PUBLIC ACCESS

Robert Vosburgh

CONSUMERS, LIKE FINICKY CHILDREN, often require some coaxing to try new foods. Demo stations, free coupons or similar intercepts are the primary tools retailers have traditionally used to break consumers from their routine purchase behaviors.

That pattern is quickly changing as shoppers arrive at their favorite supermarket with greater concern for, and interest in, the foods and beverages they buy for themselves and their families. Consumers have become smarter and more proactive in seeking out products that satisfy specific needs, whether it's health or convenience. As a result, the need to tempt and lure shoppers into trying new foods is evolving into a more up-front approach emphasizing the facts and benefits of each product.

Organics -- and by extension, all natural foods -- have been among the biggest beneficiaries of this trend. Slowly, but surely, organics continue to enjoy double-digit growth in almost all categories. Once-cautious retailers are more openly embracing an expanding array of options as consumers express more interest.

"Our approach has been conservative because that's how our customers behave. We've kind of let them lead us," said Dale Instefjord, general manager, Blue Goose Supermarket, St. Charles, Ill. "We'll add items as we go along and see how they do. What's made us successful in this area is our persistence. Too often, managers will give up too early in the process."

Under the fresh umbrella, nothing has promoted consumer trial in organic foods quite like fresh produce or dairy. These two departments have consistently garnered the highest percentage of sales among all classes of organic users. Retailers and industry observers pointed to several reasons for this, though there was universal agreement that these fresh categories are closest to nature, and most closely align themselves with the organic image.

"Produce and dairy are the categories that are most sensitive to consumer concerns like pesticides or growth hormones," noted Catherine DiMatteo, president of the Organic Trade Association, Greenfield, Mass. "Health and safety are the No. 1 consumer concerns regarding food, and these specific concerns get mentioned most frequently when people talk about organic foods."

Paulette Thompson, health and wellness manager for Stop & Shop Supermarket Cos., Quincy, Mass., agreed, saying that perishables are the most obvious starting point for organic-minded consumers.

"Produce and dairy are not as processed as other foods, and are closer to nature, which is what people associate organic with," she said. "So, if they're thinking about eating organic or exploring it, they're going to turn to those products they think are closer to the farm."

Building an organic selection within produce and dairy has been a slow but consistent process. Once-small sections have grown in size and profile -- even if they are still limited to top-selling commodities like fluid milk or lettuce. Bill Brophy, vice president of produce for Stop & Shop/Giant of Landover, said that produce in particular is a logical choice to make an organic statement due to its in-store position.

"The first thing customers see is a big, wide expanse of produce, and first impressions are strong impressions," he said. "So, we've taken a strong stance [with organics] because we've seen a lot more interest in supermarkets helping customers and their families stay healthy."

At Stop & Shop, organic produce has enjoyed double-digit, year-on-year sales increases for the past three years. The point has been reached where the retailer's goal is to offer organics in every major commodity.

"It's a little bit of a challenge to have a 52-week [organic] offering in all major commodities because everything is seasonal and growers move around," Brophy added.

Supply problems exist in the dairy aisle as well, where there are spot shortages of organic milk. More farmers are transitioning to organic production, but it's a process that takes three years. The out-of-stocks are in part due to a simple increase in demand; skyrocketing conventional milk prices are also to blame, according to some.

"Over the past 14 months or so, conventional prices have been relatively high, so the difference between conventional and organic milk prices have been narrowed, and this makes it easier for consumers to make a decision," observed Jerry Dryer, president of JDG Consulting, Chicago. "They don't have to pay as high a premium now for choosing organic."

The closing of this price gap has helped spur purchases at Stop & Shop/Giant, particularly for the retailer's Nature's Promise private-label line, said Thompson.

"In dairy, there really hasn't been a narrowing in price, but it's because conventional milk prices have gone up," she said. "So, it's not because organic has gone down, it's because conventional has gone up."

Most organic dairy products are still branded, though private label is making strong inroads here. Thompson said fluid dairy has been the bestseller in the entire Nature's Promise line, which includes all-natural and organic products in multiple departments and was rolled out last autumn.

"We're in a pretty competitive market right now," echoed Instefjord at Blue Goose. "I'm getting the margin I'd like to on organic, but I'm not getting it on regular milk."

