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If you're still waiting for customers to request organics to justify an investment, then you're missing the boat. That was the general consensus at Progressive Grocer's second Health & Wellness Executive Roundtable, held Sept. 27, 2007 at the Baltimore Convention Center.During the three-hour discussion, which was conducted in conjunction with Natural Products Expo East, a select group of retailers, distributors, and suppliers traded opinions on the state of health and wellness in the supermarket industry, and advice on how to take advantage of it. The participants were:
Julie Bishop, manager of culinary and wellness trends, Ukrop's Super Markets, Richmond, Va.; Steve Harrold, director of whole health and organics, Caito Foods, Indianapolis; Frank McCarthy, v.p. of marketing, Albert's Organics, Bridgeport, N.J., and director, brand positioning, United Natural Foods, Inc.; Amy Simeri McClellan, market research supervisor, Martin's Supermarkets, South Bend, Ind.; Julie Morgan, national retail marketing manager, Organic Valley Family of Farms, LaFarge, Wis.; Kathryn Peters, v.p., brand marketing, Bi-Lo, LLC, Mauldin, S.C.; Tom Pirovano, director of industry insights, The Nielsen Company, Schaumburg, Ill.; and Rich Savner, director of public affairs and government relations, Pathmark Stores, Carteret, N.J.
Albert's Organics and Organic Valley Family of Farms sponsored the forum, and Nielsen's Pirovano shared new consumer data and insights with the group to spark discussion.
Progressive Grocer: Consumer education is a necessary but challenging component of promoting organics and natural foods in the supermarket industry. What's the best way to educate your customers?
Frank McCarthy: Well, with organics it's very simple, because we have the USDA organic seal. The importance of that designation for the growth of the organic business can't be underestimated. But if you're in the business of selling natural, you have to talk about product category by product category.
Julie Morgan: I think what's really critical, too, with organics is that the retailer is the first line of defense to the consumer. It's important to make sure that retailers are educated on what that organic seal means. At Organic Valley we have a retail education program, which is what a lot of manufacturers have. Retailers seem to really appreciate that aspect -- it's not necessarily marketing or sales, it's just pure education.
Kathryn Peters: As a mainstream retailer we have a varied group of consumers. You can say, "Look for this seal of confidence," with the USDA organic seal. But for some people the healthy choice is going from a full-sugar soda to a diet soda. Then you've got people further up the continuum who say they don't drink sodas anymore. It's a challenge to figure out where in the spectrum you want to go to appeal to your customers, because managing one's health is such an individual decision.
At the same time, it's an incredible opportunity, because a lot of research we have done shows that the retailer has integrity with the consumer that a supplier may or may not have. We have a wonderful opportunity to really help our consumers live better lives and improve their health, but we also have a tremendous responsibility to make sure we're educating them properly and giving them good information.
Rich Savner: I think consumers trust the supermarket, but when something doesn't go right, they also hold you accountable. Our philosophy is, we're not necessarily trying to direct them anywhere, but we want to provide them the information [they need] to make informed choices. And that not only involves the products they buy, but the exercise component in health and wellness as well. It's a larger spectrum, as we view it. But we're trying to sell products, too, right? It's not just the manufacturer.
Amy Simeri McClellan: We try as best we can to be a resource to the consumer. One of the things that Caito Foods did for us is they helped put together a quarterly newsletter for our produce departments, and we talk a lot about organics in that.
We're finding that customers are really interested in learning more. It's about giving your employees the tools to then help the customer, whether that is through the Internet or a kiosk. I wouldn't say that there's one person responsible for health and wellness. It's more of a team effort in getting everyone as educated as we can.
Steve Harrold: Looking at this from the outside -- I was in retail for over 20 years, and have been on the wholesale side for six years -- I think retailers have to decide how they're going to position themselves. But if they don't realize this trend, they're going to miss the boat.
