You are here
Since last October, when Progressive Grocer led an unprecedented health-and-wellness roundtable discussion among industry execs, several related issues have made headlines in the national media that make the roundtable's insights that much more compelling.
In March "Time" magazine published a cover piece on the debate of eating organics vs. local foods (many in the industry would argue, why not embrace both?). Then a recent "BusinessWeek" article asserted that Wal-Mart is backing off from the commitment it made last year to get more heavily into organics. (The retailer tells PG, however, that's not the case, and that instead it's taking a store-by-store merchandising approach based on consumer demand, which is what it intended all along.)
With issues like this at the forefront of consumer debate, the timing seems right to run the second installment of our three-hour, wide-ranging discussion, which focused on organics and the many issues that accompany their growth in the supermarket industry.
The discussion featured the following representatives from top retailers and suppliers, plus organic and consumer experts: David Atkins, director of natural and specialty foods, Giant Eagle, Pittsburgh; Don Clark, director of pharmacy operations, K-VA-T Food Stores, Abingdon, Va.; Paul Howland, buyer/merchandiser, Bashas', Chandler, Ariz.; Odonna Mathews, v.p., Cotandy, Inc. Consumer Communications, Silver Spring, Md. (Mathews was v.p. of consumer affairs with Giant Foods in Washington and the Baltimore area for 28 years); Abby Mullen, vitamin buyers' assistant, Sprouts Farmers Market, Phoenix; Susan Sexton, Living Well Marketing and Education specialist, United Supermarkets, Lubbock, Texas; Tom Arcuri, v.p. of category management, WhiteWave Foods Co., Broomfield, Colo.; Kari Bretschger, representative of Sunkist Nutrition Bureau (Sunkist Growers, Inc.), Sherman Oaks, Calif.; Dr. Julie Jones, consultant in health and nutrition to the California Raisin Marketing Board, Fresno, Calif.; and Joseph Mueller, v.p. of sales in Kellogg Co.'s health and wellness division, Battle Creek, Mich.
The event was sponsored by WhiteWave Foods, California Raisin Marketing Board, Sunkist, Kellogg Co., and Campbell Soup Co.
If you're interested in participating in our 2007 health-and-wellness roundtable, to be held Sept. 27 in Baltimore, please contact Senior Editor Jenny McTaggart at [email protected].
Progressive Grocer: Our exclusive health-and-wellness research reveals that 13 percent of retailers say they still don't carry organics in their stores. The response was driven primarily by smaller operators. Are you seeing more consumer demand for organics in your markets?
Don Clark: We're getting more and more of it. In places like Knoxville, Johnson City, and Kingsport, [Tenn.], there's more of a demand than there is in more of the rural areas. A lot of times it's because in the rural areas, you may grow the produce you consume. But we're getting more and more requests for organic sets, and organic and natural produce. We're doing a lot of business with local organic farmers and people that raise free-range chickens and free-range eggs.
David Atkins: I would say it's definitely becoming more mainstream. In the past year , we've seen an increase in the amount of consumers that are trying natural and organic foods in the stores. We're seeing similar numbers from week to week, which to me is an indication that you're not seeing these huge fluctuations, but rather a consistent demand.
Tom Arcuri: We run numbers every year, and in 2004 61 percent of people fell into a group we call trial consumers, which meant they would spend nothing to maybe $25 a trip. In 2005 the number of trial consumers went down to 55 percent. Those consumers are now spending more on the health-and-wellness products that we've coded specifically -- that's not dairy, that's across the store. So there's definitely a trend of consumers moving from the status of a trial consumer to a more regular consumer, who's spending more per basket on organics or truly natural products.
Kari Bretschger: Tom, do you find in your study that people who buy organic overall have a higher ring at the end of their supermarket shopping experience?
Arcuri: They do, but there's a group we call "committed," which is only about 3 percent of the population, and they spend around $200 or more per basket. That group is certainly focused geographically, primarily on the coasts.
In between, there is the transitional group. They comprise about 30 percent of the population, and they're spending $25 to $150 per basket. The trial consumer is buying primarily produce, and then maybe they jump in on dairy items as they look to buy meal items. Nationally we're seeing about a 6 percent swing of people that go from the trial bucket to the transitional group.
PG: That opportunity brings us to the integrated vs. segregated debate. Are you going to pick up the trial consumer if you only have these products in a separate section?
Susan Sexton: When we first started bringing natural foods in, in west Texas, we were using the store-within-a store concept. We were doing that until about two-and-a-half years ago, when we decided to switch to segregated/integrated. Once we did that, our sales jumped. But we had to educate our customers on how we were doing it. We had maps and shopping lists and everything that you could imagine to transition that core customer to shopping the whole store, but it has worked for us. All the Market Street stores we're building now are segregated/integrated. We do have total integration with ketchup, mustard, and mayo, but we have signage so customers don't miss it if they're looking for it.
Atkins: The vast majority of our stores are segregated, but we're moving toward more of an integrated/segregated approach in a couple of the stores. The trend that we're seeing now is that more and more of those consumers who weren't shopping in natural and organic are now shopping for these items. As a result the ability to convert nonusers to users is greater if we've got integrated sections -- yet we're still having it segregated for those hard-core users to make it as easy as possible for them.