Blue Goose currently sources its organic milk from Horizon Organic Dairy. There are four stockkeeping units in total, all in half-gallon gables: whole white, low-fat chocolate, 2% and skim.

Horizon also supplies Buehler's Fresher Foods, Wooster, Ohio, where 1% and 2% half-gallon gable cartons can be found, according to Mary McMillen, director of consumer affairs for the 11-store operator.

"The stores where we have colleges, or where our clientele is younger and more affluent, are those that have the largest percentage of business in organics," she said.

The stores in those communities have seen the organic dairy section grow, on average, from a four-foot shelf to an eight-foot section. While fluid dairy sells the most, organic soy milks and organic yogurt are the fastest-growing categories, McMillen added.

Simple consumer interest can only propel growth so far, say industry observers. There are other factors at work. For example, all the retailers contacted by WH said their organic produce and dairy products were integrated within their larger umbrella categories. They noted that not only does this present a better scenario for promoting trial purchases, it becomes a convenience issue when the shopper returns to buy again.

"I think that as consumers go through a store and become acquainted with organic products that are adjacent to their conventional counterparts, those with an interest in organic are able to make comparisons and then, a decision whether to buy," said Cynthia Tice, a partner in The Tice-Genuardi Group, a Cherry Hill, N.J., consulting firm devoted to naturals and organics. "The fact that the gateway categories are produce and dairy really speak to the efficiency of merchandising in an integrated fashion."

Tice said integration came to these categories more by necessity than by design. Produce needed specific handling and merchandising, while dairy required refrigeration. The result of this "happy mistake" has been the consumer's increasing level of comfort in considering making an organic purchase. Stop&Shop/Giant's Brophy said integration is the rule at his chain.

"It allows customers to make a comparison. When you put an organic item next to a conventional item you can compare the look, the feel, the smell and the retail," he said. "Another advantage is that integration can help satisfy different logistical needs -- the wet produce can be on the wet rack, the cold produce can be cold, and produce that doesn't need temperature control can be on tables."

Blue Goose Supermarket integrates its eight feet of organic produce on two shelves of the wet rack, which runs a total of 60 feet. Instefjord, the general manager, said integration may encourage comparison shopping on several levels -- not all of them good.

"Quite frankly, the appearance of organic isn't always as nice as conventional; the flavor isn't always as good; and the prices can be higher," he said. "You really have to be wanting it for a reason."

He estimates that organic produce typically runs at a premium of 20% to 25% over conventional items, but the gap is closing as more suppliers come online. Still, it's not always an impulse buy.

"People who are buying organics are pretty well-educated and have done some homework," he said.

The length of time both produce and dairy have been integrated stretches far beyond other departments, such as center store, and retailers are searching for ways to keep interest growing at the current rate. Right now, growth is focused on new converts to organic foods and new organic products arriving in stores.

"All of the data I've seen shows organic dairy continues to increase very steadily," said JDG Consulting's Dryer. "For the past four or five years, it has increased roughly 20% a year, and I just saw the figures for '04, and it's 20% again. Dairy alone is doing roughly what the total organic category is doing."

DiMatteo at the OTA said that as organic produce and dairy mature, the number of organic versions of conventional items reaches parity, so that there eventually is a mirrored department where everything conventional has an organic counterpart.

Suppliers are helping to balance the categories. At Stop & Shop/Giant, Brophy said grower/shippers are expanding their product portfolios to include organic varieties of conventional products.

"We've encouraged our incumbent shippers to grow organic as well," he said. "These are our partners that we've had for a long time, whereas 10 years ago it was mostly niche players that didn't have the same economies of scale and logistics that our major suppliers offer us."

Industry observers note that as long as there is room for growth, there won't be any intra-category competition between organic and conventional products. Certainly, price will play a key role in how the question plays out. Tice, the consultant, warned that retailers need to consider competitive pricing.

"There are still retailers out there who view this all as a specialty category," she said. "The more retailers understand that these are developing into commodity items, they'll realize that they need to have more reasonable margin expectations and be competitive with the retailers who are really immersed in these categories."

Instefjord said this is why Blue Goose has taken a slow-but-sure approach to incorporating organics, even in thriving categories like produce and dairy.

"You can't try it once and give up because the trend keeps growing and it will just grow around you," he said "That can't happen -- we are supposed to be market leaders in this in yhis kind of stuff.