They're the ones who have to decide how they want their customers to perceive them. Do they want to be perceived as a wellness destination -- as a store where shoppers can go to find a lot of healthy products and get educational information? If they think like that, starting at the top and then moving down in the organization, then there's going to be the impetus to educate their employees. Then, as a wholesaler, we can go to our suppliers and say, "Hey, we've got to have more retail-oriented educational information that can be distributed at the retail level, to educate the consumer."
Julie Bishop: Yeah. And going back to what Kathryn said about people being at some point on a health-and-wellness continuum, natural and organic may not be in a lot of our customers' minds. So another way to approach it is to let them know we have pharmacists who are there to help. If you've been diagnosed with high cholesterol or diabetes, you need help with your medication, and our pharmacists can give you that. If you're looking at supplements, we also want [pharmacists] to be the expert in the store. We feel like they have the background to talk to customers with regard to drug interactions and what are the best choices.
At Ukrop's we have natural and organic section managers in the stores. We look to them to answer questions. And we have corporate nutritionists who would kind of be that conduit to make sure the information that's coming out is relevant and correct.
Savner: I agree. I think it has a lot of impact when your customers can speak to someone. Instead of reading and interpreting, they hear it straight from the pharmacist. They hear it straight from your nutritionist or dietitian, which is what we just took onboard last year.
Our in-house dietitian writes a newsletter and sends it out to our loyalty card holders every other month. She also has a piece in the sales circular where we feature five items from our health-and-wellness category. The name of the program is "Healthy Steps."
I think she's an untapped resource who can further interact with the public. She's also been getting into the school systems, because it's so important to start at a younger age.
Peters: We're very similar. You know, we talked about lifestyle gateways. Well, we've really seen that the store gateways are the pharmacy and produce department. We have tremendous equity in our stores with our produce. In addition to providing high-quality produce, we feature a produce expert called Walter who also stands for advocacy and things of that nature. And we have little mascots that are vegetables and fruits that teach kids about healthy eating via produce.
McCarthy: One of the things we did as a way to further educate the frontline retail produce clerks was to develop an "Organic Produce College," which is on our Web site and free. It's available in English and Spanish. It's aimed toward the frontline produce clerk so that he or she can answer questions. It's also an excellent primer on how to manage a produce department. We've had over 2,500 frontline retail produce clerks complete the course.
Peters: We do something similar. Our program is centered on general health advocacy of produce rather than organics, since obviously we're more mainstream. Ours isn't on our Web site, but it is computer-based training.
Not child's play
Progressive Grocer: What are some other ways to reach children and their parents, since that seems to be a very effective starting point for a retailer?
Bishop: Back in the mid-'90s we were doing third-grade store tours for all of the local schools, and as standards of learning got implemented in Virginia, that went away. But given the childhood obesity issue, schools want that again, so we'll bring that program back.
We also educate children with a summer program called "Kids' Cuisine." It's about food preparation, healthy snacking, etc.
Also, groups ask us to come and talk about nutrition. We used to go in with the fat and sodium and cholesterol message, but now the ladies at the church group want to hear about natural and organic, and why they should buy it. So our topics have changed dramatically over the years.
From a consumer's perspective, it's always very interesting. Our dietitian talked with a moms' group of about 40 women who had preschoolers, and she said it was one of the most challenging question-and-answer sessions she had ever endured. These moms are giving their kids everything with whole grain, for example, and it's too much fiber. They're eliminating sugar, [saying that] there's too much sugar in applesauce. These are educated, middle- to upper-income folks, and they're not getting it. They're just going to the extremes.
McCarthy: One of the huge resources available on childhood nutrition is the Produce for Better Health Foundation. They were one of the first groups to identify the issue of childhood obesity, and they have recently redone their whole branding with the "More Matters" tagline.
