Category Report: Healthy Foods

In February, Austin, TX-based Whole Foods announced its plans to acquire its biggest challenger -- Boulder, CO-based Wild Oats. Joined under the Whole Foods banner, the chain now goes head-to-head against conventional grocers, who are increasingly wedging their feet in the health foods door and, in some cases, opening healthy foods stores of their own. Yes, no longer the exclusive domain of specialty grocers, the health food industry -- and its continued double-digit sales increases -- is changing the retail landscape. The U.S. market for natural and organic foods and beverages totaled nearly $28.3 billion in 2005, up 11.9%, according to a report from Rockville, MD-based Packaged Facts, publishing division of MarketResearch.com. The tightly regulated and certified organics segment, which rose 17.2% in 2005, has once again outpaced the more loosely defined "natural" segment, which was up 3.9% from the previous year's estimates by the Greenfield, MA-based Organic Trade Association. But considering the annual growth rate of the conventional food industry is holding at 2% to 4% per year, it's easy to see why both natural and organic companies as well as mainstream marketers are putting so many resources behind this movement.Ted Taft, managing director of Meridian Consulting, Wilton, CT, and many other marketers we spoke with fully support Whole Foods' acquisition of Wild Oats. "It combines the two biggest players in the channel and instead of fighting a two-front war, Whole Foods will now fight a one-front war against the conventional retailers who are trying to create a greater stake in this business," says Taft. "It's a great thing for the industry," adds Sarah Bird, vice president of marketing for Annie's Inc., a brand under Napa, CA.-based Homegrown Naturals. "This enables Whole Foods to be a bigger phenomenon to contend against the big retailers and to continue to set the bar for what the industry should be. As consumers become more aware of what buying organic and natural products means, they're going to begin to put pressure on the grocery retailers to be more true and authentic in giving back the way these companies do."The Mainstream ShiftWhile the Packaged Facts report estimates that the natural foods chains owned a 20-25% share of the natural/organic market, mainstream supermarkets were the leaders with 38%. Independent natural foods stores (26%), mass merchants (4%) and club stores (3%) made up the majority of the rest.It's of note that mainstream grocers, while behind in overall selection, aren't resting on their laurels. Not only are they bringing significantly more products into their traditional stores, but some are also opening dedicated natural foods stores.Supervalu, Minneapolis, began opening Sunflower Market stores last year "to provide customers with great tasting, wholesome foods at affordable prices," says a company release. John Hooley, president of corporate retail for Supervalu, was also quoted as saying, "We will offer customers the convenience of a full shopping experience, with access to natural and organic products in all categories." A "unique merchandising approach" highlights the stores' perishables, including produce, case-ready meats, bakery and deli items.Set to open later this year are Publix GreenWise Markets, standalone stores under the Publix umbrella that will have a stronger focus on natural and organic foods as well as healthy, gourmet prepared foods. "In a traditional Publix, there are only so many SKUs that we can shelve, so we cater to a mix of customers wanting healthy, natural and organic, but also more mainstream as well," says Maria Brous, director of media and community relations for the Lakeland, FL-based Publix. "A standalone format allows us the opportunity to emphasize and focus on the true nature of this lifestyle."While Brous says it's too early to comment on the in-store atmosphere and signage, "There definitely will be more of an opportunity for that focus to be on natural and organic foods," she says, adding that company-approved vendor-supplied P-O-P is accepted in its traditional stores and she expects the same for this format. "We hope to make the Publix GreenWise Market a destination place for shoppers, inviting all the sectors of the community to come, shop, find and discover new things that are on the market."As the Whole Foods-Wild Oats merger suggests, specialty grocers are taking note of the significant inroads made by many of the largest mainstream grocers in the past few years. "Everybody's enamored with what the natural foods retailers have done in the market, but long-term, they have a challenge to maintain their point of difference," says Taft. "It's not enough just having organic product and putting it on the shelves anymore," he continues. "They need to provide an enhanced shopping experience and more nutrition information, and they need to try to stay a step ahead of the other guys who are coming after them."Wholesome EnvironmentGoing forward, Whole Foods will be the retailer everyone watches. It has the luxury, like Trader Joe's and now Sunflower Markets, Publix GreenWise Markets and the like, to create a complete in-store experience for the consumer. And, for now, it has taken the lead. In-store restaurants and wine bars in some of its stores have added a new level of sophistication to the chain, for example."It's experiential, almost like theater," says Robyn Nick, director of communications and cause marketing for Coleman Natural Foods, Golden, CO. "I think you can see the impact on the industry with some of the major changes other retailers are now making by remodeling and rebranding their stores to pay homage to the natural and organic movement." "There isn't a major retailer out there that doesn't say that health and nutrition is one of