Strength in numbers

Health First Network has proven to be a powerful tool for independent retailers looking to thrive in an ever-changing market.

By Carlos Weigle  •  Photography by Dean Sanderson

A highly competitive market usually makes business owners overcautious and even a little paranoid. Other stores are often perceived as the enemies and there’s no room for collaboration. That’s why, especially at times like these, it’s important to remember there’s always strength in numbers. Buying groups are clear examples of that.

Eleven years ago a group of Canadian independent health food stores came to that same realization and decided to form what was then called United Health Merchants. The idea behind it was to provide its members with a buying power they wouldn’t otherwise have, making them competitive against large store chains that could obviously negotiate the best prices due to the volume of their sales.

The idea has proven to be a very good one, indeed. In 2004 the organization was rebranded as Health First Network. By 2006, it had 70 members representing 96 stores, and it currently boasts 81 members and 111 stores.

Buying power

David Freeman has been working with Health First Network as its CEO, since 2006. He admits he wasn’t that familiar with the natural health industry, yet he had experienced the power of buying groups firsthand. “I came from the grocery and office product sectors,” he says, “and I worked with a number of buying groups. In particular, in the office product industry, where everything is very commoditized, I watched independent stores almost get wiped off the map unless they were part of a buying group.”

That experience certainly gave him clarity as to what he, the board of directors, and membership could achieve with Health First Network. “When I joined,” he remembers, “We had two things in mind:  that this was certainly a growth industry with ongoing potential, and that the notion of independent stores joining a buying group and collaborating, would be a key success factor.” A lot can change in five years, especially in rapidly evolving times such as these; has Freeman’s opinion changed since? “No, I still see both notions holding true.”

What has changed, then? The organization was restructured to accommodate its growing numbers, for starters. During his first one-and-a-half years at its helm, Freeman helped turn it into a more formal organization, one with offices, employees, and five-year plans. The motivation behind the changes were clear: “Our board, staff and members agreed that we wanted to be a leading retail entity in Canada and that we thought there was an opportunity for us to revolutionize many retailing aspects in our industry.”

In concrete terms, what has that meant? As Freeman describes it, “First of all, we completely overhauled every existing program we had. We went from four flyers a year to six and we’re now planning to move to 12. We completely changed the format, the content, the branding for our programs. We went from no consumer promotions to running regular, national consumer promotions, in many cases, leading-edge ones.”

Taking it online

Online presence is, of course, a key ingredient in the organization’s transformation. As part of its e-marketing program, Health First Network now provides members with their very own websites. Even though they all have a similar look, each member can customize it so that it showcases news and events that are relevant for their stores. Other elements of the e-marketing program are a database with customer contact information and issuing regular newsletters.

Social media is the next step. However, Health First Network prides itself on not rushing into things and getting it right before launching a new initiative. “We advance one step at a time,” says Freeman. “In terms of social media, that means we first built the base platform and now we’re in a position to expand on that.”

Even though technology is undoubtedly taking over pretty much every aspect of the marketing world, stores still find old-fashioned flyers do get their message across. Flyers are also customizable: the store’s name appears prominently on top, “and each member gets to pick whether they want their flyers in French or English, if they want an eight-page supplement or a 12-page supplement and food flyer,” according to Freeman.

In terms of promotions, the organization has given away cars, created in-store contests and championed fundraisers for Vitamin Angels – an organization that provides vital nutrients to close to a million undernourished children – every year.

Pick the right ones

Choosing the right partners is fundamental to creating a strong organization. In the case of Health First Network, there are criteria in place to ensure members are independent, key stores that won’t compete against each other. As Freeman explains it, “our current membership is primarily made up of destination stores, leading stores in any market.” He adds that “We offer our members an exclusive geographical territory. So if the territory is open, and you are the leading store or you’re striving to be the leading store, we’re talking to you.”

Does Freeman foresee a reduction in terms of independent stores that currently populate the market? “I absolutely agree that industries consolidate over time and that the larger, more competitive players have a significant advantage,” he says. Yet he also points out that “my sense of the natural health and organics industry is that it’s only ever grown. This is an industry that has really not had a major setback or decline. Right now there are more independent health food stores than 10 years ago.”

