COVER STORY: Executive Insight Series: Health & Wellness: Making it fit

Just as many consumers are taking steps to improve their health, so too are supermarkets taking steps to address shoppers’ concerns about making healthy food choices. Indeed, as the words "obesity," "organic," and "wellness" have grabbed many news headlines in the past few years, the health-and-wellness movement has also muscled its way into the list of the food industry’s top concerns.

Yet concern without execution will only go so far, and therein lies the challenge. To measure the industry's progress -- and at the same time identify where opportunities still lie -- Progressive Grocer went straight to retailers, both large and small, to unearth what they're doing in (and outside) their stores to communicate with shoppers about health issues and serve their needs with products and programs.

The retailers especially zeroed in on some hard-hitting issues surrounding organic foods, including pricing, placement, and the future of supply and demand.

Most of the findings from the survey research aren't shocking, and seem to align with general expectations of what the current state of the market is. Produce is still the top-selling department for organics, for instance. However, the data does throw some curves. Take, for example, the fact that 13.1 percent of retail respondents say they still don't carry organic products in their stores. "Our customers aren't ready for it," one retailer says. "Customers make jokes about those who buy organic," notes another.

Bear in mind, though, that the 13.1 percent figure is driven primarily by smaller operators, as 18.8 percent of respondents representing one to 10 stores don't carry organics, compared with only 3.5 percent among chains with more than 10 stores.

There's no doubt that our retailer research, as well as the growing body of consumer research on the market, show there's robustly growing demand for organic foods across the country, from coastal cities to small Midwestern towns.

The tide is turning fairly quickly. Several respondents noted that they'd tried selling organics in the past, but at the time there was a lack of demand, or they didn't have the space in their stores to make a mark. Others complained that their wholesalers didn't carry organics. They didn't say, however, whether they'd made an investment in educating their shoppers with sampling, trial promotions, or other means.

The research also reveals some important areas of opportunity for retailers. Chief among them: 60.7 percent of respondents don't carry private label organic products. Since cost to consumers is still a barrier to organic sales, a store-brand program based on more moderate pricing promises strong growth potential. In fact, the majority of retailers carrying private label organics report that 10 percent to 20 percent of their total organic sales come from private label items.

Star power

After consuming the heap of health-and-wellness information in the media, retailers themselves might feel tempted to go on a diet. Deciding which consumer issues related to the topic are the most important seems to be a job in itself.

In the survey 30.4 percent of all retailers rank trans fats as one of their customers' top concerns. Chain store operators ranked sugar content as a major concern, actually more so than trans fats. Sodium content was another important issue that made the list of consumer issues, followed by gluten-free diets.

Childhood obesity is of particular concern among all retailers. While they recognize the importance of parental influence, 76 percent agree that changes should be made in vendor marketing practices aimed at kids. They also admit to the need for more education at the store level, particularly aimed toward parents. One retailer suggests the idea of having a "Healthy Kids Day."

Retailers are using a number of tools to promote health-related products in their stores, the study shows. The majority (71.4 percent) use signage, and another big chunk of retailers (61.9 percent) create special sections in their stores (see Fig. 2). Shelf tags are also becoming a more popular tool for those retailers that can weather the logistics and labor involved. Other mentions include in-store kiosks, seminars and in-store tours for customers, on-staff dietitians, sampling, and even road shows.

The most commonly used method for promotion involves shelf tags that designate products as organic or natural, or, at a more advanced level, as heart-healthy, suitable for diabetics, and so on. Specific colors and symbols are often used so that consumers can easily recognize them.

Matthews, N.C.-based Harris Teeter; Richmond, Va.-based Ukrop's Super Markets; and Lubbock, Texas-based United Supermarkets are among the retailers that have used such detailed product-tagging systems in their stores. In many cases, retailers are bringing in dietitians or nutritionists to spearhead such programs.

Hannaford Bros. Co., the Delhaize-owned regional chain based in Scarborough, Maine, recently introduced a more groundbreaking, and potentially controversial, system. Called "Guiding Stars," the program features a ranking of one, two, or three stars to designate a product's level of nutritional value.

The chain is applying it to 27,000-plus edible items, under all brands. It stands as the most ambitious program yet by a grocer to offer simple, actionable information to shoppers at the shelf.

The scoring system is based on a proprietary formula created by a board of scientific advisers, and aligns with the federal government's dietary guidelines. Foods are credited for attributes such as minerals, vitamins, dietary fiber, and whole grains, and debited for trans fats, saturated fats, cholesterol, added sugars, and added sodium.

Beyond visual in-store aids, a growing number of retailers are looking to their employees to act as aides by helping to answer shoppers' questions about healthy foods.

But there's still plenty of room to grow in this area. Just over 73 percent of respondents admitted that they don't provide training for in-store employees on how to sell healthy products. Of those who do provide this type of training, the overwhelming majority (87.5 percent) use in-house employees. Other sources include third parties or vendors, computer-based training, and classroom instruction.

Merchandising debates

Retailers are apparently still mixed on what the best ways are to position and price organics.

Dairy and center store are areas more likely to have integrated sets with organics and nonorganics from the same categories together, while meat and produce departments are more likely to segregate organic items.

As for pricing, retailers say their standard markup for organic products is in the 30 percent range, while the markup for mainstream products typically falls in the high 20 percent range. Most retailers expect their markup rate to remain the same next year.

For sourcing organics, a slight majority of retailers (54.8 percent) say that they depend on specialty distributors. They also go direct to mainstream manufacturers for some organic products. But looking ahead, more retailers say they expect to buy directly from specialty manufacturers, local farmers, and specialty wholesalers in the future.

Sourcing will undoubtedly play a big role in the success of organics moving forward, and retailers admit that they're concerned about supply shortages and availability in specific regions.

But they strongly expect the factor that will have the biggest impact on the organics category in their stores to be pricing, the survey shows. Wal-Mart is also a major concern, more so with chains than with independents. Ultimately those two concerns will likely merge as Wal-Mart uses its purchasing power to cut deals with conventional and specialty suppliers. The retailer has already leapt into the organic private label arena by testing organic milk under its Great Value brand.
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