Cheese" to a neighborhood audience. "I think there's a certain customer: There's a Trader Joe's customer, and there's a Taste customer. [My customers] are more interested in the experience rather than the price." Alex bolsters that experience by hosting gallery shows and late- night deejay tastings. He also emphasizes the personal attention customers get in buying from a smaller store. "[Regular customers] walk through the door. They say hello. I walk to the back and pull a wine and meet them at the front. I already know what they're going to want." Grimbau also emphasizes the personal attention she and other small-store owners can pay to their customers. "To me there's nothing better than being able to walk into a store and talk to someone about the products, ask them how do you use it, how you cook with it." But Trader Joe's has struck back with its own philosophy of personal service. While customers can't expect a cashier to meet them at the front with a case of Two Buck Chuck already in hand, the chain does follow a few practices common in specialty stores. Although it does not allow customers to sample every product, like Grimbau does at Dubby's, many of its products are available for tasting. And, like Taste, customers can return any product they decide they don't like ... no questions asked. It's that combination of lower prices and specialty-store attention that has made Trader Joe's such a threat to smaller stores like Dubby's. "What is amazing to me is that people are not more dedicated to small businesses," Grimbau said. "The public doesn't get that by supporting small businesses, they're helping themselves." As in many areas of business, location is everything. "I think what happens when a place like Trader Joe's comes in is they draw some of their sales from supermarkets and compete impressively with natural foods stores," Tanner said. "It can be a problem if the specialty shop is right in the same shopping center or in close proximity--then Trader Joe's will take a good deal of their business." In such a situation, Tanner urges specialty-food sellers to focus. "We always tell people that you as the store owner specialize in something. When you see competition come in, the best thing for you to do is stress what you do well already. They shouldn't try to emulate Trader Joe's, to buy private label stuff. They should just try to keep plugging away at what they do best," Tanner said.