While the performance of America's mainstream supermarkets continues to languish, year-on-year sales at Whole Foods Market have been growing at a double-digit rate since 1998. However, the strength of Whole Foods' organic home market is attracting intense competition - which will increase the pressure on the company to cut costs.

America's largest natural and organic foods store, Whole Foods Market, has announced a 21% increase in yearly sales. Net income for the fiscal year increased 33% to US$84.5m from US$64.8m. The results are particularly impressive considering the high price of organic products, the stumbling economy and tough new competition from mainstream supermarkets.

Organic products are not cheap: they are sold with price premiums often as high as double the price of conventional products. Nevertheless, Whole Foods' sales growth demonstrates the undiminished appeal of organics in spite of their price and the weak economy.

Datamonitor expects annual average sales growth of an impressive 22.3% to take the market to US$25.9bn by 2006, a fact that has encouraged many mainstream food retailers to join the boom. All major supermarkets, such as Kroger, Albertson's and Publix, now stock a sizeable selection of organic products.

Although the market is growing, competition from the supermarkets, along with a growing number of non-core organic shoppers, is expected to see natural food stores taking a smaller share of it. The trend could see their sales share slip under 35% by 2007.

The good news for natural food stores is that as consumers become more conversant with organics, they are likely to demand more organic products with more variety. Although conventional supermarkets will increase their exposure towards organics, natural food stores will continue to offer the widest choice.

Dollar sales in natural food stores are therefore expected to grow at a yearly average of 21% between 2001 and 2007, despite their decline in sales share. To protect that rosy future, natural food stores will need to compete successfully with mainstream food retailers on price as well as choice. This will require a greater focus on creating efficient supply chains to ensure minimal price premiums.

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