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Some of the 40 fastest-growing chains with 40 or fewer locations are profiled. Supermarket veteran Mike Gilliland, who founded Wild Oats Market in 1987, is on a mission: to bring natural and organic food to the masses. Gilliland stepped down from Wild Oats in 2001, and one year later he was back in the game with a new concept, Sunflower Farmers Market. The 20-store natural-foods grocery chain is on Chain Store Age's first-ever ranking of the 40 fastest-growing chains with 40 or fewer locations. Sunflower expects to open eight stores in 2009. Meanwhile, small-town retailers can produce big-time results, as is the case with Home Hardware Center, based in Winnfield, LA. With all of its units sprinkled in small towns in Louisiana and Mississippi, Home Hardware Center caters to contractors, do-it-yourselfers and homeowners. Home Hardware Center's growth has come through a combination of ground-up development and acquisition.

Copyright Lebhar-Friedman, Inc. Jan 2009

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Supermarket veteran Mike Gilli- land, who founded Wild Oats Market in 1987, is on a mission: to bring natural and organic food to the masses. Gilliland stepped down from Wild Oats in 2001, and one year later he was back in the game with a new concept, Sunflower Farmers Market.

The 20-store natural-foods grocery chain is on Chain Store Age's first-ever ranking of the 40 fastest-growing chains with 40 or fewer locations. For the complete list, which is based on year-to-year sales, see the chart starting on page 24. Several of the retailers are profiled here.

Sunflower: When Gilliland left Wild Oats, he knew he would eventually get back in the business; he just didn't know it would be the next year.

"I got bored a lot sooner than I expected. But I really love the grocery store business," said Gilliland, founder, president and CEO, Sunflower Farmers Market, Boulder, Colo.

Gilliland built Wild Oats into a $2.2 billion company before resigning as CEO (the company was acquired by rival Whole Foods Market in 2007). With Sunflower, he is tapping into a new vibe, one that especially resonates with consumers in today's harsh economic climate: value.

"I couldn't have predicted what was going to happen back when we first launched," he said, "but it does seem to be the right time for us."

With a tag line of "serious food ...silly prices," Sunflower targets consumers who want to eat healthy and are interested in natural and organic foods, but can't afford - or don't want to pay - the higher prices typically associated with such products.

In many ways, the chain is a moreaffordable, downsized (the average footprint is 20,000 sq. ft.), no-frills version of Whole Foods. Sunflower stores are bright and upbeat, but are fairly simple in design.

"There's nothing fancy about us," Gilliland said. "In terms of atmosphere, we're comparable to Trader Joe's, but with a few more bells and whistles and a higher level of finish. For instance, we have a service meat department, and we also offer lots more produce."

Indeed, produce, with an emphasis on organic, is one of the chain's strong suits, accounting for approximately one-third of its sales and floor space. Another is its private-label line.

"We carry about 350 private-label grocery SKUs and another 350 in the natural-living segment," Gilliland said. "All told, private label accounts for about 10% of our total SKU count and 20% of our sales. Our plan is to add about 100 private-label SKUs annually."

Value pricing is key to Sunflower's strategy.

"We try to kill everyone on price, especially on produce," Gilliland said. "It's our loss leader. We even beat WalMart when it comes to produce prices."

A low-cost economic model is the engine that drives the company. The chain keeps its overhead low, with basic store fixtures and furnishings. It buys big, and buys produce by the truckload directly from farmers.

"We self distribute, which is usual for a chain our size," Gilliland said. "Ninety percent of our produce comes direct through our own warehouse, which helps us keep the prices down. It also makes for a fresher product."

A simple store build-out and nofrills store environment helps minimize construction costs.

"We use a lot of recycled equipment and recycled real estate sites," Gilliland added. "On average, we're able to build a new store for less than $2 million, so we don't need a big return."

Former Wild Oats veterans comprise more than 90% of Sunflower's management team.

"That's also helped," Gilliland added. "We're all able to capitalize on the relationships we had built up with farmers and suppliers."

