Harvey & Company and San Diego-based private equity fund make $30 million growth investment in Sunflower Markets

By Shonda Novak
AMERICAN-STATESMAN STAFF

Harvey & Company and San Diego-based private equity fund make $30 million growth investment in Sunflower Markets

June 3, 2008

Longmont, CO – Mike Gilliland is about to go head-to-head against arch rival John Mackey on his home turf.

In November, Gilliland plans to open his first Sunflower Farmers Market store in Austin, the first significant new competition in Central Texas’ grocery market in years.

Founded in 2002 by Gilliland, the Boulder, Colo.-based natural foods grocer boasts high-quality but moderately priced produce, about 10 percent to 30 percent less than that of some competitors. Such prices will put Sunflower CEO Gilliland, a co-founder of Wild Oats Market, in competition with Mackey’s Austin-based Whole Foods Market Inc., as well as Sun Harvest, Central Market, H-E-B and other stores.

Modeled after a farmers’ market, Sunflower’s approximately 30,000-square-foot Austin store will be at William Cannon Drive and Manchaca Road.

Sunflower plans to open four or five more stores in Austin in the next two to three years, said Bennett Bertoli, vice president of real estate for Sunflower Farmers Market.

Fueled by $30 million in financing raised late last year, the company is expanding in the Southwestern U.S. It has 14 stores, and the count is expected to reach 21 stores open by the end of 2008, Bertoli said, with another 10 to 12 stores set to open in 2009.

The chain has annual revenue of more than $200 million, with about 1,100 employees, said Bertoli, who was with Wild Oats since its beginnings.

Bertoli said the company keeps prices down by holding the line on overhead and by capitalizing on its supplier connections made in Gilliland’s years at Wild Oats, ultimately turning it into a chain of 109 stores. Whole Foods bought Wild Oats for $565 million last year.

Sunflower can be expected to draw customers from conventional grocers in the local market such as H-E-B and Randalls, which also carry a natural and organic selection and their own private labels, said Bob Vosburgh, an editor at Supermarket News, a New York-based trade publication.

In the Austin area, H-E-B is the grocery leader, with about a 60 percent share of the market.

“Obviously [Whole Foods] is light years ahead of what Sunflower is doing, but that said, Sunflower has an interesting proposition” with its lower-priced offerings, Bertoli said.

But consumers shouldn’t expect widespread price reductions with Sunflower’s debut. “I don’t think you’re going to see a wholesale reduction in prices,” Vosburgh said. “There are many other factors that go into a shopping experience, and each retailer has their niche.”

Bertoli said Sunflower’s “real draw is the quality and pricing of our produce. We sell a much higher percentage of produce than does a more typical grocer.”

Jeff Townsend, a principal at Austin-based Endeavor Real Estate Group, is representing Sunflower in Central Texas. He said Sunflower is “a new concept by a well-established grocery, with a good history in the category.” The company’s natural and organic emphasis makes the chain “a natural fit for Austin,” Townsend said.

Scott Simons, a spokesman for Whole Foods in the Southwest, said the company doesn’t comment on its competitors, but said in an e-mail, “we firmly believe that competition is a healthy thing.”

Leslie Lockett, a spokeswoman for H-E-B, echoed that view, saying the San Antonio-based grocer will remain committed to offering fresh foods “at the lowest prices possible.”

Vosburgh said it will be interesting to watch Gilliland and Mackey compete.

“In the 1990s, their professional relationship was one of name-calling,” Vosburgh said, referring to an incident in which Mackey sent Gilliland the board game “Risk,” with a personal note: “Forewarned is forearmed.”

“Certainly there’s a competitive spirit to their relationship,” Vosburgh said, “so it’s going to be an interesting rematch.”

 

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