With the arrival of health food giant Whole Foods Market approaching, the head of Hawai'i's largest natural food chain is gearing up for what he characterized as a "David vs. Goliath" battle.

Down to Earth Natural Foods & Lifestyle has been in the Islands for 30 years and has three stores on O'ahu and two on Maui. The locally owned company has a steady and loyal clientele, but has never faced the kind of competition that it will see when Whole Foods opens its first Hawai'i store at Kahala Mall early next year.

"Whole Foods coming in, of course that's a significant challenge," said Mark Fergusson, who has headed Down to Earth since 1986.

Down to Earth is the dominant player in the vegetarian, natural foods market in Hawai'i. With five stores, 230 employees, a new 7,000-square-foot warehouse and 10,000 different products on its shelves, Down to Earth has been the Goliath looking down at smaller, mom-and-pop natural food stores.

But that will change when natural food retailer Whole Foods opens four stores in Hawai'i over the next three years. Whole Foods' 26,000-square-foot Kahala Mall store alone will have nearly as much floor space as Down to Earth's five stores combined.

Fergusson did not want to reveal annual sales, but said they're nowhere near Whole Foods' $5.6 billion in the fiscal year ended September 2006. He said Down to Earth recognizes the challenge ahead and has been gearing up for it over the past few months.

The company has hired a marketing director and contracted a public relations agency. An advertising campaign was developed that includes a new company logo and activities to celebrate Down to Earth's 30th anniversary.

Down to Earth also built a new warehouse and corporate office in Halawa Valley that will free up space at the company's stores. Plans call for the South King Street store to be remodeled and for the creation of a "customer loyalty card" similar to those at larger grocery stores.

Fergusson would not say how much is being spent on the improvements and he also said that many of the improvements would have occurred regardless of Whole Foods' entry into the market. But Whole Foods did speed up the process.

"Certainly when you have a major Mainland Goliath come in you've got to look at what you're doing and do a better job," Fergusson said. "We have to respond and in some ways competition is good. We're going to do a better job."

Fergusson acknowledged that he expects a drop in business as customers explore the new Whole Foods store — but that when people realize that Whole Foods isn't a true vegetarian, natural food store, they'll come back.

"Where Whole Foods opens across the USA, initially more customers will go and have a look," he said. "Then after awhile customers tend to return to their normal shopping patterns."

Fergusson said he expects Whole Foods to compete more with the Foodlands and Safeways, than with Down to Earth. He said Whole Foods sells "gourmet, fancy products," which include meat and alcohol, and that its products are generally more expensive than those at Down to Earth.

Fergusson said his stores have succeeded and will continue to do well because they remain true to Down to Earth's mission of providing healthy, vegetarian products and nothing else, even at the expense of higher profits. Although more than half of its customers aren't vegetarian, Fergusson said, Down to Earth will never change its philosophy.

"Being a vegetarian company, that's not a marketing decision," he said. "It's not like we said, 'Let's form a company and be vegetarian and we'll generate good sales because of that.' It's more like vegetarians operating a vegetarian business because that's what they believe in."

Fergusson, a native of Australia, was hired to head Down to Earth in 1986 and has overseen the opening or remodeling of all five stores.

He said he hopes to open more stores in Hawai'i, but will see how the battle with Whole Foods goes before making any commitments.

"With Whole Foods coming in, we're going to have to see what kind of impact they have on us and the marketplace, so we're kind of preparing for the challenges that are coming," Fergusson said.

Reach Curtis Lum at culum@honoluluadvertiser.com.