their major areas," says Karen Mitchell, director of marketing at Concord, MA-based Welch's. "Everyone is saying from a strategic standpoint that health and wellness is at the top and is a very important part of what they see going forward in terms of opportunity."That said, there has been a shift from even a year ago in terms of how the mainstream retailers are merchandising these products. Meridian's Taft believes the trend is moving more toward integration. From a consumer standpoint, it's inevitable, he says, because it's too hard to compare products and prices when they're on two sides of the store."From a retailer standpoint, I think it's also inevitable because the conventional supermarket's point of difference versus Whole Foods is not the breadth of its selection of organic, it's the fact that it has organic plus conventional choices as well," he says.Annie's Bird says she's witnessed a slight move toward more integration, "but there's still a lot of back and forth as to what the ideal solution is on that one," she says. "Ideally we'd rather be integrated in the mainstream set. That's where we're going to get more traffic."Penny Wolfis, senior customer marketing manager for Coleman, says while she still sees both in the meat counter, depending on the retailer, one thing is certain: "We're finding it has become easier for us to obtain shelf space because consumers are demanding it, so the retailers are relenting and having to give up some of the space that was originally allocated to their conventional meat products." Case dividers, rail strips and static clings in a full-service meat case are universal pieces the company uses to merchandise its products.When Odwalla introduced its H2Odwalla enhanced water line at the end of February, it was a new lesson for the marketing team because this product isn't in the company's standalone coolers or the produce section like all its others. H2Odwalla is merchandised in the water aisle."Because it's enhanced water, it makes more sense to put it in that section than in a more organic section," says Chris Brandt, marketing director, adding that a much more traditional media plan was created. Green SubsidiariesThough retailers (think Target's Archer Farms, Safeway's O Organics and others) and many of the larger conventional food companies continue to tap into the healthy foods arena, most of the CPG companies let the natural brands under their umbrella speak for themselves.Coleman owns Hans' sausage and Petaluma Poultry's Rocky, Rocky Jr. (natural poultry) and Rosie organic chicken. "Those are companies that were originally separate and now are under the Coleman banner. Because they grew up within the natural stores, there's a consumer loyalty there, so we merchandise them as their names in Whole Foods and other natural channel stores," says Nick.Coca-Cola's Odwalla, Houston, operates as a very separate company, says Brandt. "Odwalla stands for nutrition more than Coke, and they didn't want to change the culture and passion of what Odwalla stands for. They didn't want the big company to influence what this smaller company -- that has grown like crazy and is certainly in a health space that Coke is not as familiar with -- was doing."Also under Coke's umbrella is Minute Maid orange juice, which launched its Enhanced Juices line in March. According to Alison May, associate brand manager, the company took a different approach for merchandising the three varieties, Heartwise, Active and Multivitamin."These products have a lot of nutrients in them that could be of interest to people who don't normally drink orange juice," she says. "So we're taking an overall store approach: While we're using neck hangers, shelf talkers and banners in the regular section, we're also targeting shelf talkers and freezer decals in other areas of the store."Stone Mill Pale Ale and Wild Hop Lager, new to the Anheuser-Busch portfolio, are brewed under the name Green Valley Brewing Co., an organically certified brewery of St.-Louis-based A-B, located in Merrimack, N.H. "Today's consumer cares about more than just a product's parent company," says Angie Minges, innovation manager. "They care about a product's quality, the ingredients and how it's made. They view the use of different company names for products as a common and widely accepted marketing practice."Reportedly the first nationally distributed organic beer brands, they are supported by shelf wobblers, seed packets, neck tags, coasters, table tents and tap markers. Both come in a 100% post-consumer content recycled paper six-pack carrier and carry the USDA Organic seal on their labels. A Healthy EducationIn-store education has become paramount for both marketers and retailers alike, in part because they need to maintain a point of difference, and also because consumers still have a lot to learn."Consumers are starting to look deeper," says Gwynne Rogers, LOHAS business director for The Natural Marketing Institute in Harleysville, PA. "I see a lot of consumers flipping packages around to read the nutritional ingredients label. Consumers still have a very vague understanding of natural and organic and while they're willing to pay a premium for organic products, they don't have a deep and substantive knowledge of what that means," she says. "At some point, consumers are really going to start questioning what it is that makes these products better, and I think manufacturers need to have an answer ready."Craig Ostbo, principal at Koopman Ostbo Marketing Communications in Portland, OR, suggests in-store materials that attract customers from an appetite standpoint first and then deliver key information. "While that doesn't sound startling, if you go back 10 years, natural and organic companies weren't competing on that level with the mainstream brands," he says. "I think what