Supermarket GROCERY Business: Organic growth

Organic groceries are growing like weeds, which is good news for the beleaguered supermarket industry. In fact, organic and all-natural products are exhibiting double-digit growth in many categories, far higher than the low single or declining numbers witnessed by their conventional counterparts.

Consumer attitudes about organics have undergone a dramatic change. No longer viewed as just alfalfa and bean sprouts for the hippie set, today's high- and "commercial-quality" organic items can be found in every dry grocery, frozen, and dairy product category. And in a classic win-win situation, growing demand is causing more manufacturers, farmers, and ingredient suppliers to enter the field, increasing sourcing and brand opportunities and driving down prices in the process.

"Organics is a big opportunity for food retailers and also for us processors, because the consumer wants assurance that what they're purchasing is grown and produced without herbicides, antibiotics, and growth hormones that eventually end up in your body," says Jim Kelly, chairman and c.e.o. of Van's International Foods, the Torrance, Calif.-based frozen waffle manufacturer. "We're seeing continuous strong growth in the organics arena."

Van's has offered an organic waffle line for about five years. "Ingredients that used to not be available organic are now available in an organic format," Kelly notes. "More suppliers are doing it, and you can get most of the ingredients in an organic format. You pay a premium, but the premium is less than what it was."

Organic supply chain

"It's not difficult to source organic ingredients, but it does require a bit more diligence on our part to ensure that outside suppliers comply with organic regulations," says Rob Kelly, marketing director at La Tortilla Factory in Santa Rosa, Calif., which has added an organic tortilla to its product mix. "It can be more challenging than sourcing conventional ingredients, but between our purchasing and R & D departments, we've developed strong relationships with organic suppliers who share the same interest with us."

"The popularity of organic foods and the increase in organic foods volume have really strengthened the food supply chain," says Chuck Enderson, president of Country Choice Naturals in Eden Prairie, Minn. Country Choice manufactures a line of certified-organic oat-based cereals, including a new steel-cut oatmeal and six SKUs of instant oatmeal, along with certified-organic cookies and cocoas. "The difference between us and other brands is that all of our products are certified-organic," Enderson says. "And all of our flavors and sweeteners are unprocessed. We use no processed sugar."

Country Choice's instant oatmeal is available in Maple Syrup, Apples 'N Cinnamon, Regular, French Vanilla, Golden Brown Sugar, and a Variety Pack that's modeled after Quaker, H.O., and private label offerings. "We target and pattern more mainstream-type flavors because people are familiar with them," Enderson says. "We provide a choice. If someone wants to buy a product that's organic, they can be assured there are no chemicals or pesticides. Our oatmeal is a food with a pedigree because we know exactly where every one of those ingredients came from."

The fastest-growing organic sector can be found in the dairy case. "When the added growth hormones were approved by the government, that really stimulated the growth of organic dairy," says Gwen Scherer, director of marketing at Boulder, Colo.-based Horizon Organic, a division of Dean Foods. Organic dairy has been growing at 56 percent annually for the past five years, and it's projected to keep growing at 26 percent a year for the next five years, she says.

Horizon Organic expects to help stimulate that growth with new products and package sizes, as well as increased distribution. "Half-gallon milk has really been a focus for us, but the new exciting trend is trying to convert consumers to the gallon size of organic milk," says Scherer, noting that while 70 percent of conventional milk is sold in gallons, 80 percent of organic milk is sold in half-gallons. "We feel it's really important to try and bring that gallon-size option to organic consumers," she says. "It's brought in tremendous category growth and incremental growth where grocers have brought in gallons to supplement half-gallons."

Horizon Organic receives its milk from 300 independent organic dairy farmers across the country. "As we need more supply, we've been able to find farmers that are excited to convert to organic," Scherer says. "It really offers family farms an economically viable way to continue farming."

The company has been branching out into other areas, too. It's launched a line of yogurts that includes tubes, yogurt for babies, and the Yo-Yos brand aimed at kids. Horizon Organic also markets a line of juices. "Moms are looking for ways to provide their families with their favorite foods in an organic option," Scherer observes. "We're trying to continually innovate and bring Mom more choices in organics."