Paul Howland: The challenge I'm finding is that, to me, our foundation is a current user, and you call them a core user. That's our foundation. And they're much farther along the continuum. They want that variety within those natural items, but when you start moving everything over more to an integrated area -- even though it's segregated/integrated -- you're reducing your offerings.
Sexton: We actually expanded our offerings when we did it.
Howland: That's utopia.
Atkins: That's a concern we have with the segregated sets, too. If we continue to see the growth that we're currently experiencing, then we're going to run out of space, because there's only so much space [in the segregated sections]. Whereas if you decide to expand the cereal section to have 20 feet devoted to natural cereal and 56 to conventional, it gives you a little more flexibility.
Howland: Even given that, as soon as that trend stops growing, it's going to be taken right back away.
Odonna Mathews: How do you know it's going to stop?
Howland: That's true. But still, I find it interesting that [United is] getting more SKUs integrated than we did segregated.
The cost factor
PG: How big an issue is pricing, the cost of organics? That's one reason why retailers may not want to have conventional and organic/natural products side by side, because the price-conscious consumer may be turned off.
Arcuri: But the consumer who has a full understanding of why these products cost more may see it differently. When you're asking the general consumer who doesn't understand why an organic or natural product costs more, they say cost is a factor. If manufacturers do their job properly and educate shoppers -- with the help of the retailers -- there will be a different response to the higher price on those products.
Julie Jones: But I think you have to remember that the consumer you're talking about has the ability to choose. If you read the new WIC rules, they're not allowing organic -- at least, they're factored out in the proposal. One of the struggles I have is that I'm passionately committed to getting people to eat more fruits and vegetables, and whole grains. And in both cases, the groups that would, in my view, benefit the most, in terms of the reduction of diabetes, coronary disease, etc., are the ones that you have a difficult time convincing to choose the six cups of fruits and vegetables, because their response is that it's too expensive. I think we need to be aware that the lower-income consumer often doesn't necessarily have the ability to make the choice for the higher price.
PG: How does private label fit into the equation?
Clark: I think whether or not the consumer is going to buy private label organic depends on what standard is put to that private label organic. If you've got somebody who does a good job manufacturing a product and sets a standard that is acceptable to the consumer, then that product will be purchased. If you have something that just says "organic" on it, but is loaded with sodium or sugar or something else, it doesn't fit the same criteria as what it's trying to compete with, and people aren't going to accept it.
Howland: It should fit the same. You have a national brand equivalent, and you have a private label that's going after that.
Clark: Right, and everybody who makes a private label sets the tier of private labels that they want to adhere to. And whether it's an A, B, or C grade, you need to apply the same thing to the organics. If you're committed to organic products, and you don't make your private label organic the same quality as the organic products that your customer is looking for, then you're not going to be able to sell it. It does address the economic issues you have with consumers who normally can't afford these types of products.
Mathews: So maybe we need to look at the marketing of private label and national brands. The study, "Shopping for Health," which was released last May by "Prevention" magazine and the Food Marketing Institute, listed the four top reasons why consumers buy organic foods. Nutritional value is No. 1, followed by freshness. Third was long-term personal health. That's what we're talking about: They feel it's better for them, whether it is or isn't proven.
What's next for organics
PG: What are your thoughts on the future of organics, primarily the supply-and-demand issues?
Arcuri: There are pretty broad organic rules to what an organic farmer is, and there are pretty broad interpretations of those rules. So one thing I would point out, just from my point of view, is that you want to be really cautious of the private label supplier that you choose. You need to do your due diligence so that you feel very comfortable with the organic methods they're using, because there are people out there cutting corners. The way that the government regulates it will hopefully strengthen and become much clearer.
The second issue with supply and demand is there is only so much land available. At the end of the day, whether you're talking dairy or produce, there's only so much land that you can buy and convert in the U.S. So you're going to eventually run out of land, and then you'll have a whole feed issue at the end of the day. There's going to be a real challenge for how we go to market 10 years from now with these products.
Abby Mullen: There's an education piece involved as well. Some people go into this saying you can define free-range cows. Well, is it opening up the fences so they can run around for an hour, or is it that they're roaming around? I think organic consumers have this kind of cozy, fuzzy outlook, based on when the industry started, of these little co-ops. These guidelines came around saying it's better for the environment and the animals are better treated, but it's starting to get lost.
I don't think it's necessarily a bad thing that Wal-Mart and Target are getting into organics. But at the same time, companies need to maintain that integrity, and I think it's going to get lost. I think a year from now if we talk about organics, it's going to be a whole other issue.
PG: Any other opinions or concerns regarding the commitment of Wal-Mart to organics, and how that's going to affect either your own businesses or the industry and movement in general?
Mathews: I think it will be interesting to see how they introduce organics, and whether they'll have any education to go along with that. They have a nutritionist, I'm told.
Mullen: You have to look at the demographics of Wal-Mart customers as well.
Howland: I question whether organics are still going to be there in three years.
Mullen: I don't think there's enough supply.
Howland: From a business point of view, I hope not, because that'll give me a bigger piece of the pie. But in the world view, especially focusing on the sustainability issue and the health of the planet, absolutely I want Wal-Mart to be involved. That's going to help our planet.