Sunflower expects to open eight stores in 2009. Expansion, at least for the foreseeable future, will be limited to where the chain's existing 20 stores are located, in the West and Southwest.

"We plan to grow at a rational or reasonable rate," Gilliland said. "You learn from your mistakes, and one of the mistakes we made at Wild Oats was growing too fast"

The chain, which is one-third owned by La Jolla, Calif.-based Pacific Corporate Growth, generated roughly $200 million in revenue in 2008. Gilliland expects to do $300 million in 2009.

Small-town retailers can produce big-time results., as is the case with Home Hardware Center, based in Winnfield, La. With all of its units sprinkled in small towns in Louisiana and Mississippi, Home Hardware Center caters to contractors, do-it-your- selfers and homeowners. The chain was launched in 1984 by Jim Smith, a small-town Southerner himself, who saw a niche for a home center retail operation that could outserve the big boxes.

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"We have found success in these small- to medium-sized markets where, frankly, people don't really like the big-box home center stores," Smith said. "And, because these are generally underserved markets, it has been a good niche for us."

Six of the Home Hardware Center stores are in small towns in Mississippi; nine are in Louisiana Merchandise offerings are deep - from tools, paint and hardware to electrical, lawn and garden, and sporting goods - and the retailer approaches $40 milhon in annual sales through a combination of its bricks-and-mortar stores and an online catalog.

Home Hardware Center's growth has come through a combination of ground-up development and acquisition. According to Smith, five of the 15 stores were new-build and the remaining 10 were acquired.

"In several cases, we acquired competitors and then merged thenoperations into ours," he added.

This year will see continued growth, despite a down economy. On tap for early this year is another acquisition. Smith plans to continue to watch for opportunities to build or acquire to further boost the chain's store count.

"Also, we are remodeling two locations this year - one in Louisiana and one in Mississippi - and adding larger sales floors to both," he said.

Staying true to the company's tag line, "where customer service is always #1," has been key to Home Hardware Center's success, according to Smith, as has maintaining an unwavering focus on its core market of small-town customers seeking small-town personal service.

"That's where we came from, and it's how we will continue to grow," Smith added.

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Pharmaca Integrative Pharmacy, founded in June 2000 and based in Boulder, Colo., is revolutionizing the drug store sector, much like Whole Foods and Wild Oats Markets reinvented grocery retailing. By combining conventional prescriptions with natural and complementary health solutions, Pharmaca is serving the growing demand for natural, holistic health care and an educated, more proactive approach to wellness.

The company, which added six new stores in 2008, operates 23 pharmacies in Colorado, California, New Mexico, Oregon and Washington. The chain plans to open five to seven locations in 2009.

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"We also look forward to increasing our direct-marketing efforts next year with the launch of a customer-loyalty program and e-commerce," said Mark Panzer, COO, Pharmaca Integrative Pharmacy. "Our mission remains to be the trusted source for integrative health and wellness solutions."

Reinforcing the company's credibility and commitment to quality care, stores are staffed with registered pharmacists as well as licensed health-care practitioners, including naturopathic doctors, homeopaths, estheticians and herbalists.

"Pharmaca's model is perfectly suited to serve the health-care needs of today's health-conscious consumer," Panzer explained. "Our diverse product mix and certified staff of practitioners and pharmacists allow customers to take control of their health and easily find the healthcare products that work for them."

Although the privately held retailer does not disclose its sales, recent reports have pointed to strong performance. For instance, the flagship store in Boulder has reported consistent annual growth of approximately 20%. Unlike most drug store retailers that have the majority of sales from the pharmacy and a lower percentage, typically around 25%, of sales from the 'front-store' merchandise, Pharmaca's revenues are more evenly split between higher-margin product in the front of the store, roughly 60% of sales, and the pharmacy, roughly 40% of store totals.

In March, Pharmaca was awarded $20 million in additional growth capital. The financing, led by Highland Capital Partners, the Highland Consumer Fund and Physic Ventures, was earmarked to support the company's plan for accelerated expansion. At that time, Pharmaca anticipated adding as many as 12 new stores per year, but is now looking at a slightly more conservative plan for this calendar year with about half that many new stores on the agenda.