That's why Horizon has entered the baby care aisle with a new line of certified-organic powdered milk-based infant formula that it's marketing on the West Coast. "Our infant formula is the only certified-organic infant formula on the market that meets the FDA requirements for complete infant nutrition for their first 12 months," Scherer says. "We think infant formula is a really big opportunity."

To best capitalize on the organic phenomenon, retailers need to expand their organic offerings. "A grocer should look at it from the 80/20 rule," Scherer says. "The 20 percent of the items in a category that do 80 percent of the volume should be offered in an organic option."

The push to integrate

That brings up the age-old question of where to market those organic items. Should they be integrated into the mainstream groceries or kept in a separate organic section? "We've come to the conclusion that if the store does a really nice job with fixtures and staffing and having it in a section of the store with a lot of foot traffic, then the store-within-a-store concept can work," says Andy Berliner, president of Amy's Kitchen in Petaluma, Calif. That's the way Wegmans, Kroger, and some other astute retailers market their organics. "But a lot of people don't do it that way," Berliner continues. "They kind of stick it in a corner and say, 'This is the natural food corner.' There's not much signage, and that doesn't work. It's kind of like a dust collector."

The other option is to integrate the organics into the mainstream groceries. That approach also has legs, Berliner says, but it has to be executed well, using signage, awnings, banners, and shelf danglers to call attention to the organic items. "Even though our canned soups are right next to Campbell's, if there's a sign letting you know this is a natural/organics section, that works really well, too," says Berliner, noting that Amy's now has the No. 1 brand of canned organic soup.

In the natural and organics channel, instant soups are also very popular. Annie Chun's has just introduced a line of all-natural FreshPak noodle meals in revolutionary Bio Bowls. The biodegradable bowls are made primarily from cornstarch, and both the bowl and the lid decompose into the soil with no harm to the earth. "It's a higher expense, but it's the feeling and nature of the company to make it a little bit easier for the next generation," says Steve Broad, president of Annie Chun's, Inc. in San Rafael, Calif. and Annie Chun's husband.

Magnificent miso

The FreshPak Noodle Bio Bowls are available in Miso Soup with Tofu and Scallion, Udon Soup with Tofu and Spinach, and Teriyaki Noodle Bowl varieties. "Our miso paste in the bowl is better than what you would get in a Japanese restaurant," Broad says. "The dehydrated topping is freeze-dried, not air-dried like some others. We don't have diced spinach, but more fuller pieces. We offer a different flavor experience, and we're having great results."

Amy's has been wildly successful in the frozen pizza business. "One leading Southeastern chain has had our pizzas in the pizza section for several years,and it's performing very well," Berliner says. "Our spinach pizza is our No. 1 seller, and it's No. 18 out of the 200 pizza SKUs that they carry. We outsell eight of nine Stouffer's, all of the Freschetta, all of California Pizza Kitchen, 16 of 24 Di Giorno, and 13 of 17 Tombstone."

It helps that in this chain Amy's pizzas are merchandised with their mainstream counterparts instead of behind the organic doors down the aisle. "We haven't really pushed the pizzas in the pizza section, but we're starting to now," Berliner says. "What that does is open up more space in the natural/organics door, and they're performing so well that they deserve to be there with the other pizzas."

The supermarket industry also needs to overcome its preconceived notions of where organic foods will sell. They're usually placed in suburban flagship stores and not in inner-city locations. That's a major mistake, according to Berliner.

"Where the product is available to people who are of a lower demographic income level, but at a more affordable price, the product will sell very well," he notes. "We have a lot less distribution in stores that appeal to a lower-income level, but where we do, we do surprisingly well."

That includes stores operated by the Grocery Outlet chain, where Amy's is one of the company's few everyday items. "Like everyone, we would sell them overstocks," Berliner says. "But we would have these long gaps when we didn't have anything for them. They called us and said they were getting customer complaints that they didn't have any Amy's in the store. So they started stocking a few of our pizzas at a price point they never wanted to play with before, and it's selling really well. They're our best customer as far as sales per store in the United States."

There's another channel where Amy's does phenomenally well -- college campus convenience stores. "Our products are in great demand on college campuses," Berliner says. "Many have convenience stores that work with the student union. Amy's is just flying in those environments."

And since those college kids are tomorrow's supermarket shoppers, retailers would be wise to take a refresher course: Organics Marketing 101.
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