FULL BLOOM

Barbara Murray

Retailers' natural and organic sections, as well as their lines of in-house organic groceries, are growing in response to consumer interest.

The segment boasts a 14% annual increase in growth, and it carries with it the boon of attracting the better-educated and bigger-spending shopper. Organic, especially, continues to be the bright spot of growth within the food industry.

"I think there is a real comfort zone with the commitment to it by grocery retailers," said Bea James, whole health manager for Lunds and Byerly's stores in Minnesota.

"Although our economic times are not as strong as they have been, natural and organic sales have maintained their curve on an upward swing," she said.

The overall natural products industry is expected to grow to roughly $40 billion in 2004 from $34 billion in 2001, according to a Salomon Smith Barney report, "Natural Products Industry Outlook," issued Dec. 31, 2002.

More than half of the market is taken up by vitamins and supplements, leaving food products with 36% of that pie, or $12 billion. The report forecasts growth of 7% to 8% annually over the next two years, outpacing all other food and beverage segments.

Mass channels, including supermarket chains, generate less than half of the natural food sales that the independent natural product stores have, but the mass share is growing. The two main natural food supermarkets, Whole Foods and Wild Oats, have 12%, according to the report, while supermarkets have 27% and health food stores have 61%. It says Whole Foods and Wild Oats and others like them will continue to have the fastest growth because of their "superior store formats, which emphasize price, selection and service." Independent health food stores are expected to continue to lose share to the other two channels.

Natural products are minimally processed, environmentally friendly, and free of artificial ingredients. Organic food is part of the natural food universe, but it must be produced without synthetic pesticides or fertilizers or genetically modified organisms.

As previously reported by SN, since Oct. 21, 2002, the U.S. Organic Standard has been applied to all food certified as organically produced. Food that has 95% or more of its ingredients certified organic can use the USDA organic seal, a clean green-and-white graphic that manufacturers may add to their labels.

Positive media coverage of the Standards should continue to accelerate growth in the organic segment, according to the Salomon Smith Barney report.

As another reason for high expectations in this segment, the report points out that "the differential in price and quality between natural food and conventional food has meaningfully diminished."

"There is a lot more affordable in organic now," said Sonia Tuitele, spokeswoman for the Wild Oats chain, Boulder, Colo. Wild Oats' corporate brand is all-natural, she said, and 40% of it is either entirely organic or made with organic ingredients. "We expect that to grow because we are in the process of redoing our private label and looking at the formulations."

Manufacturers view the Organic Standard with relief, according to John DePaolis, vice president of marketing for the Cascadian Farm organic brand, a division of General Mills since 1999.

"For 30 years, much of the focus was on gaining credibility, so a lot of the energy was focused inwardly," he told SN. "What held us back in the past was the lack of a clear-cut definition of what is organic and what isn't. It might have depended on your certifier, and where you live.

"Now we can encourage and educate consumers to look for that seal because it means no chemical pesticides or fertilizers were used."

DePaolis said the next step is for manufacturers to conduct some of the primary research in order to make health claims.

All the attention on organic since the seal's debut has left natural food somewhat in the lurch.

Organic is the gold standard, said J.B. Pratt Jr., chief executive officer of Pratt Foods Supermarkets, Shawnee, Okla., and a noted innovator in the field of natural and organic food retailing. Since 1989, he has been integrating these products with conventional ones in Pratt's six full-service stores.

Probably one-third of the products on the shelves are natural or organic.

He finds it harder to promote just plain natural, "especially if you are trying to be straightforward with your customers," he told SN. "Natural has always been difficult. Read the label and decide for yourself what you are buying," is his common-sense approach.

Organic is environmentally healthier, Pratt said, and relative to a comparable product, organic is a healthier product -- for example, an organic cereal vs. a conventional cereal -- because the organic one contains no preservatives.

"I would not say it makes it a 'healthy' product, but 'healthier than,"' he said. "Our premise is you can eat healthfully in any supermarket. We don't set organic aside as 'The Way' that people should go to eat healthy. We do think it is a quality issue."

It's much more difficult to do with natural, Pratt continued. "The great strength we have with organic is the USDA. People still have to read the labels and interpret for themselves. But if a substance says organic, it had better be. Mainly, we have the definition of organic but no definition of natural."

Manufacturers can bring their message forth through advertising of all forms, including their packaging. Retailers can, and do, promote natural and organic offerings in their store circulars and brochures, through special events, and, increasingly, Web sites.

Last month, Wegmans Food Markets, Rochester, N.Y., launched a line of its own brand organic groceries and posted on its Web site an article on organic products written by Mary Ellen Burris, senior vice president of consumer affairs. She described organics, mentioning their extra cost and stringent criteria, and described some of the sourcing process the retailer used to get the organic products.

Even if brands like Cascadian Farm and Walnut Acres do advertising campaigns, spokesmen for those companies said retailers are not off the hook. "Mainstream consumers have been driving the growth, and those consumers are highly desirable to retailers," DePaolis said. "They are package-readers. They are constantly looking for products that are going to help them in personal well-being. And they are willing to pay a little more for that."

Retailers who recognize that are merchandising differently than the others, he said. Wegmans, for example, had a Fitness Fest recently in 30-35 stores.

"They are doing things like that to attract the consumer who is very interested in their personal well-being," said DePaolis.

When the organic rule went into effect, Wild Oats put up signage on the "Benefits of Organics" -- mostly on a healthy environment, a history of organic farming, touching on crop rotation, cleaner air, soil and water, reduction of soil erosion, support for biodiversity, humane livestock practices and healthy, flavorful food, Tuitele told SN.

"And, no GMOs," she added. "A lot of our customers tell us this is why they buy organic." The signs are still up, Tuitele said, because "we wanted them to have a longer shelf life."

"We look at [education] as a cooperative effort," said Ruth Mitchell, assistant vice president for communications, Hy-Vee, West Des Moines, Iowa.

"Certainly it is helpful and beneficial if the manufacturers are getting the word out. Still, when the customers come into the store, they are looking for help in the store," she said. Hy-Vee wants employees to take a keen interest in the natural and organic department, visiting with customers and answering their questions. Both Hy-Vee and Wild Oats have Health Notes touch-screen kiosks where consumers can find recipes, as well as what type of medical conditions can be alleviated by changing the diet.

To attract and keep natural and organic food customers, supermarket retailers rely on ways to educate the public to the benefits and to promote the fact that they carry natural and organic products.

"There's this image behind organic and natural food, that they can help you. Here's a category that's there to make your life better. Maybe that's why the category remains strong," James said.

Lund Food Holdings has done an extensive survey of its sales in the category, and James seems to know what makes that customer tick. Five years ago, she said, interest in the category was driven by aging baby boomers. Next it was Gen X, then Gen Y. Now, James said the name of that customer is the "multilayer consumer." That's someone who buys whole grains, organic eggs and milk, but does not object to stopping at a Taco Bell or McDonald's when on the road, or, if too rushed to make lunch for the children, doesn't mind if they eat school cafeteria food.

"The multilayer consumer is the grocery mass market consumer. That's important for the grocery industry to understand because as that consumer ages, their need for [natural and organic products] increases. They are more concerned with health issues; we can keep them shopping with us instead of going to a health food store or a co-op."