they're finding now is it's something they can't afford not to do.""As a grocery retailer, education is important to us for our customers," agrees Publix' Brous. "Customers have grown to expect us to continue educating them and anytime we make an investment and put time and resources into a venture, we want to make sure we're doing it right. It has taken us time to develop our standalone concept because we wanted to ensure that we have the most updated information and products that customers are looking for."For products such as Anheuser-Busch's new Redbridge beer, which is wheat- and gluten-free, communicating its ingredients will likely resonate with the 2.2 million Americans who have wheat allergies and have been diagnosed with Celiac disease. Available in health food stores and select restaurants nationwide, it's being supported by shelf wobblers, neck tags, sign-making templates, T-shirts, hats and bottle openers."We clearly state that this is a beer made from sorghum and that it's made without wheat or barley," says Minges. Current policies prohibit the use of the term "gluten-free" on an alcohol beverage label, "but we're permitted to use the phrase 'made without wheat or barley' on the label and with P-O-P and merchandising."Welch's Mitchell says communicating the natural antioxidant capacity of the concord grapes in its 100% Grape Juice is the company's main thrust right now. "We're trying to raise awareness at-shelf of the healthy benefits of concord grapes," says Mitchell, noting that while juices have always been perceived as healthy, consumers have taken a second look at the sugar content and the high carbohydrates in its juice because of fad diets in recent years."There's a big difference between natural sugar and products that have added sugar, corn syrup or sweetener," she says. All in-store pieces, including window banners, neck hangers with instant redeemable coupons, table runners for product demos, case cards and Healthy Heart resource books, communicate not only the product's heart healthy messaging (particularly in February with special events in Wal-Mart, Sam's Club, CVS, Albertsons and Publix, among others) but also the immunity protection it provides."Consumers like what's relevant and new," adds Erin Fray, brand steward for Fantastic World Foods, also part of Homegrown Naturals. "And they are becoming more sophisticated and more educated." The company recently launched a new line of 16 chef-created, all-natural soup cups using recipes from around the world. Approximately 75,000 soup cups were given away through a guerilla marketing campaign in five key markets across the U.S. In-store, the program was supported by shippers.Barbara Katz, president of St. Petersburg, FL-based HealthFocus International, says a trend she sees going forward is the retailer as a gatekeeper for health and nutrition. "Store-level information and advisement on health and nutrition and experiential marketing created by the likes of Whole Foods and Trader Joe's helps customers build a relationship with these retailers. By providing more of these types of products and more information about them, it sort of changes the relationship between the retailer and the consumer."P-O-P Across the ChannelsCreating several merchandising options for all of its retailers to choose from the norm with healthy brands, showing maybe a lack of sophistication with some of these smaller brands. They have neither the budget nor the space. But how much of the P-O-P gets placed is the major variant, and it all depends on the store."We don't do any account-specific P-O-P," says Annie's Bird, "but we have a menu of pieces that are available, so we'll partner with the retailer based on their needs and what we have in our bag of tricks."The natural stores are a bit more flexible in what they'll allow us to do in-store and more willing to have displays," she adds. "They definitely want to control the look of their stores and have a clean store, but we still have some latitude to do case stacks, shippers, etc. -- much more so than we do on the grocery end."Salem, OR-based Kettle Foods also has a menu of merchandising options available for all retailers, says Michelle Peterman, vice president of marketing. "Even for our independents, whatever they feel works best for their stores," she says. "We have vehicles that can scale up or down."One of the most popular is for the company's Kettle brand chips in a 2-ounce bag. "We've developed wooden spinner racks and basket racks," says Peterman. "Natural food retailers love these because they typically have beautiful in-store delis and are looking for a great display right at the point of impulse purchase." "One thing we know from industry research," Peterman says, "is that consumers want to buy more healthful food when they're in the grocery store, and the number one reason they don't convert on that intention is because they can't find it. So retailers that are in synch with that insight will work harder to capture those lost dollars and get the more healthful brands on the floor."Maria Emmer-Aanes, director of marketing for Nature's Path Organic Foods in Richmond, British Columbia, says that over the past year, the company conducted focus groups, consumer research and online surveys to get a better understanding of the consumer mindset."It's changed so much of what we've done in-store because now we're taking all that research into account for everything we do. We're filling their needs based on their terms and not the terms we assumed or forced in the past," Emmer-Aanes says. "If we can demonstrate that we talked to the customer and found out this is what they need and show how that resonates in what we're doing, it's a definite sell for the retailer."

Category Report: Healthy Foods

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