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GROCERY: The big thaw

It was a cold, blustery January day with gray skies threatening snow, but inside the Giant Eagle supermarket in Frederick, Md., it was bright and cheerful, with flowers blooming brightly in the floral department, and gondolas of colorful produce welcoming shoppers.

And there, just to the left of the apples and oranges and peppers, was Nature's Basket, a spotless, brightly lit store-within-a-store with signage beckoning shoppers into row after row of organic products, including nine doors of frozens.

A new mom, Kim Pierce, was shopping there, and had already selected a half-gallon of soymilk and a box of Giant Eagle's Nature's Basket private label organic cereal. Then she paused in front of the freezer section, which was filled with orange juice, ice cream, fruits, vegetables, and organic frozen lunch and dinner entrees.

"This is really great," she said. "I like the idea that I can find all of these organic products in one place right here in the supermarket."

New to organics, Pierce was trying to work them into her family's diet as often as she could. "I don't like the idea that so many pesticides and herbicides are used on things we eat," she explained. "But this does cost more."

Pierce's interest in the segment is growing more and more common, which is undoubtedly at least partly why frozen organic products overall reached $75.3 million in sales during the 12 months ended Dec. 25, an increase of 10 percent over the previous year. And according to ACNielsen LabelTrends, those healthy 2004 numbers followed increases of 20 percent in 2003, 20.1 percent in 2002, and 18.8 percent in 2001.

At Giant Eagle the frozen products within the Nature's Basket special section can occupy from five to nine doors, depending on available space.

"We merchandise our Nature's Basket departments to be convenient for our customers who are practicing a natural and organic lifestyle, by both promoting our entire natural and organic product offering in one designated location and merchandising the products in a manner that communicates different meal experiences," explains Giant Eagle spokesman Brian Frey.

In addition to locating natural and organic products within Nature's Basket sections -- in 102 of Giant Eagle's 140 corporate and 81 independently owned and operated stores throughout western Pennsylvania, Ohio, West Virginia, and Maryland -- the grocer also includes organics throughout the stores within their own category sets, says Frey, so that the products are exposed to more shoppers than just those who deliberately seek them out in Nature's Basket.

Sales of natural and organic products, including frozen foods, are growing both at Giant Eagle and across the industry, because of an increased "overall awareness of the benefits of natural and organic food," says David Atkins, director of natural and specialty foods for Giant Eagle.

"People realize that there are health benefits," says Atkins, "but many consumers are surprised that the taste of the product is superior, as well." He cites products from Amy's Kitchen of Santa Rosa, Calif. as examples of a commitment to quality among some manufacturers that has broadened the appeal of organic frozens. "Their products have outstanding taste because they use premium ingredients."

Among the vendor's products carried by Giant Eagle are Amy's Cheese Burritos, Spinach Pockets, Black Bean and Vegetable Burritos, Pizza, Burritos with Beans and Rice, Breakfast Burritos, Cheese Enchiladas, Pocket Vegetable Pot Pie, and Macaroni & Cheese.

While Amy's is given sizeable space in the Nature's Basket section, the Frederick Giant Eagle store also carries frozen products from Seeds of Change, Linda McCartney, Cedar Lane, Vans International, and Ben & Jerry's, among others.

"The trend nationally is that there is a lot of growth in natural and organic products, and we are seeing that across our entire chain," adds Atkins.

Giant Eagle also carries products from Cascadian Farm, part of General Mills' Small Planet Foods. "We have seen very nice growth in Cascadian Farm products since General Mills took over [in 1999]. It is one of our stronger-performing brands throughout the entire Nature's Basket department," says Atkins.

The healthy frozens subsegment has had enough of a track record at Giant Eagle that the chain is relying on POS data to determine its ideal mix of frozen organic and natural products.

"We try to have a good, strong representation of brands and SKUs that the consumer already has expressed, through purchases, that they desire," explains Atkins. Beyond that, the chain's approach is to break the offering down by eating occasion -- breakfast, snacks, lunch, dinner, and dessert.

"We want to have something that will appeal to consumers on as many eating occasions as possible," says Atkins, adding that the company is now looking at such potential opportunities as promoting allergen-free products to meet the growing demand from consumers concerned about the effect of allergens in foods.

Supplier sophisticates

Retailers such as Giant Eagle couldn't make a go of that many doors of organic frozens without the benefit of progress on the vendor end, and the mushrooming of sales in recent years is strong evidence that some organic suppliers are becoming especially adept at helping retailers build a loyal organic-focused consumer following.

Amy's Kitchen is a case in point. It has blossomed into a sophisticated firm with more than 120 organic vegetarian products, mostly frozen. Launched by Rachel and Andy Berliner in 1987 and named after their new daughter, the manufacturer also offers retailers a category-planning tool called MaxFrost.

"The basics include an objective means of segmenting products within a defined space," says Steve Warnert, director of sales and marketing, of the tool. "We use syndicated data from the natural foods industry and the supermarket channel. We have worked with many of the country's top retailers to design and implement smart schematics for natural/organic products across the entire freezer. We offer personalized service for stores and chains of all sizes, from one door to 20 doors."

Warnert says Amy's makes its products completely from scratch, using certified-organic ingredients, including vegetables, grains and fruits grown without pesticides. Fats are used sparingly and selectively; dairy products are made with pasteurized rBST hormone-free milk and don't contain animal enzymes or rennet. No dishes contain meat, fish, poultry, or eggs. Additionally, Amy's products are non-GMO and contain no hydrogenated fats or oils.

