Retailers develop their own rescue plans to lighten the recession’s toll on wellness sales
IT WAS LAST AUTUMN WHEN EXECUTIVES AT FRESH & EASY Neighborhood Market felt a tremor, but it wasn't an earthquake. The El Segundo, Calif.-based retailer was experiencing consumer fallout from the collapse of the banking, housing and credit markets. Throughout the chain's 107 stores, shoppers were causing spikes in the sale of canned foods, especially fruits and vegetables.
“What we've seen is a lot more customers focused on getting quality items at affordable prices,” said Brendan Wonnacott, a Fresh & Easy spokesperson.
Supermarkets across the country were noticing the same thing. According to The Nielsen Co., sales of canned and frozen vegetables last year rose 9% and 7%, respectively. Receipts for bulk rice shot up a whopping 38%. In a telling detail, researchers found that sales of canning and freezing supplies increased almost 10%.
“Consumers are now growing and storing their own foods, as well as cooking from scratch rather than buying more expensive prepared convenience foods,” the Nielsen report stated.
Recessions are generally considered a boon to the supermarket industry. Huge swaths of consumers put off buying new cars, keep the vacations simple and cancel their restaurant reservations. But they still shop for food. Statistics from the U.S. Census Bureau show that sales at the nation's supermarkets increased 5.3% during 2008, while foodservice sales registered growth of only 3.7% — and most of that coming from earlier in the year.
However, in the current economic climate, recession-friendly food stores are facing a challenge. For the past six years, retailers have been making good money off of natural, organic and eco-friendly products, which tended to carry a significant premium. Softening demand will require them to rewrite their marketing plans around price and value.
The strategies that operators are adopting vary, but they all emphasize making health and wellness affordable. Whole Foods Market, the country's largest natural foods chain, has found its fortunes reversed after years of growth based on its reputation as a purveyor of authentic, yet pricey, products. As the recession began nibbling at profits in mid-2008, Whole Foods launched a number of programs aggressively aimed at highlighting the retailer's value selection.
At Fresh & Easy, executives have tweaked categories and introduced budget-friendly items, such as 98-cent “produce packs” that feature top-selling fresh fruits and vegetables.
“We want to make customers feel like there are many more options for them,” said Deborah Popham, a Fresh & Easy nutritionist. “The 98-cent produce packs are just one launching pad for them into a whole wide variety of menu choices.”
Other retailers are hosting more cooking classes as consumers scale back on dining out; and those with natural/organic private labels are building high-profile endcaps to remind shoppers that healthful eating is still possible, regardless of circumstance.
“I'm still seeing select organic categories, like produce and dairy, as a value in their lives, and frankly, I encourage them to buy,” said Judy Dodd, corporate nutritionist for Giant Eagle in Pittsburgh. “Because the more people we have that see it this way and buy these products, the more selection we have in the stores, and the more opportunity we have to offer a good price break on them.”
If “back to basics” is the current consumer mantra, then the commodity-filled perimeter of the store stands to benefit most — and that's where retailers should focus their marketing efforts. For example, dairy and produce have emerged as mainstream wellness gateways that even casual natural/organic shoppers have patronized. Fresh & Easy made its first move in produce, with the 98-cent produce packs of six different fresh fruits and vegetables.
“They're not really things that are considered exotic,” said Popham, discussing the apples, oranges, tomatoes and other items that make up the program. “We're looking at things that fit into a customer's budget on a day-to-day basis.”
The Tesco-owned Fresh & Easy chain was derided by some when the first stores opened in 2007 for being too small (10,000 square feet), too heavy on private label (about 50%) and too foreign-looking. Now, customer counts are up as consumers become more familiar with the format, and more determined to rein in their food budgets. The retailer recently announced that sales of the produce packs are up 11% since being introduced in January.
“The 98-cent produce packs are only the starting point,” Popham added. “We have a wide variety of many other products in the store, such as our Buckstead chicken, where the family packs are offering the customer a boneless, skinless product at a great value for $1.79 a pound.“
At Giant Eagle, another dietitian was recently added to help the 223-store retailer address the growing interest in diet and health expressed by shoppers. The reality, however, is that the in-house diet experts are spending more time coaching consumers on how to avoid sacrificing their family's wellness goals and to not skimp on fresh, natural and organic products.
“At one point, we [dietitians] all said 100-calorie packs are good,” said Dodd, the corporate nutritionist. “Now we say a better route would be to buy the large economy size and make your own packs. Find a way. Don't eat the individual packs at home. Save them for when you are really going out. They still can be a good buy, but don't eat them when you're home sitting in front of the television.”
Dodd said it's frustrating to see how the economy is endangering the progress many shoppers made over the past few years in purchasing more healthful foods and making lifestyle changes to improve their family's well-being. Indeed, a recent news report examined the phenomenon of “recession pounds,” based on numerous studies linking obesity and poor eating habits with low incomes.
“We're finally at a point where people are beginning to understand that food is more than a pleasure, that it's really critical to nutrition, and also your comfort,” she said. “We're trying to show that cooking at home can be very social and rewarding for you and your family.”
