CHICAGO -- Traditional supermarkets may be the channel best positioned to benefit from the rapid, mainstream growth of natural and organic foods -- provided they can overcome a few key challenges, according to one industry veteran.
"A good example of [a mainstream consumer] is a soccer mom who thinks very carefully about the products she's buying for meals prepared at home and what goes into her children's lunch boxes," noted Alec Covington, president and chief executive officer of St. Augustine, Fla.-based Tree of Life, a natural and specialty foods distributor. "She's thinking very carefully about the natural, authentic nature of those products and their composition.
"On the other hand, she's not so rigid that she doesn't wheel the kids into McDonald's every now and then on a tight schedule."
Covington spoke at the Institute for International Research's Shopper Insights in Action conference. He was joined on a panel by Robert Vosburgh, editor of SN Whole Health, a Supermarket News quarterly publication, and Matthew Enis, associate editor. David Orgel, SN's editor-in-chief, moderated.
Covington described this "mid-level" customer as one of the fastest-growing consumer groups in health and wellness, a segment holding the best opportunity for retailer involvement. Mid-level customers are generally more convenience-oriented, less likely to shop multiple channels if expectations are met by a single format and may prove to be more accepting of the organic and all-natural brands made by mainstream consumer packaged goods companies, he said.
Conventional retailers should focus on that consumer's total-store experience, rather than on a specific range of products or even a single department, Covington added.
For example, "you may be doing a great job with organics and functional foods but still may not be meeting their needs in terms of supplements," he said, noting that weak variety in some cases had led supermarket customers to shop alternate channels for supplements. "It's tying all of these things together and having balance -- not being overly deep in one area and woefully shy in another -- to meet the needs of those mid-level consumers."
The ranks of this consumer group are growing as natural and organic products gain more and more mainstream credibility. Yet the trend raises several important questions: where are these new consumers learning about these products, and what role should retailers play in that education?
John Mackey, president and chief executive officer of Austin, Texas-based Whole Foods Market stores, argued at his company's annual meeting in April that conventional retailers simply convert new waves of loyal natural grocery channel shoppers by introducing them to these items. If true, the statement should be an obvious cause for concern among retailers as they become more aggressive with these categories.
"Is it the role of the supermarket to educate their consumers in these whole health categories, or is the consumer supposed to get that education elsewhere?" Orgel asked.
Covington offered a positive assessment for mainstream supermarkets, noting that consumers regularly learn from one channel and then freely shop another.
"When I have something at home that I don't know quite how to fix, I go to my local Ace Hardware store and I ask a professional who knows," he said. "But, once I figure it out, if it's something that I buy regularly, then I buy it where I can buy it conveniently and buy it cheaper [like Home Depot]."
In fact, as the popularity of whole health products continues to boom, basic supply chain issues have emerged as some of the biggest challenges ahead. The small, entrepreneurial companies that still dominate the supply side of the business lack the sophisticated manufacturing and logistics systems of major suppliers such as ConAgra, Unilever or Kraft. Their manufacturing may even be outsourced, Covington noted, and inventory planning may be performed by an office clerk.
Only a handful of these companies are on a system that's compliant with Electronic Data Interchange. More significantly, the failure of an organic crop can sometimes wipe out a small company's ability to source raw ingredients for an extended period of time. Conventional supermarkets have felt such a pinch lately as demand for organic milk begins to outstrip supply.
In some cases, these issues can lead to as low as an 87% inbound fill rate from the manufacturing side, "but with mainstream retailing, you're talking about [shelf] real estate that's incredibly expensive," Covington said. "You can't have an empty shelf or an empty spot."
Natural food and specialty grocery distributors such as Tree of Life work to translate that into a 95% to 97% fill rate on the outbound side for conventional supermarket chains, he added.
