March 2004 >> Source: Progressive
Grocer
Supermarket GROCERY Business: Organic growth
By Richard Turcsik
Organic and all-natural groceries have skyrocketed in popularity,
the result of consumers embracing a healthier lifestyle and
the introduction of more accessible products.
MARCH 01, 2004 -- Organic
groceries are growing like weeds, which is good news for
the beleaguered supermarket industry. In fact, organic
and all-natural products are exhibiting double-digit growth
in many categories, far higher than the low single or declining
numbers witnessed by their conventional counterparts.
Consumer attitudes about organics have undergone a dramatic change. No longer
viewed as just alfalfa and bean sprouts for the hippie set, today's high- and "commercial-quality" organic
items can be found in every dry grocery, frozen, and dairy product category.
And in a classic win-win situation, growing demand is causing more manufacturers,
farmers, and ingredient suppliers to enter the field, increasing sourcing and
brand opportunities and driving down prices in the process.
"Organics is a big opportunity for food retailers and also for us processors,
because the consumer wants assurance that what they're purchasing is grown and
produced without herbicides, antibiotics, and growth hormones that eventually
end up in your body," says Jim Kelly, chairman and c.e.o. of Van's International
Foods, the Torrance, Calif.-based frozen waffle manufacturer. "We're seeing continuous
strong growth in the organics arena."
Van's has offered an organic waffle line for about five years. "Ingredients
that used to not be available organic are now available in an organic format," Kelly
notes. "More suppliers are doing it, and you can get most of the ingredients
in an organic format. You pay a premium, but the premium is less than what
it was."
Organic supply chain
"It's not difficult to source organic ingredients, but it does require a bit
more diligence on our part to ensure that outside suppliers comply with organic
regulations," says Rob Kelly, marketing director at La Tortilla Factory in Santa
Rosa, Calif., which has added an organic tortilla to its product mix. "It can
be more challenging than sourcing conventional ingredients, but between our purchasing
and R & D departments, we've developed strong relationships with organic
suppliers who share the same interest with us."
"The popularity of organic foods and the increase in organic foods volume have
really strengthened the food supply chain," says Chuck Enderson, president of
Country Choice Naturals in Eden Prairie, Minn. Country Choice manufactures a
line of certified-organic oat-based cereals, including a new steel-cut oatmeal
and six SKUs of instant oatmeal, along with certified-organic cookies and cocoas. "The
difference between us and other brands is that all of our products are certified-organic," Enderson
says. "And all of our flavors and sweeteners are unprocessed. We use no processed
sugar."
Country Choice's instant oatmeal is available in Maple Syrup, Apples 'N Cinnamon,
Regular, French Vanilla, Golden Brown Sugar, and a Variety Pack that's modeled
after Quaker, H.O., and private label offerings. "We target and pattern more
mainstream-type flavors because people are familiar with them," Enderson says. "We
provide a choice. If someone wants to buy a product that's organic, they can
be assured there are no chemicals or pesticides. Our oatmeal is a food with
a pedigree because we know exactly where every one of those ingredients came
from."
The fastest-growing organic sector can be found in the dairy case. "When the
added growth hormones were approved by the government, that really stimulated
the growth of organic dairy," says Gwen Scherer, director of marketing at Boulder,
Colo.-based Horizon Organic, a division of Dean Foods. Organic dairy has been
growing at 56 percent annually for the past five years, and it's projected
to keep growing at 26 percent a year for the next five years, she says.
Horizon Organic expects to help stimulate that growth with new products and
package sizes, as well as increased distribution. "Half-gallon milk has really
been a focus for us, but the new exciting trend is trying to convert consumers
to the gallon size of organic milk," says Scherer, noting that while 70 percent
of conventional milk is sold in gallons, 80 percent of organic milk is sold
in half-gallons. "We feel it's really important to try and bring that gallon-size
option to organic consumers," she says. "It's brought in tremendous category
growth and incremental growth where grocers have brought in gallons to supplement
half-gallons."
Horizon Organic receives its milk from 300 independent organic dairy farmers
across the country. "As we need more supply, we've been able to find farmers
that are excited to convert to organic," Scherer says. "It really offers family
farms an economically viable way to continue farming."
The company has been branching out into other areas, too. It's launched a line
of yogurts that includes tubes, yogurt for babies, and the Yo-Yos brand aimed
at kids. Horizon Organic also markets a line of juices. "Moms are looking for
ways to provide their families with their favorite foods in an organic option," Scherer
observes. "We're trying to continually innovate and bring Mom more choices
in organics."
