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Ozark Natural Foods Tells Tale of Survival

5 min read

Mike Anzalone, general manager of Ozark Natural Foods, compared the coming of Whole Foods to northwest Arkansas to a terrible storm on the open water.

Ozark Natural Foods at least had some preparation time before Whole Foods opened on North College Avenue in March 2016. Whole Foods, a multibillion-dollar international company, had announced in the spring of 2014 that it planned to open a store south of Fulbright Expressway in uptown Fayetteville.

Anzalone, who spent the previous decade in managerial roles, took over as general manager of Ozark Natural Foods, which opened in 1971, around the same time Whole Foods opened. Ozark Natural Foods, the state’s only grocery co-operative, braced for the impact.

It was some impact.

“That was our batten-down-the-hatches stage,” Anzalone said. “We paid off our debt and saved all our money. We just take this horrible storm when the other businesses came and see what the waters were like on the other side. We didn’t have a strong plan for what we wanted to do next. We wanted to see where we were at when the storm was over.”

The results were the “doomsday scenario” that Anzalone, his staff and the ONF board of directors had predicted: a massive drop in sales. Whole Foods wasn’t the only siphon. Natural Grocers opened across from the Northwest Arkansas Mall — a few blocks north of Whole Foods, which itself is a couple of miles north of Ozark Natural Foods — in March 2015.

Ozark Natural Foods had sales of $14 million in 2013 and $17 million in 2014. Sales then plummeted 40 percent.

“It was very simple,” Anzalone said. “It is significant. Forty percent loss in sales would probably destroy 90, 95 percent of businesses out there. We planned for many years, ‘What if Whole Foods came and opened across the street?’”

ONF survived and posted a small profit in 2017 with revenue of $10 million and income of $200,000. This year, it is on pace for $11 million in revenue.

What saved Ozark Natural Foods was its lack of debt, which allowed it to slash expenses and rely on built-up savings. Anzalone said the co-op had run scenarios for years about the Whole Foods effect, and he and others were convinced debt would kill ONF.

As 2018 draws to a close, Ozark Natural Foods has decided on its post-storm growth plan, which involves what Anzalone hopes is a temporary assumption of $3.7 million in debt.

Buying Downtown
In 2008, Ozark Natural Foods bought its building in the Evelyn Hills Shopping Center for slightly more than $2.2 million, which it financed with a nearly $1.8 million loan from Bank of America.

Anzalone said everyone always knew that other organic grocery stores would soon enter the northwest Arkansas market, so ONF began to focus on paying off its Bank of America note. By 2013, ONF owned its property free and clear.

Anzalone said he and the board of directors then sought to buy the rest of the Evelyn Hills Shopping Center from its ownership group, which included John Flake and John Selig of Little Rock, Ron Robbins of Fort Smith, David Prewett of Russellville and Matthew Dearnley of Fayetteville. The thinking was that if Whole Foods hammered ONF’s sales, the rental income from the other Evelyn Hills’ businesses could compensate.

Instead, Evelyn Hills was sold for $7.2 million to Dallas investor J.C. Burciaga in a deal that was in the works for many months before closing in April 2018.

Anzalone and ONF then decided to buy an empty grocery building on the corner of Lafayette Street and College Avenue, just north of the downtown Fayetteville square. ONF agreed to buy the property for $3.6 million from the Agee family and planned to pay cash for it with the proceeds from its sale of ONF’s Evelyn Hills building.

That plan hit a snag when the potential buyer backed out. After a “rigorous” two-hour meeting with his board of directors, Anzalone said the decision was made to buy the downtown location anyway. First Security Bank in Fayetteville gave ONF a loan for $3.7 million to close the deal.

“It is true we are not generally a risky business,” Anzalone said. “We don’t really feel like this move is risky. There is plenty of time to [sell the current location] and apply it all to the mortgage that we took on to purchase the building.”

Ozark Natural 2.0
The new location has already been gutted internally in preparation for the new-look Ozark Natural Foods Anzalone envisions at the site.

The 31,000-SF building on 1.4 acres has been a grocery store under one name or another since it was built in 1968. Anzalone said ONF’s construction plans include reorienting it to face College Avenue and building an outdoor community seating area with a craft beer room, a “grotesque” number of bike racks and gardens.

“We are going to change the type of business we do over there,” Anzalone said.

“What we are going to do, it’s not going to look like the traditional grocery store that has been there for the last 50 years. People can come all day long, pull out their computers, pull out their phones, work if they want to, hang out with people if they want to. We want to still be your grocery store, but we also want to be the place you come and spend time.”

Anzalone said the Evelyn Hills location’s visibility was problematic because the store is set back from the main street in an increasingly crowded and disjointed center. It’s true: Turning into Evelyn Hills to go to ONF requires navigating through a hodgepodge of driving lanes and the occasional dumpster.

With Whole Foods and Natural Grocers being similarly placed — anchors of parking lot-heavy shopping centers — Anzalone wanted Ozark Natural Foods to be completely different. Its location on Lafayette will put the new store on one of the main routes for commuters from east Fayetteville, and its proximity to downtown Fayetteville makes it a potential attraction to pedestrians and bicyclists, hence the need for all those bike racks.

“We think we left ourselves in a really adaptable position,” Anzalone said. “A lot of businesses just keep doing what they’re doing; they just keep trudging along. I don’t feel like that is a way to win. We have to look at our competition and figure out where we fit. We are changing the way we do business to meet the needs of our community differently than we have in the past.”

Its current midtown location froze it out of all the downtown events and parades Fayetteville regularly hosts. The taproom and community aspect of the new location will give residents a place to drink beer and hang out without having to go to the decidedly younger and louder Dickson Street bars, Anzalone said.

Anzalone said the new location is expected to be ready by August and ONF hopes to have sold its current location by then.

“We have to find our niche,” Anzalone said. “It is easier to find our niche in that building than as an anchor in a stretch mall in midtown. Midtown is drive-by country.”

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