Supermarket NONFOODS Business: Natural economics

Natural cosmetics may sound like an oxymoron at first blush, but a growing number of shoppers—almost all of them female—have found their first blush, soap, deodorant, or skin care product that can be naturally good for them.

While specialty retailers have been quick to cater to this growth market and mainstream suppliers are stocking more of the products, most supermarket retailers haven't found room to carry a wide array of natural products. Even if they have stocked the items, retailers have still been slow to convince their most important customers that the supermarket can be a fresh face in the natural products marketplace.

"There's always a little evangelism involved," says Maryellen Molyneaux, president of the Natural Marketing Institute in Harleysville, Pa., which studies this growth market. "Specialty retailers have gotten the message, and they're putting more effort into it."

Supermarkets, Molyneaux notes, have been unnaturally slow. "I believe they've limited their selections to the top sellers instead of merchandising to their consumers," she says. "They go by what's selling rather than by how they are merchandising to this growing group of consumers. They have a chance to say to their customers, 'I care about your health as much as you do.'"

Molyneaux's study indicates that natural and organic product sales are growing at a double-digit rate and that momentum is sustainable for the foreseeable future. "The market was $4.37 billion in 2001 in natural and organic personal care products—skin care, aromatherapy, oral care, hair care, and cosmetics," she says. "The growth from the previous year is about 15 percent across the board. In some categories, it's as high as 20 percent or 25 percent. If you scan the projections for the next five years, they're about the same."

That's because the group most likely to purchase natural products—identified by the Natural Marketing Institute as LOHAS, or Lifestyles of Health and Sustainability—are both clear about their purchasing preferences and willing to spend the money to attain them. The Natural Marketing Institute estimates that market at $226.8 billion across all categories, and it's growing rapidly each year.

"About 30 percent of the people we surveyed identify themselves as LOHAS. They will purchase products across all categories based on how it affects the health of themselves, their family, their community, and their planet," says Molyneaux.

"About eight percent are LOHAS leaders. They're willing to spend 20 percent more for a product that is organic, environmentally safe, and healthy."

The Natural Marketing Institute has just completed a new study that identifies and explains the LOHAS consumer and her wants and needs. According to the report, "These individuals are no longer content with an ample, convenient, low-priced, and diverse supply of goods and services, but instead want to integrate their social, political, and economic values with their actions in the marketplace and the products/services they use."

The study identifies four areas of behavior that the LOHAS consumer has in this natural marketplace:

•Influence: the levels of authority and effect that the LOHAS consumer has over others.

•Brand choice: the association of personal values to purchasing products and the image of the brand itself.

•Behavioral: the willingness of consumers to pay for LOHAS products, vital to giving LOHAS providers the ability to generate an acceptable financial model for long-term viability.

•Personal: other variables that have an impact on the LOHAS market, including "external issues-related" and "internal development-related" factors.

Another survey cited by Molyneaux shows that customers who identify themselves as users of natural personal care products account for 23 percent of shoppers, and those who are organic product users are 16 percent. Those identifying themselves as both represent 28 percent—figures consistent with the Natural Marketing Institute study.

Selling the message

While some traditional HBC companies have labeled their products natural or organic to take advantage of the new wave, companies that have been riding that wave for years are seeing a surge in their products' popularity.

"We've been around since 1979, so we've seen things change. A lot of people are trying to get into the field now. But customers are expecting the new products to live up to the tradition," says Vishnu Eschner, v.p. of Auromere, Inc. in Lodi, Calif. The company has a series of products reflecting ayurvedia, an ancient system of health from India.

"There's been substantial interest in ayurvedia. It's one of the fastest growing segments of the market," Eschner says. "Customers are asking us for skin care, hair care—very personal care items. They're looking for natural fragrances and natural deodorants, soaps."

As a small company, Auromere is looking for a way into the supermarket aisle. "We're looking for partnerships with retailers on advertising and promotion. We want to make the product stand out on the shelf," Eschner says. "We've been working on extended low-price promotions. We think they're the kind of products that once people use them, they are sought after on the shelf."

Another company on the cutting edge of the natural products market for years has been Boulder, Colo.-based Aura Cacia. The company repositioned its natural personal care line in 2001 and introduced new products at the Expo West 2002 show in Anaheim in March.

The message, according to Steve Hughes, c.e.o. of Frontier Natural Brands, which owns the Aura Cacia brand, is that the products are designed to appeal to a customer's need for personal time.

"Not only are we providing people with natural alternatives to synthetic, everyday-use commodities, we are also helping them to discover the myriad benefits of enjoying aromatherapy throughout their daily personal care routine," Hughes says.

The new products include lip care, body bars, a full array of hair care products, and candles, all driven through natural and organic ingredients. "Individuals are looking for ways to avoid chemicals in their home—in food, personal care, or cleaning products—and therefore are choosing natural products and aromatherapy as alternatives," he says.

Strategic thinking

Getting the products to the shelf is one challenge natural products retailers face. It is a matter of strategy, Molyneaux contends, and one that cannot just be an artificial effort. The move toward creating a natural products presence in the store is as organic as the products themselves.

"They should be looking at more than just slapping a few products on the shelf," she says. "It has to be part of an overall branding piece across the store. If it's just a piecemeal effort, I think they'll miss the boat.

"All the research says you have to merchandise the natural products with the conventional products—or a least next to the conventional products," she says. "You have all of these ghettos for natural products instead of making them part of the store. The buyers and merchandisers are letting the distributors run the business.

"The retailers have no idea of the missed business across the whole store," she adds. "The stores that get it right do it across the store, they do it within the conventional product offerings. They don't create a natural products ghetto."

Suppliers should help that process along, Eschner says, by getting the products in the hands of their potential customers any way they can. "The best thing retailers can do is offer demonstration stations," he says. "We've had free sample-size products that have done very well in the stores. We're really trying to extend the brand that way. We've also had testers available on the shelf.

"Another thing that can really expand the market is people allergic to the current products," he adds. "No one is allergic to natural products."

And retailers aren't allergic to the profit potential.
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