Safeway's Organic Chemistry

CAROL ANGRISANI

O Organics beverages are now available not only in Safeway stores, but also in select high schools and office cafeterias in Northern California.

That's because Safeway, in a first-of-its-kind partnership, has teamed with food-service giant Sysco Food Services to market O Organics private label in the food-service channel in Northern California.

“Organic products are under-represented throughout the food-service channel, and Sysco provides a unique partnership that allows us to meet consumers' health and wellness needs while away from home,” Safeway spokeswoman Teena Massingill told SN.

What's more, Safeway, as reported, is also taking steps to take the O Organics brand global by selling it in retail outlets in South America and Asia. Sysco is not involved in the international effort, according to the company.

Safeway has begun selling O Organics in Taiwan in Carrefour-operated stores; in Singapore in the retailer Cold Storage; and in Hong Kong in Wellcome. In South America, the brand can be found in Chile in D&S Lider.

Sysco is marketing 25 stock-keeping units of O Organics ready-to-drink teas, juices, Italian sodas and other beverages to several thousand food-service outlets that its Fremont, Calif., distribution center handles.

The high schools and office cafeterias are the first to purchase product, although Sysco is reaching out to other food-service sectors like hospitals and restaurants.

“The product line continues to gain momentum,” Jim Ehlers, president and chief executive officer, Sysco Food Services, told SN.

The Sysco partnership is a powerful alliance because it gives Safeway a much broader reach in the organics business, one of the fastest-growing categories in food and beverage, said Gary Karp, executive vice president of Chicago-based food-service consulting company Technomic.

While other retailers with manufacturing capabilities have tried to sell commodity categories into food service in the past, the Safeway deal is unique in that it marks the first time a packaged private label will appear in food service.

“This is much more significant because it's a branded product in the emerging organics category,” Karp said.

U.S. organic food sales totaled nearly $17 billion in 2006, a 22% increase from 2005, and were estimated to reach up to $20 billion last year, according to the Organic Trade Association, Greenfield, Mass. Official 2007 sales figures have not yet been released.

O Organics and other private labels have contributed to the growth, OTA spokeswoman Barbara Haumann said.

“Private labels are attracting purchases of people who may not have purchased organics in the past,” she said.

Since its launch in 2006, O Organics has grown to 300 items, including milk, chicken, entrees and juices. As reported, Safeway estimated sales would reach $300 million last year, up from $164 million in 2006.

Karp of Technomic said the alliance has strong potential because it benefits both trading partners. It's of value to Sysco because it aligns the distributor with an established sourcing partner that can give it reputable products in the organics category.

“Sysco is linking itself to a brand that has strong sourcing value and credibility,” he said.

For Safeway, the deal means it could expand the reach of O Organics by establishing it in a market thus far untapped by food stores.

It even gives Safeway an edge over the powerful Whole Foods private-label organics, which don't have a food-service presence, said Karp.

He expects the partnership will eventually branch out into other O Organics categories.

The Sysco move is yet another example of how Safeway is strategically marketing O Organics, said Steve Sunseri, managing director of Vantage Organics, a Boulder, Colo., organic brand management firm.

Safeway is also smart to integrate O Organics products next to their mainstream counterparts, as opposed to merchandising them in a separate aisle or department.

By integrating, Safeway has attracted consumers who may have thought about buying organic, but didn't know where to buy it or didn't want to make an extra trip.

Likewise, Safeway has aggressively priced the brand so that promotion-sensitive shoppers don't have to spend much more on O Organics than they would on mainstream food and beverages.

As it seeks to take the brand to new levels, Safeway needs to remain committed to building the brand in-store, Sunseri said.

This requires employee education and training to ensure that store associates can accurately answer consumer questions about how organics differ from traditional food and beverages.

Safeway needs to stay on top of how the brand is marketed in food service, said Christine Cross, a consultant and a former Tesco private-label director.

If not managed carefully, the brand perception could be damaged.

“It could be devalued, or seen as mid-market when it is premium,” Cross said. “The customer proposition could be misrepresented.”