Grocery goes micro: stores are getting smaller as specialty retailers like whole foods and natural grocers by vitamin cottage control the conversation in Colorado.

• Author: Peterson, Eric
• Position: FOOD BIZ

Like the television audience, the beer market, and most everything else in the new economy, the grocery business is fragmenting.

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Bigger is not better. Smaller is in vogue. And everybody from corner drugstores to massive supercenters are looking to nab a piece nit his $1 trillion pie.

Take Natural Grocers by Vitamin Cottage. The Golden-based company went public lost year On the back of an expansion plan centered on 10,000-square-foot stores instead of the traditional 40,000 square feet or more.

"I give tours here almost weekly to investors and analysts now that we're public." says Alan Lewis, the company's director of projects, as he strolls the aisles of the Natural Grocers at Colorado Boulevard and Evans Avenue in southeast Denver. "If they're coming in from the East or West coasts, they don't have a point of reference."

The key to thy Natural Grocers model is "no priming," says Lewis. "You go into any other grocer, their job is to generate impulse buys."

Not here. There's no discounted produce up front, no colorfully packaged, kid-level candy at checkout, and no oversized displays of junk food. "We removed temptation and then you don't activate the impulse." says Lewis. "I think of it as a retail environment that supports thoughtful nutritional choices. We're not pitching color and flavor and sugar."

Instead, there are in-house "Nutritional Coaches" helping customers sort through the meticulously screened products, no back-of--house storage to promote freshness, and fridges stocked with staples like meat and ice cream as well as flour and nuts. "Walnuts start going rancid on the tree," explains Lewis. "You have an entire generation of people who have grown tip eating rancid nuts."

Bad walnuts aside. Whole Foods' prepared foods are a great example of priming, says Lewis. "It's incredibly expensive food." he says, citing high spoilage rates and sizable store footprints. And it's not altogether healthy.

Natural Grocers makes up for the dearth of high-margin impulse buys with low prices, says Lewis. The strategy is somewhat counterintuitive, but has won plaudits from some analysts. Marc Courtenay or TheStreet recently called it "a viable form of competition to Whole Foods Markets near-monopoly" in April.

Founded in Golden in 1955 by Margaret and Philip Isley. Vitamin Cottage now has 65 stores in 13 states. Of these, 22 locations offer the Natural Grocers format. Now helmed by Co-President Kemper Isky Margaret and Philip's son the company often expands existing locations into abandoned, adjacent, big-box stores, as was the case at the Colorado and Evans site.

Raising $54 million last June. Natural Grocers by...