ANSWER CENTRAL

Competing with Goliath

What to do when big chains enter your market and threaten your business?

FORTUNE SMALL BUSINESS
Monday, June 23, 2003
By Louise Witt

Q. I own a small health food store that has been established for 24 years. In eight months, Whole Foods Market is opening a 42,000-square-foot store three blocks away and this summer Earth Fare is opening a store on the other side of town. Though I have a good customer base and have been growing in the last six months, how do I deal with this new competition?

A. The short answer: compete. You can't rely on the fact that you think you have loyal customers and you've been in business for many years. You will have new competitors soon and you have to make sure that you still offer your customers a reason to shop at your store. Of course, this won't be easy, but if you take up the challenge, you can find ways to improve your business.

Bob Phibbs, a retail consultant in Long Beach, Calif., and author of " You Can Compete: The Retail Doctor's Tool to Double Your Sales ," says you won't be able to compete with large chains on price, so you have to focus on what you sell in your store and how you serve your customers. In other words, you have to differentiate your store from the chains.

The first step is to unflinchingly evaluate your business. "Get your eyes off of what everyone else is doing and concentrate on your own four walls," Phibbs says. "Look at your store like a customer. People who are in their stores every day don't see how dirty they are, how their prices compare to other stores' prices, or how their stores are lit. At a big box, someone has spent millions to make sure everything is perfect."

The next step is making sure that your customers feel loyalty toward your store. Compile a mailing list of your customers and send them monthly direct mail notices. Phibbs says that these newsletters don't have to be expensive or even that involved. You can simply let your customers know about new products, or classes at your store. You could hold an evening seminar on how to cook healthier food or how to be a savvier shopper of organic products. "You can't say, 'We're local,' and whine about supporting the little guy," Phibbs says. "Customers don't care about that. They care about you offering them something different or better."

Phibbs recommends that you spend 10% of your budget on marketing and advertising; that's right, advertising. Since you've been in business for so many years, you may not think it's important to let people know about your store, but it is. Place ads in the local papers and let people know what your business has to offer customers who are interested in health foods and organic products. The big chains will spend big bucks on ads, so you should be in the public eye as well. Otherwise, they may assume you're not in business any longer.

Last, make sure your salespeople know your inventory. This will make shopping at your store a more a pleasurable and useful experience for your customers. And think about offering samples in your store. "Retail is about a lot of little details, if you're going to be successful," Phibbs says. Sure, going head-to-head with the big chains won't be easy, but if you're smart and innovative, you can hold on to your customers--and your business.

Louise Witt is a writer based in Hoboken, N.J. She has written extensively on small-business and entrepreneurship. Send her your questions by e-mailing editor@fsb.com.