Celebrating its 35th anniversary this month, Buffalo Exchange offers the ultimate in resale retail. The stores provide a fashion mecca where consumers can not only buy vintage clothing, but also can bring their own apparel, footwear, jewelry and accessories for trade or cash on the spot. Eighty percent of the inventory is recycled from previous owners, and about 20% is purchased new to represent the latest in trendy fashions.

The criterion for purchasing used clothing from consumers is quite simple, explained Buffalo Exchange cofounder and president Kerstin Block: "It just has to be something that someone else would want."

In the current economy, a retail store that allows consumers to make money as well as purchase quality product at discounted prices is a winning model. It helps that fashionistas of all ages and income brackets are embracing frugality with a newfound zeal.

Also, since Buffalo Exchange opened its doors in 1974, the negative perception of resale has faded, especially among young shoppers attracted by the connection to recycling,

"Our stores actually do better in poor economic times than in good economic times," Block said. "However, this is the most severe economic downturn we've seen in our 35 years in business, so there has been some slowing in some stores. But people are getting rid of clothes like they are going out of style and cash is king."

Overall, however, Buffalo Exchange is thriving. Same-store sales for 2008 were up 14.1% through the month of November, and total revenues for that period were 15.2% above the previous year. Sales in 2007 topped $49.4 million and were forecast to reach $55.8 million in 2008.

The company opened one new store in 2008, located in the heart of Manhattan, and has projected that three stores will open this year. Block said the markets being considered are Baltimore, Boston and Honolulu - all new additions to the company's portfolio.

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In 2007, Buffalo Exchange opened its first store in Minneapolis, plus locations in Bellingham, Wash.; Chicago; Houston; and Nogales, Ariz.

"Our vision is to keep growing on a slow, steady, pragmatic path," Block said. "We finance all of our growth inhouse, and we open at least one new store every year, although some years we have opened as many as four or five stores."

One of the key values espoused at Buffalo Exchange is protecting and preserving the environment by reusing and recycling clothing, which makes a modest dent in the amount of textile waste, estimated by the E.P.A. to have reached 11.8 million tons in 2006.

For the 2008 holiday season, the company also introduced new bioplastic shopping bags, made from allnatural, corn-based materials.

Road Runner Sports has been providing quality fitness products to all levels of exercise-oriented people for more than 25 years. What keeps the company winning the retail race, however, is not only that it sells the right products at reasonable prices, but also its philosophy for serving the customer. Road Runner Sports strives to establish one-on-one relationships with each customer, as if the stores were equal parts retailer, personal trainer, coach and cheerleader.

Company founder and owner Michael Gotfredson, more commonly titled Chief Runner, has grown the business from a garage start-up in 1983 to 22 stores and a healthy e-commerce presence. In addition to distribution centers in San Diego, and Columbus, Ohio, Road Runner Sports operates neighborhood stores in Arizona, California, Colorado, Maryland, New Jersey, Oregon, Virginia and Washington.

Last year, the company introduced a custom-designed running-analysis center in every store to help customers quickly and easily identify the best running shoes for their individual needs.

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Road Runner Sports puts an emphasis on fit and selection.

In announcing the new "Shoe Dog" system, Road Runner Sports noted, "Every year, two-thirds of runners are sidelined by injuries from overtraining and running in shoes that fit improperly."

"The key to a lifetime of enjoyable, injury-free running is wearing shoes that fit an individual's feet perfectly and address the runner's unique foot mechanics," Gotfredson said.

To accomplish that perfect fit, Road Runner's in-store fit experts learn each customer's specific fitness level and goals, then take computerized pressure readings of the customer's footprints and analyze their foot mechanics as they run on a treadmill. The company supports its fitting system with a 60-day guarantee: Customers can return the shoes after running in them for 60 days.

The privately held company does not release sales figures, and Gotfredson prefers not to discuss his company's growth plans. However, the company, which opened two new stores in 2008 and three stores the previous year, is expected to maintain this pace.