Organic food fight

Is the Fennel Fairy enough to protect natural-foods chain Planet Organic from Wal-Mart's entry into organics?

Darren Krissie isn't afraid of Wal-Mart — he's got the Fennel Fairy on his side.

Krissie is CFO of Planet Organic Health Corp. (TSXV: POH), an organic food retailer with 60 stores across Canada. The Fennel Fairy is the company's new leafy green mascot, and one of the ways Planet Organic is trying to stand out in a crowded market.

Organic food is a growing business in Canada — retail sales were about $3 billion last year — and now Wal-Mart wants a piece. The retailer launches its first Canadian Supercentres in Ontario this fall (three to start, and four more next year) and each will be stocked with organic food. “It's no longer a niche market,” says Wal-Mart Canada spokesperson Kevin Groh, adding organics could be a large portion of the company's business.

Given Wal-Mart's history, its new stores could spell trouble for Planet Organic — which also plans to open outlets this fall in Ontario.

Planet Organic formed in 2001 after business partners Mark Craft and Diane Shaskin put their Edmonton organic food store, Terra Natural Foods, up for sale. There was no national organic chain at the time, so Krissie, then a jewelry retailer, decided to start one by acquiring some of Canada's 1,500 independent health food retailers. Together with Craft and Shaskin, they formed Planet Organic.

The company has grown into a $30-million operation in five years, earning $10 million in gross profit in 2005. By year's end, it will have eight stores, including locations in British Columbia and Nova Scotia, plus 47 health-food stores operating as Sangster's Health Centres, a chain purchased in 2004.

Ontario is also Wal-Mart's launch pad, but Krissie says he's not concerned. “They just sell low-cost products,” he says. “We're not looking for the discount customer.” Krissie sees Planet Organic as a retailer of higher quality — and likely higher priced — food.

Octagon Capital analyst Bob Gibson, who tracks consumer products, agrees with Krissie. “[Planet Organic] have located next to big grocers who sell organics before, and it's only helped their business,” he says. Gibson suggests Wal-Mart will introduce consumers to organic food, some of whom will then go to Planet Organic for its greater variety. The bigger threat comes from Whole Foods, the upscale American organic retailer with three Canadian locations, and one more in development.

That's why Planet Organic is moving quickly to acquire more stores. It's aiming for $100 million in revenue in the next few years. “Our goal is to stay away from Whole Foods and tuck ourselves into smaller markets they can't get to,” Krissie says. “You can't build 40,000-square-foot stores in some areas and do well. But we can build 10,000-square-foot stores in those areas and do very well.”