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Buying a health food store: a sector analysis

At a glance

  • Still dominated by independent retailers
  • Shops are diversifying their offering and broadening their appeal
  • Growing number of people prepared to pay premium for health products
  • Customers can also be sold a large range of related products and services, from herbal remedies to yoga classes
  • Although profit margins are good and sector buoyant, shops can be bought for as little as £60,000
Fruit and veg

The media's voracious appetite for health scare stories, combined with people's growing interest in their wellbeing, has led to an increasing awareness of the food we eat and the medicines we take.

The result is a potentially lucrative market in health foods, and yet the vast majority of health food shops in the UK, excepting the nationwide chain Holland & Barrett and London-based Fresh & Wild, are independent ventures. They tend to be concentrated in fairly affluent areas, as specialist health foods are usually significantly more expensive than their mass market equivalents - although it is worth noting that shops are now appearing in a wider range of socioeconomic areas.

People will only travel a mile or so to visit a convenience store, but health food stores can see customers travelling up to 15 miles

Kim Power, Lakey and Co (business brokers)

Large catchment areas

Increasing numbers of elderly people are jumping on the health food bandwagon, and shops are just as likely to be successful in small West Country or Yorkshire towns as they are in cities. Health food shops have very large catchment areas and the customer base tends to be regular and loyal.

"People will only travel a mile or so to visit a convenience store, but health food stores can see customers travelling up to 15 miles," says Kim Power of Lakey and Co, a business broker with experience of selling health food shops.

The majority of shops sell a combination of hard-to-find organic and speciality foods - such as rye bread or carob - together with homeopathy products. An increased awareness of food intolerances has meant that shops also stock gluten-free, wheat-free or dairy-free foods.

Some businesses concentrate on organic food, a market enjoying breakneck growth that shows no sign of slowing.

However, supermarkets have wide and growing ranges of organic foods, which marginalises specialists to an extent. But this shouldn't be overstated, as the thoughtful shopper who likes to buy additive-free health foods is probably more likely to buy from small independents than large supermarkets, for ethical reasons and to get specialist advice.

"It's really important to know your product," says Power. "People will simply come in and state their problem and expect you to know what to sell them. You need a lot of knowledge." He suggests that those going into the industry also need to be well versed in EU legislation restricting the vitamins and minerals a shop can stock.

High margins

The businesses are quite profitable, says Power, enjoying gross profit margins of around 35-40%, significantly higher than convenience stores or newsagents. An average-sized business of around 700 sq ft will typically stock around £15,000 of goods and turn over up to £150 ,000  a year.

Yet, surprisingly, shops are not as expensive as in many sectors, and good provincial locations attract sale prices of around £60k to £80k. This is mainly because they are usually located in local parades rather than expensive, high-profile streets and shopping centres.

Health food stores often add to their income by renting out rooms above the shop to alternative health practitioners such as reflexologists and aromatherapists. Clearly, there is an enormous amount of synergy between the two lines of business.

Sharing a building with these services, for which people are willing to travel a long way, can increase sales in your own shop and vice versa.

Power thinks that the sector is maturing as it grows: "More and more people are buying supplements and taking an interest in health foods, and it's no longer a middle-class fad. The customer base is increasingly across the board, although it remains more female-orientated.

"Shops are becoming more diverse and selling vegetarian and vegan products, such as the Linda McCartney range. In some ways, they're becoming more like general stores for the health-conscious."

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