Much of the natural and organic food categories is still uncharted territory, though retailers are eager to find out where it leads.
If present sales volume is any indication, all roads lead to profit, operators and industry experts told SN.
"I think it's a growth area that'll bring profitable dollars," said Rick Guentner, a store manager for Niemann Foods, Quincy, Ill. "There's opportunity, a ton of opportunity."
Still, for many retailers used to selling conventional products, organic and natural food retailing is a whole new endeavor. From the looks of things in many supermarkets, retailers remain novices when it comes to effective merchandising, observed Jay Jacobowitz, president of Retail Insights, a Brattleboro, Vt., consulting firm for natural products retailers.
"There's still this struggle between integration and 'store-within-a-store,"' Jacobowitz said. "Either one can be done convincingly but more often than not they somehow fall short. The main ingredient that's missing when they fall short is pride. You get a sense that management is not quite comfortable with the category. Most of the time, organics are stuck in the corner like a leper colony."
The opportunity is clearly there for all retailers, not just those specializing in these special categories. Repre-senting 42% of organic food sales, organic fruits and vegetables saw sales increase about 20% in 2003, according to the Organic Trade Association's 2004 Manufacturers Survey. While the category of organic meat, poultry and fish represented just 1% of organic food sales, it experienced the largest boost, growing nearly 78% during 2003, the survey showed. Implemen-tation of the National Organic Program two years ago helped create a larger market for proteins, most of which were prohibited by government regulators from carrying an organic seal of any kind.
Natural foods, which follow less-stringent rules than organics, have also enjoyed sizeable sales increases. Sales of frozen and refrigerated meats, poultry and seafood at natural food stores only -- not conventional supermarkets -- grew nearly 40% for the 52 weeks ending March 20, approaching $109 million, according to SPINS, San Francisco, and ACNielsen, Schaumburg, Ill.
Over the same period, sales of refrigerated natural foods sold at conventional supermarkets and other mainstream retail outlets grew at a rate of 13%, reaching $2.3 million in volume, the data showed. SPINS and ACNielsen include dairy products, soy milk, tofu, packaged fresh produce, juices and functional beverages, and refrigerated sauces, salsas and dips in the category.
Jacobowitz believes that respected regional players, such as Wegmans Food Markets, Rochester, N.Y., Ukrop's Super Markets, Richmond, Va., and Marsh Supermarkets, Indianapolis, have been able to make more serious commitments to the category than larger national retailers, due to their ability to read consumer trends quicker and develop more sensitive merchandising and promotion plans.
Produce departments have been described as the gateway to organic food, and committed retailers have made those departments a showcase for organics. The new Wegmans in Sterling, Va., has an array of organic fruits and vegetables that rivals what can be found at a Whole Foods Market store, according to one recently published report, which noted the 130,000-square-foot store has a large assortment of both packaged and bulk produce. Likewise, Jacobowitz was impressed by the space dedicated to organics when he visited the Wegmans in Bridgewater, N.J. In produce alone, the retailer set aside 48 linear feet for organic fruits and vegetables, he said. All told, the space reserved for organic and natural products throughout the store appeared to be about four times greater than the typical supermarket's space allocation, Jacobowitz said. The retailer follows an integrated and segregated approach to incorporating organic and natural items into the company's mainstream format.
"They're very aggressive," he said. "Wegmans does an extremely good job of incorporating the natural and organic. You get the sense it's part of the family."
Natural and organic destinations are well-established at the stores operated by Pittsburgh-based Giant Eagle. On the fresh side, selection has been growing steadily, particularly in produce. Most stores carry 43 types of organic vegetables, and 28 types of organic fruits, a spokesman said. In the meat cases, stores offer Bell & Evans chicken and Coleman natural beef.
"Giant Eagle introduced natural and organic destinations within our stores many years ago, and with ongoing enhancements, have grown our natural/organic category sales to represent approximately 2% of total sales," said Brian Frey, spokesman for the chain of more than 200 stores.
In the heartland, demand for natural and organic products seems to be a bit more limited. Wal-Mart stores and supercenters, which tend to be concentrated in smaller towns and rural areas away from the coasts, have introduced some products, but the company declined to elaborate on existing lines or merchandising strategies.
"I think it's fair to say natural and organic have been showing greater consumer interest but it's still a very small percentage of customers," said Bruce Peterson, senior vice president of perishables and general merchandise manager for the Bentonville, Ark.-based chain. "Trends get to the average American a little slower than in other areas of the country. I'd expect organic to continue to grow, albeit not very fast."
A smattering of new items have found their way into stores operated by Niemann Foods. The produce department at Niemann's County Market store in Pekin, Ill., has proved to be a good home for introducing such items. The store recently rolled out a collection of eight organic potted herbs designed for cooking, and a line of natural juices in produce. Both have attracted interest, said Guentner, who manages the 60,000-square-foot store.
"With all the different cooking shows airing, the potted herbs have been a nice little category for us," Guentner told SN. "They tend to be conversation pieces."
In the past, the store carried natural juices in 24-ounce and 32-ounce bottles, but the higher retails kept consumers away, Guentner said. This time, what makes the natural juices, from Bolthouse Farms, Bakersfield, Calif., appealing is a smaller size and lower price. Available in six flavors like carrot and passion fruit, the 15.2-ounce plastic bottles retail for $2.49.
"The serving size is more convenient for those trying the juices for the first time," Guentner said.
In the dairy department, the store has expanded the variety of soy milks and soy cheeses. In the other fresh departments, the selection of natural and organic is more limited.
The store serves a rural, blue-collar community, and customers are just beginning to take an interest in natural and organic foods. Nevertheless, Guentner and other company officials believe the category has a lot of profit potential, and expect interest to pick up, especially as baby boomers age and pay more attention to their health. Stores of the future are likely to carry greater assortment.
"I think it's something we shouldn't give up on," Guentner said. "We'll have to keep trying to move forward and find items and merchandise them."
Dairy isn't far behind produce in attracting consumers to the organic side. Retailers told SN demand for natural and organic items in this department is robust. It's evident in the stores operated by Bashas', Chandler, Ariz. Milk in particular is a strong seller, an official with the chain told SN. Organic milk sales are growing, and the company hopes to offer it in gallons. The chain recently added a local brand of organic milk.
One of the hottest new lines in the dairy case at Cub Foods in Woodbury, Minn., is 8th Continent soy milk, described by some people as tasting like a milk shake. The store sells quarts and half-gallons, with vanilla-flavored milk outselling chocolate and plain. "Half-gallons do much better than quarts," said Don Dvorak, dairy-frozen foods manager for Cub, operated by Jerry's Enterprises, Edina, Minn. "That's been a big hit."