BRIDGING THE GAP

LUCIA MOSES

The arrival of private label on shelves is the surest sign that a trend has gone mainstream, and nowhere is this more true than in the natural and organic category.

In this case, however, private label is more than a simple option to brands, or a way for a supermarket to brand itself. Private labels associated with health and wellness are a retailer's best opportunity to convert thrifty shoppers into premium-minded organic buyers. And with sticker shock still the biggest impediment to organic purchases, retailers are using store brands as the gateway.

"One of the biggest fears of consumers looking to switch over is the price side of it," said Chuck Harris, director of business management for Topco Associates, a retailer-owned cooperative that distributes its Full Circle natural and organic line to about 21 retailer customers. "There's kind of a sweet spot in between where the mainstream non-organic brand is and where the mainstream organic brand is. That's where the private label comes into play."

Full Circle products, on average, are priced 10% above the mainstream non-organic national brand and lower than the mainstream organic, Harris said.

Gourmet Specialties, a subsidiary of Unified Western Grocers, a Commerce, Calif.-based wholesaler, recommends similar price differentials to its retailers for the Natural Value line of products it sells, said Dean Allen, director of procurement and marketing for the Livermore, Calif.-based unit. Gourmet Specialties also encourages retailers to display Natural Value items with national-brand conventional products and give them strong circular exposure through ads that display multiple items together.

"These items do compete right with the main brand," he said. "Natural foods are no longer just a fad. It's a lifestyle a lot of people are choosing. But by the same token, they're also looking for value. A lot of manufacturers are realizing people will pay a little more, but you can't just gouge them."

Organics in particular are a stumbling block to trial. Asked about their purchase habits in 11 food and beverage categories, only between 6% and 15% of U.S. consumers said they purchase organics regularly, according to a recent survey by ACNielsen. Price was by far the biggest hurdle, cited by 42% of shoppers as the reason they don't buy organics, followed by availability, cited by 18%.

Similarly, Whole Foods Market's annual Trend Tracker study of organic consumption found that while most people have tried organics, the main barrier to increased use is price. Almost three-quarters (74.6%) of respondents said the price of organic food and beverages is the main reason for not consuming more. Other reasons Americans are not buying organics include availability (46.1%) and loyalty to non-organic brands (36.7%), the survey found.

Tom Markert, ACNielsen's chief marketing officer, said he doesn't expect the price of organics to come down significantly. Even as production increases and the number of categories that include organic offerings expands, marketers may choose to maintain organics' upscale image.

That's where private label, with its built-in price advantage, comes in.

There's no magic formula for pricing store-brand organics. With so many factors that go into purchase decisions, "there is almost no rhyme or reason" to pricing, said Harvey Hartman, chief executive of the Hartman Group, a consulting and market research firm specializing in the health and wellness market. Who's doing the shopping, and for whom, and where, for instance, can make all the difference in what people are willing to pay. Moms tend to pay more for food for their kids than they do for themselves. And people are more willing to pay more for the same item at Whole Foods, with its dazzlingly creative merchandising, than they are at a conventional supermarket, he said.

Indeed, a recent price check at a New York City-area Stop & Shop found a variety of price differences between the corporate Nature's Promise brand and their conventional counterparts, depending on the category. Nature's Promise granola bars were priced at $7.44 per pound, 31% below the per-pound price of Cascadian Farms organic granola bars ($9.71) and 46% more than conventional Quaker Oats bars ($5.10). Nature's Promise organic soup broth, meanwhile, cost $2.39 for 32 ounces, 59% less than Pacific Natural Foods ($3.79) and 4% less than the conventional Swanson chicken broth ($2.49).

In addition to the challenges of finding adequate supply all natural/organic manufacturers face, private-label makers confront special packaging, pricing and merchandising concerns. Private-label organics mustn't come across as too cheap, or clash with the store's image.

"The pitfall would be if the perception is, 'This is poor-quality natural and organics, and that's how they get the price down," said Jay Jacobowitz, president of Retail Insights, a Brattleboro, Vt.-based consulting firm serving the natural food retailing industry.

Launching a successful line of store-brand organics may require a change in mind-set by retailers who think about store brands as mere low-cost substitutes.

"Historically, private label has been thought of as a low-price performer," Hartman said. "What we know is that the retailer has the opportunity to not only create price-performance brands but they also have an opportunity to create higher-priced brands, premium brands."

To do that, retailers have to make the products appeal to shoppers not only on cost but on an emotional level, he said.

"It's not a pot of gold at the end of the rainbow," Hartman said. "You've got to create the attributes that add value, pragmatically and emotionally. The problem we find is, [retailers say], 'God, we can get a higher price for this,' and they just blast organic on the label. We know people are not opposed to paying higher prices for certain natural and organic products. But they have to feel like it's authentic and adds value."

Denis Ring, a creator of Whole Foods' 365 lines of natural and organic staples who now consults to retailers such as Safeway on private-label naturals, also warns against retailers - used to getting high margins from their store-brand products - using their private-label organics solely as a profit booster. He suspects this is happening when he sees retailers price their store-brand items much higher than their competitors.

But shoppers, conditioned by Whole Foods' and Trader Joe's reas-onably priced organics, know that organics don't have to cost a lot, he said. "If you look at private label as a margin enhancer, then I think you're doing a line of private label a disservice," he said.

Going Public

In a Center Store crowded with brands and products, private-label natural and organics require more than just shelf presence to succeed.

For Publix Super Markets, training shoppers that its GreenWise natural and organic line is a corporate brand is one of its biggest challenges, Publix spokeswoman Maria Brous said.

To communicate that linkage, Publix publishes an in-store magazine that carries the GreenWise name; offers product samples; and trains associates to answer questions about the products.

"It is important to us because GreenWise is our brand," Brous said in an e-mail interview. "Our customers have grown to trust our name and reputation for 75 years."

Ahold USA places the name of its banner on the packages of many of its Nature's Promise natural and organic products whenever possible. It also states in marketing materials that the line is exclusive to its banners, said Denny Hopkins, a spokesman for the Giant Food, Tops Markets and Martin's Food Markets banners.

"We're proud of the fact that this is a Giant product, or a Tops product," said Connie Moro, a business development manager for Daymon Worldwide, who has worked on Nature's Promise since its inception.

Giant also promotes Nature's Promise by way of the natural/organic store-within-a store concept of the same name, of which it has 16. "It's a natural fit," Hopkins said. "We have the products in our store. We feel it reinforces the message throughout the store." The product line also will complement a more aggressive health and wellness strategy the banner has been crafting.

GOOD ADVICE

Create a packaging and pricing strategy that answers shoppers' budgetary as well as emotional needs.

Design products that are consistent with the stores' overall image.

Stand behind the product line with strong displays and point-of-purchase materials.

Know the factors that influence purchases in a given category before pricing a product.