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Supermarket News March 3, 2003
Organic Food Penetrating Mass Market Supermarkets
FULL BLOOM; AS PRICES FOR ORGANICS DECLINE AND CONSUMER INTEREST
IN EATING HEALTHY BOOMS, THE NATURAL PRODUCTS CATEGORY BLOSSOMS.
BY Barbara Murray
Retailers' natural and organic sections, as well as their lines
of in-house organic groceries, are growing in response to consumer
interest. The segment boasts a 14% annual increase in growth, and
it carries with it the boon of attracting the better-educated and
bigger-spending shopper. Organic, especially, continues to be the
bright spot of growth within the food industry. "I think there is
a real comfort zone with the commitment to it by grocery retailers,"
said Bea James, whole health manager for Lunds and Byerly's stores
in Minnesota. "Although our economic times are not as strong as
they have been, natural and organic sales have maintained their
curve on an upward swing," she said.
The overall natural products industry is expected to grow to roughly
$ 40 billion in 2004 from $ 34 billion in 2001, according to a Salomon
Smith Barney report, "Natural Products Industry Outlook," issued
Dec. 31, 2002. More than half of the market is taken up by vitamins
and supplements, leaving food products with 36% of that pie, or
$ 12 billion. The report forecasts growth of 7% to 8% annually over
the next two years, outpacing all other food and beverage segments.
Mass channels, including supermarket chains, generate less than
half of the natural food sales that the independent natural product
stores have, but the mass share is growing. The two main natural
food supermarkets, Whole Foods and Wild Oats, have 12%, according
to the report, while supermarkets have 27% and health food stores
have 61%.
It says Whole Foods and Wild Oats and others like them will continue
to have the fastest growth because of their "superior store formats,
which emphasize price, selection and service." Independent health
food stores are expected to continue to lose share to the other
two channels. Natural products are minimally processed, environmentally
friendly, and free of artificial ingredients. Organic food is part
of the natural food universe, but it must be produced without synthetic
pesticides or fertilizers or genetically modified organisms.
As previously reported by SN, since Oct. 21, 2002, the U.S. Organic
Standard has been applied to all food certified as organically produced.
Food that has 95% or more of its ingredients certified organic can
use the USDA organic seal, a clean green-and-white graphic that
manufacturers may add to their labels. Positive media coverage of
the Standards should continue to accelerate growth in the organic
segment, according to the Salomon Smith Barney report.
As another reason for high expectations in this segment, the report
points out that "the differential in price and quality between natural
food and conventional food has meaningfully diminished." "There
is a lot more affordable in organic now," said Sonia Tuitele, spokeswoman
for the Wild Oats chain, Boulder, Colo. Wild Oats' corporate brand
is all-natural, she said, and 40% of it is either entirely organic
or made with organic ingredients. "We expect that to grow because
we are in the process of redoing our private label and looking at
the formulations." Manufacturers view the Organic Standard with
relief, according to John DePaolis, vice president of marketing
for the Cascadian Farm organic brand, a division of General Mills
since 1999. "For 30 years, much of the focus was on gaining credibility,
so a lot of the energy was focused inwardly," he told SN. "What
held us back in the past was the lack of a clear-cut definition
of what is organic and what isn't.
It might have depended on your certifier, and where you live. "Now
we can encourage and educate consumers to look for that seal because
it means no chemical pesticides or fertilizers were used." DePaolis
said the next step is for manufacturers to conduct some of the primary
research in order to make health claims. All the attention on organic
since the seal's debut has left natural food somewhat in the lurch.
Organic is the gold standard, said J.B. Pratt Jr., chief executive
officer of Pratt Foods Supermarkets, Shawnee, Okla., and a noted
innovator in the field of natural and organic food retailing. Since
1989, he has been integrating these products with conventional ones
in Pratt's six full-service stores. Probably one-third of the products
on the shelves are natural or organic.
