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COMMODITIZED NATURALS NEED SMART PRICING

For most supermarket retailers, natural/organics are classified as specialty foods. From an operational standpoint, it is completely logical that the categories would be managed together. Both come through DSD channels. Both are relative newcomers to the supermarket environment. Both are dynamically fluid categories; historically, they both attract consumers with similar demographic profiles. Plus,

For most supermarket retailers, natural/organics are classified as specialty foods. From an operational standpoint, it is completely logical that the categories would be managed together. Both come through DSD channels. Both are relative newcomers to the supermarket environment. Both are dynamically fluid categories; historically, they both attract consumers with similar demographic profiles. Plus, both represent a relatively small percentage of overall sales. Because natural/organic items fall under the specialty foods umbrella, they are subject to specialty foods' margin requirements, typically higher than their conventional counterparts.

It is important for retailers to understand that, while it may be convenient to fold natural/organic into specialty, these categories can be vastly different in their consumers' minds. In many cases, core organic items have become commoditized, as evidenced by their explosive growth over the past decade. It is predicted that organic will continue to grow at its current rate of more than 20% annually through at least 2009, with key categories and core group items significantly outpacing even that rate.

Perhaps the most common mistake that we at The Tice-Genuardi Group witness is our retail supermarket clients' failure to recognize who their main competition is for the natural/organic shopper's dollar. Most often, they compare their programs to the other supermarkets in their trade area. Regarding natural and organic, the best-kept secret is that Whole Foods has the best prices in town. Fortunately, for the supermarket industry, consumers perceive Whole Foods as a high-price format, and they expect to pay more for everything they buy there. While it's true that a week's worth of groceries from Whole Foods will cost more than a comparable amount from a conventional grocery store, a comparison of like items, SKU for SKU, will show that Whole Foods is aggressively priced. The dedicated natural foods shopper has figured this out, but the transitional shopper, currently estimated to be approximately 85% of consumers who are involved in shopping naturals and organics, has not. It is this subgroup that represents the best opportunity for continued growth of the category, both for supermarkets and niche markets.

Supermarkets have the competitive edge in retaining the transitional shopper largely as a result of convenience. Only the most dedicated natural shopper will be able to have all of his needs met in a niche market. The transitional shopper, on the other hand, wants to continue to shop exclusively in his supermarket. He will do so as long as his assortment needs are met, and he is not driven to shop in another market as a result of high prices on his commodity natural/organic items.

Expertise is essential here, and requires being able to identify key segments and core group items, as well as having sufficient category experience for determining what the consumer perceives as fair pricing. This is a clear departure from pricing strategies for the specialty category. Remember that for transitional shoppers, key organic items have replaced their conventional counterpoints as everyday products.

Cynthia Tice is senior partner of The Tice-Genuardi Group, a Cherry Hill, N.J., consulting firm specializing in the category management, marketing, positioning and branding of whole health departments and products.