From The Summer 2005 Issue of Natural Grocery Buyer

Safeway focuses on freshness

Kelly Pate Dwyer

One sign reads, “Fresh from the fields.” Another says, “Vegetables—Local Growers.” And banners with the word organic mark crates overflowing with strawberries, kiwis, four kinds of lettuce, even bags of organic cashews and salad croutons.

This is not a farmers’ market. It’s a remodeled and restocked Safeway “Lifestyle Store” in one of Denver’s most economically diverse neighborhoods, and it’s the latest design for the Pleasanton, Calif., grocer’s stores nationwide.

Supermarkets have been working over their perishables departments for years. They’re adding prepared meals for the time-starved, improving selection, lighting and displays, and adding high-quality items—such as imported cheeses and fresh-baked artisan breads—to give customers reasons to shop their stores instead of low-priced supercenters.

Safeway launched its $100 million ad campaign in April, touting “Ingredients for Life.” By the end of 2005, Safeway will have remodeled or opened 442 stores in the lifestyle format.

Organics are an increasingly significant component of grocers’ produce, dairy and meat departments.

“The request [for organics] is very strong,” says Teena Massingill, manager of corporate public affairs for Safeway. “This is basic Business 101. When your customer demands something, you move heaven and earth to provide it to them.”

Traditional stores are forecasted to grab more than 50 percent of the organic industry’s sales this year—mostly from produce. That’s up from a 30 percent share in 2000, according to Harleysville, Pa.-based Natural Marketing Institute. Total organic food and beverage sales reached $10.9 billion in 2004, up 18 percent from 2003. At that rate, sales will top $15 billion in 2007.

Consumers are paying more attention to their health. They want fresh food, and they’re learning that organic is no longer the fringe category of wheatgrass juice or bruised bananas, but “real” food before antibiotics, hormones, artificial preservatives, chemicals and pesticides get in it or on it.

In fact, 56 percent of organic consumption comes not from zealous, drum-beating health nuts, but a 16.7 percent slice of the general population—moderates when it comes to nutritional awareness and brand image, says NMI managing partner Steve French.

Organics are increasingly linked to quality in consumers’ minds. “The consumer composition of those buying organics has moved from Birkenstocks to BMWs,” French says.

“A good analogy is kosher,” he says. “It’s not only relevant to a Jewish population. It has this aura of quality about it. Even if consumers don’t totally understand what these natural and organic products are, they still do associate [them] with this aura of quality and freshness.”

That’s different from a decade ago, in part because the quality and distribution of organics have improved, he says.

Not coincidentally, organics—because of raw materials and indirect distribution—cost more than their conventional counterparts, a fact that poses a challenge for traditional grocers. They need to make a higher margin on organics because they don’t sell as much of them. And they don’t sell as much because of the higher prices.

Consequently, many shoppers buy some groceries at traditional stores and others at natural foods stores.

Safeway is banking on the competitive prices of its nonorganic items to make up for sometimes higher-priced organics.

“In general, our customers are looking at the overall value of everything that they’re purchasing,” Massingill says, adding that consumers want the convenience of one shopping trip.

“If [mainstream grocers] can get enough selection in their stores to prohibit multi-channel shopping, they’ve achieved what they’re trying to do on their end,” French says.

Lifestyle changes are driving more consumers to fresh, or what they perceive to be fresh, products, including organics, says Blanca Hernandez, marketing manager for Bellevue, Wash.-based The Hartman Group.

“There’s a global trend toward better quality of life,” she says.

In a study of consumer behavior, Hartman found shoppers rated taste better for a certain juice stocked in produce than shoppers who sampled the same juice from the dairy case. Likewise, shelf-stable soymilks from the dairy case scored higher than the same soy shelved on a center-store aisle.

“In perishables, people are seeking things that are … better tasting, more real,” Hernandez says. “Organic and natural foods fall in line with that quality goal. [Shoppers] might buy organic without knowing specifically the organic process, but they’re buying it believing it’s better for them.”

Hartman has sorted Americans’ grocery trips into 11 categories. Beyond the obvious weekly stock-ups, after-work runs for dinner and a few other items, and the emergency trip—for medicine or a missing ingredient—there are many other specific motivations. People head to the store to buy ingredients for one special meal (47 percent of shoppers interviewed did this in the prior month); to eat a meal in the store (19 percent); or to work or relax in the store’s café (21 percent).

In many of these trips, people are seeking quality—be it quality of food, experience or community, Hernandez says.

Walk into a new Safeway and that’s exactly what you get. The left door drops you into the market-style produce and floral areas. You’re already in the deli when you enter on the right. An employee may be sampling the store’s focaccia panini sandwiches or an aged havarti cheese. Straight ahead is the soup bar—served hot from the cauldrons or pre-packaged to go.

Walking into that Denver Safeway for the first time since the remodel, shopper Mandy Nunes, 29, seems impressed with the new look, but she doesn’t expect to buy organics. She shops Costco and Safeway for most of her groceries, then visits Wild Oats or Whole Foods to buy organic vegetables and soy yogurt for her 2-year-old son.

“They have such a small selection,” she says of Safeway’s organics.

Her mind changes when she actually makes it to produce. “I’m really impressed with this store,” Nunes says, picking up both organic eggs and organic bagged salad. This Safeway stocks her son’s soy yogurt, although she notes it is priced higher than at Whole Foods.

In large part, mainstream grocers have taken a lead from their natural food counterparts like Whole Foods, not only adopting certain products and merchandising techniques, but creating a comfortable environment—with finished concrete or wood floors, high ceilings and soft lighting.

Traditional grocers “are struggling to show 1 percent same-store sales growth and here Whole Foods is showing 10 and 12 percent same-store sales growth rates,” says Jim Hertel, senior vice president of Barrington, Ill.-based Bishop Consulting. “All of sudden it’s like, ‘This has got to be something we’re going to take a look at.’”

Several other mainstream chains are putting perishables front and center and creating a market-style environment. Wegmans of Rochester, N.Y., is expanding into upscale East Coast neighborhoods with added emphasis on produce and prepared foods. The stores carry more organics, have a warehouse feel and avoid traditional price and item advertising.

Indianapolis-based Marsh Supermarkets owns an eight-store chain, O’Malia’s, which caters to foodies with gourmet, locally produced and natural and organic foods.

San Antonio-based H-E-B’s upscale concept, Central Market, boasts a giant seafood case and lots of local produce. “They’ll tell you about it in a way only Texans can,” Hertel says. “You’ll walk in there and see these gorgeous sweet onions. These are Texas-grown sweet onions. They’ll tell you where they come from, where they were grown, under what conditions. ... You’d think you were buying wine.”

Kelly Pate Dwyer is a Denver-based writer. Contact her at kpdwyer@yahoo.com.