That's why Horizon has entered the baby care aisle with a new line of certified-organic
powdered milk-based infant formula that it's marketing on the West Coast. "Our
infant formula is the only certified-organic infant formula on the market that
meets the FDA requirements for complete infant nutrition for their first 12
months," Scherer says. "We think infant formula is a really big opportunity."
To best capitalize on the organic phenomenon, retailers need to expand their
organic offerings. "A grocer should look at it from the 80/20 rule," Scherer
says. "The 20 percent of the items in a category that do 80 percent of the
volume should be offered in an organic option."
The push to integrate
That brings up the age-old question of where to market those organic items.
Should they be integrated into the mainstream groceries or kept in a separate
organic section? "We've come to the conclusion that if the store does a really
nice job with fixtures and staffing and having it in a section of the store
with a lot of foot traffic, then the store-within-a-store concept can work," says
Andy Berliner, president of Amy's Kitchen in Petaluma, Calif. That's the way
Wegmans, Kroger, and some other astute retailers market their organics. "But
a lot of people don't do it that way," Berliner continues. "They kind of stick
it in a corner and say, 'This is the natural food corner.' There's not much
signage, and that doesn't work. It's kind of like a dust collector."
The other option is to integrate the organics into the mainstream groceries.
That approach also has legs, Berliner says, but it has to be executed well,
using signage, awnings, banners, and shelf danglers to call attention to the
organic items. "Even though our canned soups are right next to Campbell's,
if there's a sign letting you know this is a natural/organics section, that
works really well, too," says Berliner, noting that Amy's now has the No. 1
brand of canned organic soup.
In the natural and organics channel, instant soups are also very popular. Annie
Chun's has just introduced a line of all-natural FreshPak noodle meals in revolutionary
Bio Bowls. The biodegradable bowls are made primarily from cornstarch, and
both the bowl and the lid decompose into the soil with no harm to the earth. "It's
a higher expense, but it's the feeling and nature of the company to make it
a little bit easier for the next generation," says Steve Broad, president of
Annie Chun's, Inc. in San Rafael, Calif. and Annie Chun's husband.
Magnificent miso
The FreshPak Noodle Bio Bowls are available in Miso Soup with Tofu and Scallion,
Udon Soup with Tofu and Spinach, and Teriyaki Noodle Bowl varieties. "Our miso
paste in the bowl is better than what you would get in a Japanese restaurant," Broad
says. "The dehydrated topping is freeze-dried, not air-dried like some others.
We don't have diced spinach, but more fuller pieces. We offer a different flavor
experience, and we're having great results."
Amy's has been wildly successful in the frozen pizza business. "One leading
Southeastern chain has had our pizzas in the pizza section for several years,and
it's performing very well," Berliner says. "Our spinach pizza is our No. 1
seller, and it's No. 18 out of the 200 pizza SKUs that they carry. We outsell
eight of nine Stouffer's, all of the Freschetta, all of California Pizza Kitchen,
16 of 24 Di Giorno, and 13 of 17 Tombstone."
It helps that in this chain Amy's pizzas are merchandised with their mainstream
counterparts instead of behind the organic doors down the aisle. "We haven't
really pushed the pizzas in the pizza section, but we're starting to now," Berliner
says. "What that does is open up more space in the natural/organics door, and
they're performing so well that they deserve to be there with the other pizzas."
The supermarket industry also needs to overcome its preconceived notions of
where organic foods will sell. They're usually placed in suburban flagship
stores and not in inner-city locations. That's a major mistake, according to
Berliner.
"Where the product is available to people who are of a lower demographic income
level, but at a more affordable price, the product will sell very well," he notes. "We
have a lot less distribution in stores that appeal to a lower-income level, but
where we do, we do surprisingly well."
That includes stores operated by the Grocery Outlet chain, where Amy's is one
of the company's few everyday items. "Like everyone, we would sell them overstocks," Berliner
says. "But we would have these long gaps when we didn't have anything for them.
They called us and said they were getting customer complaints that they didn't
have any Amy's in the store. So they started stocking a few of our pizzas at
a price point they never wanted to play with before, and it's selling really
well. They're our best customer as far as sales per store in the United States."
There's another channel where Amy's does phenomenally well -- college campus
convenience stores. "Our products are in great demand on college campuses," Berliner
says. "Many have convenience stores that work with the student union. Amy's
is just flying in those environments."
And since those college kids are tomorrow's supermarket shoppers, retailers
would be wise to take a refresher course: Organics Marketing 101.
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