No doubt, the recession has caused a segment of the population to make significant changes in the way they live. But the vast majority of Americans continue to hold jobs, own their homes and cars, pay down their credit card debt — and shop for food at their favorite supermarkets.
“On some moderate level, consumers are adjusting,” noted Harvey Hartman, CEO of The Hartman Group, Bellevue, Wash. “But they're not changing dramatically the way they live from the standpoint of intent.”
For Hartman, the key word is “intent.”
“There's an enormous nervousness about what's going on in the marketplace. And yet, in many cases, this nervousness is not necessarily being activated in everything people do.”
Hartman, who's studied consumer behavior for more than 25 years, acknowledges that consumers are currently acting irrationally. It makes his firm's job much more difficult, because what consumers say about their behavior becomes unreliable. Yet he believes that supermarket retailers have to avoid overreacting and pulling too far back on their commitment to wellness products and services.
“The real question we have to ask ourselves is, ‘Are we entering an era that is characterized by a marked retreat in consumer spending?’” he said. “We're blaming everything on the economy, and I think we're blowing it so far out of context that we're losing the real understanding about that context.”
Conventional supermarkets are faring better in the current climate, because wellness is only one part of their complete portfolio of products and services. Not so for specialty retailers like Whole Foods. The chain, headquartered in Austin, Texas, has launched several aggressive promotions in hopes of damping down the natural/specialty/artisan reputation it has cultivated over the past few years. The new “frugal foodie” image the company is trying to project came into focus last July, when officials unveiled The Real Deal program, a multidisciplinary approach promoting specially priced product discounts, money-saving coupons, shopping tips and budget-conscious recipes, all built around a quarterly newsletter and corporate blogging.
“Whole Foods is doing the right thing, trying to reverse the opinion of their price positioning,” said Scott Van Winkle, an analyst who tracks the company for Canaccord Adams, Boston. “But it's a very difficult balance. How far do you push down to give the customer what they want — and that's clearly to save dollars — without losing the reasons why people shop your store in the first place?”The question is critical to the success of wellness categories during this slow economic period. Hartman notes that the changes people have made to live better through diet and exercise might be on hold, but not erased.
“Our movement toward real food, or to fresh offerings, has been measurable, and isn't going to just disappear,” he said. “Let's not confuse those, which we've been moving toward for some time, with the economic situation we're in.”
If consumers are confused, retailers say, they're ready to help. Fresh & Easy has set up its Kitchen Table demo area for samples and tastings. Popham, the nutritionist, said that it's there that the retailer is able to take the pulse of shoppers. There are also visual merchandising cues meant to keep customers in the store.
“We've done a lot of signage around our products, throughout the entire store, to call attention to the budget crisis and the ‘Quality you can trust/Why compromise?’ message, so that people can feel they're building on their nutritious food choices with really great prices,” she said.
To Dodd at Giant Eagle, it seems like customers are cherry-picking the natural/organic products they buy. She's both heartened and concerned.
“I don't want these products to disappear from the marketplace because no one can afford them anymore,” she said.
Stayin' Alive Bonus: Lite Reading
From magazines to blogs, everyone is asking the question: Is it possible to eat well on a budget?
The answer is a resounding “yes.” Retailers might glean an insight or two by scanning articles, news broadcasts and Internet postings on the topic. A recent issue of Delicious Living magazine offered this advice to its readers:
- Picture different proportions
Focus less on “pricey, animal-based” proteins in favor of nutrient-rich, plant-based food combinations like rice and beans or leafy greens and tofu.
- Use your bean
Organic legumes “are the cheapest and most nutritious protein sources available,” and offer a lot of value for the price.
- Choose smart proteins
Choose “affordable, lean cuts that you can stretch in stews, stir-fries and casseroles.” Other protein buys include organic milk, yogurt and versatile cheeses.
- Pick produce in season
Tailor cooking to “seasonal foods, and freeze or can items like corn, tomatoes and berries when they're in season.” Also buy bagged produce of family favorites, like apples and oranges.
- Go for bulk
Hit the bulk aisle “to save on costs (and reduce packaging) on popular basics like oatmeal, nuts and raisins.”
- Get real
Bypass processed foods, including frozens and convenience items, which can “add up quickly on your bill, in favor of simple foods that cost less and are more nutritious.
- Get clever with leftovers
The worst value “is food that's thrown out.” Save main-dish proteins and add new accompaniments like vegetables or pasta to refresh leftovers.
At least two out of three consumers are looking to economize on the purchase of organics this year, according to a survey by Mambo Sprouts, a natural/organic marketing company. Saving money is a priority, but it doesn't mean consumers are trading out of the category. Only one in three plan to replace their organic purchases with less expensive conventional brands.
|PERCENTAGE OF RESPONDENTS …|
|Buying more organic products on sale||78%|
|Buying more organic products with coupons||69%|
|Switching to less expensive organic brands||63%|
|Switching to less expensive store-brand/private-label organics||50%|
|Switching to less expensive all-natural (non-organic) brands||46%|
|Buying more local organic products||41%|
|Switching to less expensive conventional (non-organic) brands||32%|
SOURCE: MAMBO SPROUTS, 2009 NATURAL AND ORGANIC CONSUMER OUTLOOK SURVEY