NEW FRONTIER 2006

LYNNE MILLER

Retailers are beefing up their meat sections to reach a small but growing audience for natural and organic protein.

While the supply of organic meat is limited, sales growth is strong. Organic meats reached $23.4 million in sales for the year that ended Nov. 5, an increase of 66% over the previous year, according to SPINS, the San Francisco-based research provider for the natural-products industry. Sales of all meat, poultry and seafood products - including organics - hit $142.8 million, just 13% higher than the year before. SPINS had no data on natural meats, a much broader category without a clear definition.

According to retailers SN interviewed, the items with the strongest following tend to be natural meats that are priced competitively with conventional meats.

Sheboygan, Wis.-based Fresh Brands was one of the first retailers in the country to sign up for a process-verified pork program that supplies stores with meat that's not enhanced with tenderizing solutions. The meat tastes "like what pork used to taste like," said Joe White, director of meat and seafood for Fresh Brands, which franchises 74 Piggly Wiggly stores, and operates 20 Piggly Wiggly and Dick's Supermarkets.

The all-natural line is responsible for about 70% of all pork sales for the chain. The products retail for about 10 cents more per pound vs. other pork lines, White said. "It's done just phenomenally for us," he said.

Fresh Brands also carries a line of all-natural chicken, featuring products from birds that were never treated with steroids or antibiotics. The retail prices on many of the all-natural products are easy for shoppers to swallow - about 10 cents more per pound than conventional chicken. The birds even earned kudos from the Milwaukee Journal Sentinel for "best tasting rotisserie chicken." The natural line is responsible

for about 50% of the retailer's overall chicken sales, White said.

"We've had a great response," he said.

The stores don't plan to make any changes to the beef line. Stores have enjoyed strong sales selling Certified Angus Beef, a premium product. CAB offers a natural line, but White said Fresh Brands isn't ready to embrace it.

"Beef will be next," he said. "I'm holding back until I see the supply issue resolved."

In fact, limited supply is stunting the growth of organic meat, according to industry observers. The low number of organic livestock producers in the United States has caused the organic meat industry to experience undersupply for a number of years. American producers have resorted to imported organic beef from Australia and Latin American countries, according to Organic Monitor, a London-based consulting firm.

American retailers have expressed an interest in carrying organic meat, but limited supply makes it tough, an official with Coleman Natural Products, acknowledged.

"We've seen strong demand from retailers and it's one of our challenges, meeting that demand," said Rob Siegal, director of new product marketing for Coleman, a leading provider of natural meats based in Denver. "The shortage of organic feed is definitely a hurdle, especially for a company our size.

"Finding enough organic feed is a constraint that's limiting all companies looking to expand to organic," he added.

Price also is a hurdle, according to retailers and other observers. Most shoppers balk at spending a large premium on organic meat, particularly beef.

Indeed, steep retail prices probably have kept a lot of consumers from trying a new line of case-ready frozen organic beef offered at Spokane, Wash.-based Yoke's Foods.

The organic beef items are three to four times higher in price than conventional products, said Ken Chapin, director of meat and seafood for the chain of 12 stores.

"I don't think there are a lot of people willing to pay that price for the beef, but there are some," Chapin said. "Whether that'll grow, I don't know.

"What I see with consumers is way more interest than willingness to pay," he continued. "A lot of people want to buy beef, but when they see the price they say, 'Oh my gosh. I'm not willing to pay that.' I am not surprised. I am surprised people are willing to pay that."

Most stores sell the steaks, roasts and ground products frozen, though a couple of stores merchandise the meats after thawing them, Chapin said.

Yoke's also introduced a line of all-natural smoked and fresh pork that includes bacon, sausage, hams and some boneless fresh pork chops. The price difference between the all-natural pork and conventional items is much less than the beef difference. Both the beef and pork lines are moving "slowly," particularly beef, he said.

The chain decided to offer the products in response to a steady stream of requests from shoppers who were looking for natural pork and beef products, Chapin said.

"Where it goes will be determined by the business we get," he said. "As it grows, we'll grow with it."

Dorothy Lane Market has a lot of experience selling natural meats. The upscale Dayton, Ohio-based chain started selling Coleman natural beef more than 20 years ago. Now the retailer carries only all-natural beef, pork, lamb and poultry from several vendors.

Most recently, the chain replaced conventional turkey with a line of private-label all-natural turkey, raised by a local farmer exclusively for DLM. The turkeys do not receive antibiotics or hormones.

"We debuted it this year and it was a big hit," said Jack Gridley, director of meat and seafood for the three-store chain.

Gridley sees demand growing particularly for poultry. Furthermore, health concerns related to nitrites and nitrates are helping drive demand for all-natural processed and smoked meats, such as ham and bacon, he said.

"It's going to be the hot category for the future," Gridley said.

Organic is next for DLM. The chain is looking into organic beef and organic chicken, Gridley said.

He predicts demand for organic meats will grow. When the meats become more readily available, and prices come down closer to the prices for natural meats, the organic category will "take off," he said. "We're getting more and more requests," he said. "We've had a stepping stone with the all-natural category. A natural product is 90% what an organic product is."

Angelo Caputo's Fresh Markets, Addison, Ill., plans to roll out a line of organic or natural beef some time in the first quarter of this year. The four-store chain will offer the meats at store service counters. Officials think baby boomers concerned about their health and able to spend a premium for their meat will fuel the category.

"They're the ones who will push and pull this product through the stores," said Zenon Gawel, director of meat operations at Caputo's. "They're more aware of the value of good nutrition and have the money to pay for it."

Nevertheless, customers will have to be educated on product attributes. Training employees on the qualities of the meat, and how to promote and sell it, will be a priority, Gawel said.

"This program has to be sold to the customer," he said. "We have to educate them on the reasons why it's at the price point it is.

"If you don't educate people at store level on the value, then the consumer may just notice the price and wonder why," he said.

Indeed, there's more involved in selling natural and organic meats than simply making the products available, Gridley said.

"Everybody's trying to jump on the organic and natural bandwagon," he said. "There's more to it than putting it out on the shelf. It's knowing how to promote and sell those items and having knowledgeable staff."

By The Numbers

$23.4 million sales of organic refirgerated meats in 2005

66% jump in sales from 2004 to 2005

$142.8 million total sales of frozen and refrigerated packaged meat, poultry and seafood in 2005"13% increase in sales from 2004 to 2005

Source: SPINS; only includes sales of products with universal price codes