From The Fall 2002 Issue of Natural Grocery Buyer

Naturals, Organics Create Healthy Sales and Image

Connie Guiglielmo

Customers for organic and natural products don't grow on trees—you have to cultivate them, say industry experts and retailers who've learned the hard way what works and what doesn't.

Although that cultivation can be a time-consuming, labor-intensive process, retailers who do take the time to truly understand the organic foods marketplace—and the well-heeled, well-educated consumers who make up its core customer base—likely will enjoy a big payoff in the long run.

How big? Retail sales of organic products in the United States are booming. While the rest of the food industry has grown 1 percent or less annually in the last 10 years, retail sales of organic products have grown more than 20 percent during the same period, industry analysts say. In fact, the Organic Trade Association pegs that growth at nearly 23 percent each year during the last decade and says retail sales of organic products were $9.3 billion in 2001—representing about 2 percent of all food sales. By 2005, retail organic sales are expected to reach nearly $20 billion.

"That's the only growth that's happening in the industry right now," says Mark Mulcahy, owner and founder of Organic Options, an organic education and consulting firm in Glen Ellen, Calif. "And given the trends and people's interest in organics, the numbers have nowhere to go but up."

The rapid growth hasn't escaped the notice of grocers big and small. Safeway has started opening some natural stores-within-stores, with as many as 1,500 SKUs in the organic and natural foods categories, says corporate spokesman Greg TenEyck. Smaller grocery chains looking for a competitive edge in a marketplace where many simply compete on price are turning to organic and natural products as a way to differentiate themselves to consumers.

"There's an opportunity for retailers to be proactive and say, 'We are the center for your favorite organic product,'" says Phil Lempert, a Santa Monica, Calif.-based industry expert on new marketing trends and products in the food industry who is known as the Supermarket Guru. "Even if consumers are not interested in buying organic products, the message the supermarket puts out is that it cares about your health and wellness and wants to offer you choices."

And yet, a growing number of health-conscious consumers are interested in buying organic. Almost one-third of the U.S. population already buys organically grown foods, according to a profile of the organic consumer put together by Bellevue, Wash.-based The Hartman Group in January 2000. Another 60 percent that don't buy organic say they are willing to try it, with fresh fruit, vegetables, cereals and grains topping the list of organic foods that interest them most.

The leading buyers are between the ages of 45 and 54, the largest consumer group in America. They are well-educated; organic consumers are 25 percent more likely to have a bachelor's or postgraduate degree, according to the Natural Marketing Institute. "Core support for organics is strongest among affluent, educated, health-conscious consumers," the U.S. Department of Agriculture noted in a June 2000 report. "The motivations that first drew them to organics, such as concern for the environment and their personal health, are likely to endure."

And what those "time-pressed organic products consumers" want, the USDA notes, is "convenience and variety. Mainstream retailers who want to meet consumers' preferences for one-stop shopping will require a steady and reliable supply of organic products."

Yet, less than half of all U.S. supermarkets carry organic products, the OTA says.

That doesn't surprise Lempert. Selling organics is not easy. "You can't just pile it high and sell it cheap," he says. "You can't con these consumers, and it's not enough to just stock products and say, 'OK, we offer organics.' Job No. 1 is building a relationship with the consumer, and that comes through education. The interrelationship between food and health is based on education."

Organic products have been sold in supermarkets for a long time, Lempert adds. But those retailers who have been successful—including specialty foods chains such as Whole Foods Market Inc. and Wild Oats Markets Inc.—are those that have "gotten behind it and stressed the differences between organic and other products. That's the key to success," he says.

Add to that a companywide commitment to making organic products a meaningful part of the store mix, both in terms of shelf and floor space and in advertising and marketing budgets, says Michael Langenborg, chief strategist for Santa Rosa, Calif.-based Natural Planograms, a firm that offers retailers category management programs. "The retailer needs to take a responsibility in the marketing and the creation of demand" for organic goods, he says, noting that few if any organic companies have the brand recognition or the marketing might to promote their brands like the major packaged goods companies.

"The mass-market retailers are used to manufacturers establishing some level of demand for their products," Langenborg says. However, "when the natural foods people come up and say, 'Taste our product, it tastes so much better' or 'It's sustainable,' the retailers don't know how to respond to that. They don't know how to merchandise it."