Why the need to belong to a group such as Health First Network, then? Freeman explains it: “I’ve brought in some members, and vendors have said, ‘Why would that store or chain join a group? They don’t need to.’ I respond that they don’t need to join today; they’re looking down the line, they’re looking forward into the future and saying, ‘Some day, it’s going to be very helpful for me to be part of a larger group.’ ”

By the rules?

Consolidation and economic downturns are not the only factors affecting the industry. In fact, new regulations have also been changing the face of the market since 2004. Freeman believes in the importance of having clear rules, without failing to acknowledge some of the difficulties they have created: “We separate the notion of regulations from how they’ve been implemented. Overall, we are in support of some form of regulation. Yes, it costs money for folks to align with them. Yes, there’s work involved. Yes, lines get drawn that we may or may not like. However, if we look at our customers, it’s good to have regulations that say, you can trust what this product is claiming and you can trust what’s in the bottle. That’s why we’re supportive of regulations, partly because we think it will reassure customers, and partly because there are players in our market who probably shouldn’t be there.”

Have there been bumps in the road, though? Freeman certainly believes so. “‘Could the regulations have been better implemented?’ Sure. ‘Have there been problems?’ Absolutely. ‘Are we happy with everything that has happened, or is happening in the rollout?’ No. Yet we’re trying to positively contribute to a good outcome and we do believe that regulations are here to stay and can have benefits if done right.”

Have the regulations, as many claim, limited the amount and kind of products retailers can offer their customers? Yes. Yet again, that can present both disadvantages and advantages to consumers. “There is room in this industry to reduce some SKUs and there’s still an opportunity for customers to have a broad array of alternatives to choose from,” says Freeman. “Products have been removed from the market and others may exit.” What’s the downside, then? According to him, “innovation has slowed because vendors and manufacturers are focusing on and complying with the current regulations and trying to figure out what the future regulations will be.”

Looking forward

The future seems bright, though. “I think, in the longer term, we will return to the kind of innovation we have seen in the past,” predicts Freeman, “we’re just trying to get the ground rules sorted out right now. I’m aware that not all of our members agree with that stance, yet as an organization we are not out fighting the regulations and forecasting the demise of the industry.”

Consumers are also not what they used to be. “I absolutely think that there’s a higher, ongoing growth in concern amongst consumers about health,” says Freeman. “Nowadays there’s a health section in every major newspaper. There’s an increased interest in natural health and organic products, partly because we’ve got an aging population and partly because we’ve got more knowledgeable consumers. A growing section of the market is younger adults, first-time parents who are saying, ‘Hey, it may have been okay for me to eat bologna, it’s not for my kid. My parents took me to fast-food restaurants, yet I am not taking mine.’ They’re very interested in organics and nutrition, and the driver is their child in the home.”

Health First Network offers retailers help in navigating this ever-growing and changing market by providing them with the negotiating power of a buying group, by supporting their efforts with a well-oiled, reliable marketing machine, and through the organization’s private label product family.

Again, caution, has proven to be Health First Network’s best advisor. Even though its brand is slowly growing, Freeman emphasizes it’s not their goal to become a dominant force in the market. As he explains it, “we’re just trying to keep our stores competitive; we launch products either in categories that are highly commoditized – and where a value, private label would be helpful – or where we aren’t able to buy competitively and having a private label as part of the mix helps our stores in those categories.” He adds that “we’re not in the business of making products, we’re in the business of retailing, this is a ‘sidebar’ for us. So, at best, we’re always going to be a step, or two, behind the market’s innovation.”

Transparency is also key in Health First Network’s success. There’s only one initiation and one monthly fee, no hidden costs, which gives members access to all of their services. Some retailers might still question the advantages of joining a buying group. It is certainly an important decision which depends on each retailer’s individual case.

It’s extremely hard to remain competitive in a market dominated by big players, dwindling disposable income and changing rules. As in every aspect of life, there’s strength in numbers and Health First Network is certainly a testament to that.