McClellan: In one of the counties where we have stores, there's a countywide childhood obesity initiative, and they do presentations in the schools to third- and fourth-graders. Each month they pick a different topic, and then they have a person come into our stores and tag special items and put out point-of-sale materials throughout the store. They hand out a scavenger-hunt list to the kids in school, and then the kids can bring that in the store, answer different questions about the products, and drop it off in an entry box. We're seeing really good results with that program.
We also have a clinical coordinator on our pharmacy staff, and we feature a different monthly topic in all of our stores. Customers can come in and take a tour of the store, whether it would be about organics or fat or fiber. Those have been very successful, too.
Progressive Grocer: With corporate health-and-wellness initiatives, should direction come from the top down? Do retailers have to have a health-and-wellness director?
McCarthy: It's a real challenge, because the way conventional supermarkets are set up, they're structured for efficiency. Your typical buyer has 300 or 400 vendors, and he's zipping from the time he gets in until the time he leaves, and he's in competition with other departments. That's totally alien to what the needs of this particular category are. You need a team effort.
Harrold: But I think they need somebody internally. They need a driver in the company who might even have to help some of the higher-ups understand and get them on the bandwagon, because if they don't have that support, it's going to fail.
Aspiring to be healthy
Progressive Grocer: Are consumers willing to pay more for organics?
Savner: Well, it's interesting. Our best store for selling natural and organic foods is in a low-income community -- more so than any other six-figure-income community.
Peters: What has really surprised me is that we've found this is tied to education level, believe it or not.
McCarthy: Yeah, the people who are buying this product are your nurses, social workers, and clergy people.
Peters: Academics, teachers.
McCarthy: There's a very high correlation with education.
Savner: Well, I think in a lower-income community, these folks are aspiring to be more educated and informed, and want to lead a healthy lifestyle. They're willing to spend their hard-earned dollars if they perceive that there's a value in it.
Progressive Grocer: That's fascinating. It would seem to indicate that if there's just a little bit more play-down in terms of price, that could really have an impact on the market, wouldn't you agree?
Peters: We think so. In fact, because we have a very mainstream consumer at Bi-Lo, this is where we believe our corporate brand plays a very strong role with natural and organics. Many mainstream consumers want to eat and live better, but the reality is they're not going to take the extra time to cook their own baby food, so you have to make it simple for them.
At the end of the day, they're time-starved. So if we can make this cost-effective and easy, then we know, all things being equal, that they will tip toward health and wellness if they're educated about it.
Harrold: At Caito Foods we decided we wanted to lower our internal margin on organics, because we want to sell the product -- we want to get it out into the retail outlets. So we've encouraged our retail customers to do the same thing -- to work on lower margins on organics -- because it's a shame to put them on display, put a 30 percent or 40 percent margin on them, and than have them all sit there and go bad because consumers perceive that they're priced too high.
Our stance is that because it's still a small percentage of sales, maybe 3 percent, we want to encourage the retailer to encourage trial. That means lower the retail price and advertise more -- maybe on a daily basis. We're encouraging 15 percent to 20 percent, and then maybe less than that for an ad.
We've got retailers that are doing that. We've got a 50-store chain in Cleveland, Ohio, for instance, that you wouldn't expect to sell a lot of organics, but they sell a tremendous amount because they practice that retail structure. They're building a reputation as the place to go to buy organics, because of the way they have structured their produce pricing.
Progressive Grocer: Which product categories are hottest right now in natural and organics?
Peters: We have a booming natural and organic business, without a doubt. But even more important than categories, we focus on micromarketing, because everything is not the same in all stores.
We have stores with absolutely huge organic/natural sales, and these stores are very micromarketed to those customers. Then we have other stores where, quite honestly, because of turns, we should have a very minimal selection, but we believe we should have some natural, organic representation in every store. The selection is very much scaled back. It's much more focused on private label.
McCarthy: Building on that, one of the things that an Albert's or a Caito's can do for a conventional supermarket chain is manage that process.
Savner: At Pathmark we started to reformat our prototype early last year to include more of the organic and health-related products. I think it's still an evolution for us, but I think, to [Kathryn Peters'] point, you have to really understand your shoppers.