On The Front Lines
That comes as no surprise to retailers like J.B. Pratt, president and CEO of Pratt Foods, a six-store grocery chain based in Shawnee, Okla. For nearly two decades, Pratt has been an organic retailing pioneer, working steadily to introduce consumers to organic products through his chain of supermarkets. His efforts started in 1989 with a "store outside a store" concept called Enviromarket, which consisted of trailers stocked with earth-friendly products, situated at the front of two of his supermarkets in Oklahoma City. All of the products stocked in the outside markets eventually moved to Wellmarkets inside Pratt Foods stores in Oklahoma City, Shawnee and Norman, and the Enviromarkets were shut down.

During the past decade, Pratt Foods has made health and wellness a part of its corporate culture. It's taken dedication and commitment, Pratt says. Pratt Foods stores stock a good selection of organic foods and promote those offerings in the stores and in the community through outreach and education programs. The stores are staffed with knowledgeable employees who can answer consumers' questions about the differences between organic products, as well as between organic and nonorganic products.

Pratt Foods also relies on sampling—having customers taste the differences between organic and conventional products—and in-store promotions, such as the signs and articles that point out the benefits of certain products. This literature is placed as close to the point of sale as possible.

But it hasn't all been a success, and Pratt admits organics don't sell at every store. "I've put it in stores where it just didn't sell. Here we are in the midst of an area that is educationally and economically deprived, even in good times. Part of it was an income thing, a cultural thing and educational thing," he says.

Segmenting organic offerings hasn't worked either. Organic foods and supplements are still viewed by many consumers as something akin to "voodoo," he says, only half joking. That's why visitors to Pratt's supermarkets will find organic products featured side by side with traditional products on store shelves and in the produce section. That integration, Pratt says, is about giving consumers choices, "about educating consumers and telling them what are organically grown foods and what are the positives. It's up to them to decide what they want to buy, but we want to offer them a choice."

In May 2001, Pratt made his biggest gamble on the organic industry yet, opening the largest organic market in Oklahoma. But the economy slumped after Sept. 11 and shoppers returned to their tried-and-true stores; Pratt closed the Edmond, Okla., Wellmarket in December. "The fact that we've come so far with organic and natural foods is a testament to the consumer. And the loyalty you can get from those consumers when you offer them choices is what keeps us going."

Invest In Customer Loyalty
It's that customer loyalty that has also helped supermarket chains such as Coborn's Inc., which operates Cash Wise Foods and Coborn's stores in Minnesota, North Dakota and South Dakota, see their organic programs become a success. Although organic products account for just 1.5 percent to 2 percent of total store sales, Jane Pryor, a merchandiser who helped the family-run chain set up its Natural Food Section store-within-a-store seven years ago, says organic products sales have grown a minimum of 20 percent annually. "We've done nothing less than a 30 percent increase every week this month," says Pryor, who has now helped the chain open organic stores-within-a-store at 14 of its 26 outlets.

The majority of the company's organic sales are to consumers who are specifically looking for organic and natural products. Pryor acknowledges that few of the stores' regular customers wander into the organic section. Still, having the store-within-a-store is part of the company's mission to be a one-stop shop for all its consumers. "What we find is that organic customers will come in and spend $40 every week in our section, but then spend the other $100 shopping at our other store departments. For us, it's all about keeping it under one roof."

Despite the great growth and high level of customer interest, introducing organic products into the Coborn's store mix hasn't been an easy job, even with top-level company support. "I had to listen to the [information technology] department complain every single week for four years because they couldn't believe the new products we were adding to the system," Pryor says. "But I said if you don't add new products, you don't stay current and you don't add new customers."

Pryor says Coborn's ongoing success is a testament to its dedicated and well-trained staff that supports the organic sections. "We have good natural foods managers and always have someone here to answer questions," she says. "Customers can get their questions answered from 9 a.m. to 8 p.m. five days per week, and until 5:30 p.m. on weekends."

Coborn's banks on top-flight customer service. If it doesn't have an organic product the consumer wants, the store will order it. "Our growth has been one customer at a time, and it's been that way at all of our stores," Pryor says. "These are customers who know what they want. A lot of [other stores] take a cookie-cutter approach. They think if you have the façade—we stock organic products—that's enough. There's no cheap fix."

"If you want the return, you have to make the investment," says Organic Options' Mulcahy. "Organics will never be more than 1 percent or 1.5 percent of your store sales if you don't promote organics, educate your staff and give customers an option to make a knowledgeable food choice. It's not going to happen overnight."

Connie Guiglielmo is a freelance writer, editor and novelist in Los Altos, Calif. She can be reached at acmewriter@aol.com.