The company says its growth closely parallels the growth of the American natural foods marketplace at large, estimated at more than $15 billion in annual retail sales and increasing at a rate of 10 percent to 15 percent per year.

But that growth poses a challenge for a company that requires an almost endless supply of ingredients, all of which must meet its exacting organic standards.

"Many of our ingredients arrive fresh, such as onions, tomatoes and potatoes," explains Warnert. "Our volume, as well as our steady year-over-year growth, provides us an advantage in working with organic growers. We contract well in advance and are willing to pay for quality. Farmers have come to trust that we will be there for them so long as the quality and quantities are what we need. So far, knock on wood, Mother Nature has provided for our needs."

From Warnert's perspective, his brand's double-digit growth in supermarkets owes much to the fact that supermarket operators are increasingly expanding the freezer space they're willing to devote to organics. In addition, supermarkets, he says, are "developing stronger communications campaigns that alert shoppers to organics and their benefits. Add to this the fact that consumers are growing more aware of organics through word of mouth, the new USDA seal, and a steady stream of written press."

Of course, another reason Amy's Kitchen's supermarket accounts have been taking the category more seriously is that they're responding to the larger natural retailers, typified by Whole Foods, that are expanding into most major markets.

Generally, says Warnert, supermarket sales tend to be strongest on items that appeal to the most people, such as pizzas, burritos, enchiladas, and bowl meals, in addition to ethnic offerings such as Mexican and Indian. On the horizon, he predicts, will be new ethnic items, "as well as a new pizza or two."

In addition, Amy's is experiencing success with diet-restricted items that meet the needs of people who are gluten-intolerant or unable to eat dairy. "This is a fast-growing segment," notes Atkins.

The basic and the bold

To maximize sales, Warnert urges retailers to pay attention to the basics, but also not to be afraid to be bold.

"In markets with lots of competition for natural foods, supermarkets have elected to integrate organics within main sections," he says. "Offering bestsellers and pricing them appropriately are key. Supermarkets should work closely with their organic product suppliers to develop promotions and information that will expedite the consumer's trial and awareness.

"Demos can be an effective means of informing and acquainting the shopper with unfamiliar products," adds Warnert. "Finally, supermarkets who commit to organics have benefited from shouting the message rather than hiding the products in a far-off corner. Effective use of signage and devoting ad space are smart ways of attracting the organic shopper."

Warnert points out that organic consumers cross nearly all demographic boundaries but have one thing in common: the desire to be informed.

"They are discriminating shoppers who are concerned about their food and willing to read everything available in order to make the best choices," he notes. "Many are also very attracted by a product's origin, the story of who is making and how the product is made. We call this 'authenticity,' an important part of what contributes to consumer loyalty."

Like Amy's Kitchen, the organic, natural, and specialty food products distributor Tree of Life, Inc., based in St. Augustine, Fla., will offer a new category management tool for its retailer customers, beginning in the second quarter of 2005.

The Tree of Life Smart Assortment program combines several types of data to determine the optimal product assortment, by category, for individual retail store locations, according to the company. The Smart Assortment analysis considers store size, format, location, demographics of the local consumer base, and consumer product sales both regionally and nationally.

"Our goal is to position our distribution network to provide true excellence to our customers in the basic areas of buying, selling, distribution, and stocking," says president and c.e.o. Alec Covington. "The Smart Assortment service allows us to optimize the neighborhood marketing of the rapidly growing natural, organic, specialty, and ethnic food segments."

In addition to its distribution services, Tree of Life also produces its own line of frozen organic fruits and vegetables, ranging from red raspberries to mixed vegetables.

Tree of Life recently entered into new distribution agreements with the Penn Traffic Co. and Coborn's, Inc. The distributor, which serves accounts in the United States and Canada, is a wholly owned subsidiary of Royal Wessanen NV, based in the Netherlands.

Organics in the house

Meanwhile Ahold USA, owned by Ahold of the Netherlands, has just launched a new line of house-brand organic and natural food products, available at both Giant Food, in the Washington, D.C. market area, and Stop & Shop, in New England. Called Nature's Promise, the organic private label line includes frozen spinach, asparagus, broccoli spears, vegetable burgers, and potato steak fries.

Like many store-brand programs, Nature's Promise emphasizes value compared with national brands. "Many customers want to purchase more organic and natural foods, but price has often been a barrier," says Odonna Mathews, Giant's v.p. of consumer affairs. "Our new line of Nature's Promise organic and natural foods offers our customers the opportunity to purchase good-quality natural and organic products at an affordable price, which equates to an outstanding value."

Nature's Promise packaging includes icons that allow shoppers to quickly determine if a product is gluten-free, nut-free, lactose-free, or egg-free without having to spend a lot of time reading listed ingredients, adds Mathews.

According to the Organic Trade Association, based in Greenfield, Mass., the mass market channel, including supermarkets, grocery stores, mass merchandisers, and club stores, accounted for 44 percent of organic sales in 2003.

It's a segment that's clearly expanding, and if retailers pay attention to the basics, as Steve Warnert of Amy's Kitchen advises and as Giant Eagle is clearly doing, organic frozen food products, with their advantages of convenience, good taste, and nutritional value, will be an important part of that growth.
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