We're a company that likes to test initiatives before we plunge, so in these initial grand reopenings, where we renovated stores and retrofitted them to include an expanded variety of offerings, we want to make sure that we understand what sells and what doesn't sell, which is just as important, and then put the demographics and the psychographics together with that.
Harrold: From a wholesaler's perspective, we can tell what sells by what our retailers are buying from us. As far as produce being the gateway, I think initially a lot of people jump in with too many items. Depending on the store, it's good to be a little conservative when you start, having your basic categories covered and being seasonal with organics -- because that's the best time to promote them.
Salads are by far the No. 1 best-selling item -- in clamshells, as opposed to bags, because they last so much longer. And then people are going to milk. That's why we picked up a dairy program. Frozen is huge, too.
Local foods phenomenon
Progressive Grocer: What do you think about the role of local foods, and how do they tie into the health-and-wellness phenomenon going on?
Morgan: It's gigantic. It's bigger than organics.
McCarthy: Yeah, it's huge.
Peters: Local produce is a huge, huge, huge focus for us. We produce maps for all the stores, showing the location of the local farms we use for produce. This is done a good chunk of the year where we are [the Southeast]. And we show pictures of the farms, telling the story about the growers and the many years we have had relationships with them.
Morgan: We have been required by, I would say, almost half a dozen of our bigger retailers to provide maps of where our plants are, where our farms are, what the story is, and how close their stores are to those farms and producing plants.
I don't get want to get into the whole "Dairy 101" here, but essentially we're a national brand that produces regionally and thinks locally. You know, you have to do that or you can't stay in the game, because consumers want to know, "If it's organic, and you're shipping it here from Chile, what's it all mean? Is that environmentally responsible?"
Harrold: People are starting to ask that question. Tesco has said they're going to provide the carbon footprint for every product that they stock in their stores that they open in California. It will be interesting to see how consumers react to that.
As far as local goes, I think it's going to continue to grow just because people's conscience and consciousness is changing, and they're starting to think about food miles and carbon footprint, and things like that.
But I think the retailers -- and even as a wholesaler if we're buying from local growers -- we have to make sure we're doing our homework so that we're buying from farmers that have good growing practices, especially if we're talking conventional produce. If they're organic, then they're certified.
Savner: In New Jersey, "Jersey Fresh" is a very mature program. I think it's pretty much well known throughout the country. The partnership is not only between the growers and the retailers; the state government is also involved in holding them to standards. There's a banner that we display to show that products are certified as Jersey Fresh.
McCarthy: I would just point out that the viability of locally produced items varies by commodity and by locality. I mean, if you add up all the produce that's grown outside of California, Florida, Michigan, Ohio, and New Jersey, you're probably talking about 3 percent of the total. So it's a nice cachet and it's a nice marketing tool, but as one of my old Florida grower friends said, "'tain't enough to wad a shotgun," in the scheme of things. But it really is a great opportunity for somebody like a dairy farmer who can produce 180 days a year.
Progressive Grocer: Whole Foods and Hannaford are among the supermarket operators that have sought organic certification from Quality Assurance International. Is this something that any of you have looked at doing?
McClellan: We looked into it, but decided that the process was too cumbersome and not as important to our customers.
Harrold: As a wholesaler we did have both of our distribution centers certified organic. We wanted to do that so that we could assure our customer base that we were serious about organics. As far as retailers, we've got a couple of groups that have done this to their stores. Dorothy Lane Markets in Dayton, Ohio have very premier, upscale markets, and they had all three of their stores certified organic. Actually, they had the produce departments certified a few years ago.
The only time it's worth it is if you have a big customer base for organics, plus you're going to promote it throughout the store and in your ads. Everything I've read and experienced is that for most retailers, it's not worth that much right now, because the customer doesn't even know what it means. In the future it could have some merit.