He finds it harder to promote just plain natural, "especially if
you are trying to be straightforward with your customers," he told
SN. "Natural has always been difficult. Read the label and decide
for yourself what you are buying," is his common-sense approach.
Organic is environmentally healthier, Pratt said, and relative to
a comparable product, organic is a healthier product -- for example,
an organic cereal vs. a conventional cereal -- because the organic
one contains no preservatives. "I would not say it makes it a 'healthy'
product, but 'healthier than,"' he said. "Our premise is you can
eat healthfully in any supermarket. We don't set organic aside as
'The Way' that people should go to eat healthy. We do think it is
a quality issue." It's much more difficult to do with natural, Pratt
continued. "The great strength we have with organic is the USDA.
People still have to read the labels and interpret for themselves.
But if a substance says organic, it had better be. Mainly, we have
the definition of organic but no definition of natural." Manufacturers
can bring their message forth through advertising of all forms,
including their packaging. Retailers can, and do, promote natural
and organic offerings in their store circulars and brochures, through
special events, and, increasingly, Web sites. Last month, Wegmans
Food Markets, Rochester, N.Y., launched a line of its own brand
organic groceries and posted on its Web site an article on organic
products written by Mary Ellen Burris, senior vice president of
consumer affairs. She described organics, mentioning their extra
cost and stringent criteria, and described some of the sourcing
process the retailer used to get the organic products.
Even if brands like Cascadian Farm and Walnut Acres do advertising
campaigns, spokesmen for those companies said retailers are not
off the hook. "Mainstream consumers have been driving the growth,
and those consumers are highly desirable to retailers," DePaolis
said. "They are package-readers. They are constantly looking for
products that are going to help them in personal well-being. And
they are willing to pay a little more for that." Retailers who recognize
that are merchandising differently than the others, he said. Wegmans,
for example, had a Fitness Fest recently in 30-35 stores. "They
are doing things like that to attract the consumer who is very interested
in their personal well-being," said DePaolis.
When the organic rule went into effect, Wild Oats put up signage
on the "Benefits of Organics" -- mostly on a healthy environment,
a history of organic farming, touching on crop rotation, cleaner
air, soil and water, reduction of soil erosion, support for biodiversity,
humane livestock practices and healthy, flavorful food, Tuitele
told SN. "And, no GMOs," she added. "A lot of our customers tell
us this is why they buy organic." The signs are still up, Tuitele
said, because "we wanted them to have a longer shelf life." "We
look at [education] as a cooperative effort," said Ruth Mitchell,
assistant vice president for communications, Hy-Vee, West Des Moines,
Iowa. "Certainly it is helpful and beneficial if the manufacturers
are getting the word out. Still, when the customers come into the
store, they are looking for help in the store," she said. Hy-Vee
wants employees to take a keen interest in the natural and organic
department, visiting with customers and answering their questions.
Both Hy-Vee and Wild Oats have Health Notes touch-screen kiosks
where consumers can find recipes, as well as what type of medical
conditions can be alleviated by changing the diet. To attract and
keep natural and organic food customers, supermarket retailers rely
on ways to educate the public to the benefits and to promote the
fact that they carry natural and organic products. "There's this
image behind organic and natural food, that they can help you.
Here's a category that's there to make your life better. Maybe
that's why the category remains strong," James said. Lund Food Holdings
has done an extensive survey of its sales in the category, and James
seems to know what makes that customer tick. Five years ago, she
said, interest in the category was driven by aging baby boomers.
Next it was Gen X, then Gen Y. Now, James said the name of that
customer is the "multilayer consumer." That's someone who buys whole
grains, organic eggs and milk, but does not object to stopping at
a Taco Bell or McDonald's when on the road, or, if too rushed to
make lunch for the children, doesn't mind if they eat school cafeteria
food. "The multilayer consumer is the grocery mass market consumer.
That's important for the grocery industry to understand because
as that consumer ages, their need for [natural and organic products]
increases. They are more concerned with health issues; we can keep
them shopping with us instead of going to a health food store or
a co-op."
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