Progressive Grocer: How about in-store health clinics? Looking at the larger wellness component in your stores, is this another way to reach customers with a health-and-wellness message?
Peters: It has been really good for us. Like a pharmacy, it's a different kind of business. You can't look at it, think about it, or evaluate it based on a product line, because you have to build up your following and your base. But we really see it as one more way we can help our customers live better lives.
Harrold: How did you choose the stores that you put them in?
Peters: There were a variety of reasons [for choosing specific stores]. Some of them were just logical, because we were already going to remodel the store. They've been just as successful in more upscale areas. It varies, but sometimes those who are more educated about something may have more trust in it.
Savner: We're about to roll out two in-store clinics in New Jersey. We partner with a group of physicians who run these clinics, but we hadn't put them in our supermarkets yet. So one of the influencing factors for us is the proximity of these stores to the doctors' main practice -- so that if there's a bigger issue involved, the consumer isn't too far from their office.
Peters: We've had some wonderful feedback from consumers who say how great it was for them and their family.
McClellan: We have two clinics that are ready to open.
Progressive Grocer: What are your thoughts on sustainability, or the green movement, going on in the industry? Does this resonate with your shoppers?
McClellan: I think it resonates, but in the Midwest it's still a small percentage of the mainstream. That doesn't mean that it's not going to grow.
We actually used to recycle bags. We had the bins where people would bring plastic bags back, but we got rid of it about four years ago. It was just too labor-intensive, too expensive. I mean, we were paying to recycle everyone's bags in town.
We did catch some flak from consumers when we got rid of that program. But we dealt with those consumers one-on-one, and now we have a bag made from recycled material, which helps. So I think in certain areas like that, yes, they expect it.
Bishop: From our perspective, there's a lot of noise going on about sustainability. Yet I'm not sure that the population really gets it. I think they like the idea of it. There are things that we've been doing all along that they are aware of, but there's so much to talk about with sustainability that it's overwhelming to a customer.
So we decided to pick and choose maybe four or five things that we wanted to highlight. We recycle plastic bags and paper bags. Our central commissary composts all of our fruit and vegetable trimmings, and we sell the compost at the stores. We also donate back at the James River, which runs through Richmond, so that's resonated a lot with the customers in Richmond.
McCarthy: I would add that sustainability is one of the five components of something we call provenance, and that includes authenticity, local, energy efficiency, and carbon footprint. This is something that the core organic consumer is very, very interested in, but what resonates locally is different in every part of the country.
Savner: Sometimes it's picked for us. We live in a very proactive legislative area. Suffolk County, N.Y. wants to pass a ban on plastic bags.
So, from our perspective, we'd like to try to be more proactive to indicate to legislators that we're taking steps on our own. I think we'd rather voluntarily do it than have it mandated.
There's a plastic bag supplier headquartered in Philadelphia, and he's beginning to look at how this could impact his business. He has a program that he's pretty much finalized, and we're going to talk to him about at least testing it.
The hurdle that we've never been able to clear with doing a plastic bag-recycling program is finding how to backhaul it, or who is going to pick it up. This vendor has partnered with Goodwill Industries to come and pick up the product at every one of our stores that we will have it recycled at.
Progressive Grocer: Any closing thoughts on the future of health and wellness?
McCarthy: It's not going to go away.
Harrold: I read an interesting article the other day, where a guy used the word "phenomenon." He said it's happened so fast that everybody has got to keep up with it. Really, it's consumer-driven, and as consumers get more educated, they're going to demand more, and the retailers have to keep up with it or risk sending those customers someplace else.
McCarthy: The simple truth is it's completely predictable. This is the last -- maybe not the last, but the second- or third-to-last -- phenomenon of the baby boomers. Now their life is good, and they want to live forever.
Morgan: Yet really, this has been happening for 20 years. It's not an overnight sensation.
Peters: Also keep in mind that it's the baby boomers' grandkids who are into baby food right now, too. The No. 1 message is it's here to stay.