PROMISES, PROMISES

Robert Vosburgh

In the perfect world of WH's first-ever online survey regarding whole health, traditional supermarkets would stock more health-oriented perishables, snack foods and supplements. They would enjoy higher profits because management had been inspired by consumer demand for these types of products, and made room for them on the shelf and in the case.

Alas, the reality is much different: A significant majority of respondents from all classes of trade believe that, while mainstream operators stand to benefit the most from the whole health movement in the coming year, they have yet to take full advantage of emerging opportunities.

Nearly 61% of all those polled believe that supermarkets would be the primary format to gain the most volume and profit by offering better-for-you and good-for-you products. Even those describing themselves as retailers agree (59%).

At the same time, however, a full 85% of all those polled stated supermarkets are not acting on these opportunities. Among retailers, the number was similar. Eighty-two percent said their own industry has thus far failed to take the initiative in sourcing and stocking more health and wellness products.

Why? Both groups, all of those surveyed and retailers themselves, blamed "management reluctance" (55% and 50%, respectively). Those who wrote in specific responses shed some light on the raw numbers.

"Consumers are slowly making health/wellness adjustments in their lifestyles and until it is more widespread, management is reluctant to shift focus from traditional offerings, based on a return-on-investment point of view," wrote one.

"Putting new items in the store is easy, but items on their own will not [create] any emotional connection with the consumer," wrote another. "As with any initiative, a strategic decision must be made at the highest level of the organization, and supported and nurtured until the initiative becomes a cultural element of the organization. This process [takes] time."

Several other reasons emerged detailing the lack of action in implementing stronger health and wellness selling programs. Twenty percent blamed poor forecasting, and 10% even cited lack of consumer interest.

A number of respondents had their own reasons, and many saw a severe absence of initiative on behalf of the supermarket industry. Lack of knowledge, lack of expertise and lack of communication were just a few of the reasons mentioned. Other responses revealed a depth of frustration with current retail thinking:

"Big-box supermarkets are still bent on generating vendor income vs. having superior product offerings in their markets," wrote one observer. "The ones who 'get' this win big, and often. The others are left to cycling through yesterday's merchandising strategies."

Wrote another: "Low effort [has been] put into marketing and delivery to the consumer. For example, stores carry organic produce with poorly maintained product at premium prices."

Retailers are "not understanding the needs/wants of the natural/organic consumer; providing scant assortments of natural foods that are surpassed by even a small independent health food store; and not promoting natural/organic items," stated a non-retail respondent. "Too many retailers are still relegating [health and wellness items] to a separate set that creates a ghetto effect."

Others acknowledged current market conditions in the supermarket industry, noting that at present, there simply does not appear to be enough business in the health and wellness categories to support a significant investment.

"There's a lack of true market space, and the cost of promotion, maintenance of the area, and the time and training it would take to get people who would be able to really be of any help to those in need," said one.

"Supermarkets are serving such a significant portion of the population, and it is a diverse group," wrote another. "Overall, it is probably not worth the time and effort to invest in offering some specialty items which will only serve a small portion of the clientele they serve."

Yet another noted that with store real estate at a premium, any expansion of the health and wellness area would cause a resulting downsizing in core grocery, "which grocers historically are reluctant to do."

Certainly, supermarket executives have seen a noticeable increase in the number of manufacturers knocking on their doors toting a new or improved product matching the better-for-you or good-for-you profile. Every week there are new findings announced in the consumer media regarding some aspect of diet, aging and well-being. Recent studies and reports all point to a burgeoning wholesale shift by the American public to a deeper consciousness of their overall health:

- Mintel, Chicago, reported last November that the functional foods market had broken the $10 billion mark, and was expected to grow an additional 23%, to nearly $13 billion, by 2009.

- An emerging umbrella market, representing all products sold to promote personal health or to benefit the environment, was estimated at a whopping $440 billion in the United States by the Nutrition Business Journal. Anything associated with this market, from consumer foods and nonfoods to industrial services, grew 6.3% in 2003.

- The annual report on American eating patterns by The NPD Group, Port Washington, N.Y., found that 27% of people said they are conscious of the calories in their foods -- the highest level since 1999. The finding that the percentage of people considering themselves overweight held steady at 62%, for the second consecutive year, supported that response.

- A survey of more than 1,000 food and beverage industry executives around the world conducted by Reuters Business Insights late last year found that low-fat, low-cholesterol and diabetes-friendly products will be the most profitable areas of development.

The WH poll revealed almost all respondents believe the performance of health and wellness categories will increase in the next 12 months (89%), while 9% predicted it will remain the same. Only 2% said it would decrease.

Retailers responded in the affirmative in even greater numbers. Ninety-one percent stated that health and wellness will grow as a category, and 9% said it would remain the same. None believed it will decrease.

The range of this growth is not so clear-cut, however. Among all respondents, 35% said category activity would increase by more than 10%; 24% said 7% to 9%; and 33% said 4% to 6%. The remaining 9% said performance would grow by only 1% to 3%.

Notably, all of those respondents classifying themselves as retailers on the poll said health and wellness performance will grow -- though here again, the range of growth is varied, and in addition, almost evenly distributed among the choices: 33% predicted growth of 10% or more; 22% said 7% to 9%; and 32% said 4% to 6%. Like all respondents, the percentage of fewest retailers (13%) said category growth would be limited to 1% to 3%.

Passions ran high in the poll, as nearly 300 of the respondents wrote in when given the opportunity to elaborate on their choice regarding the scope of predicted growth. "As organics become more mainstream and price points fall more in [line] with conventional produce prices, I would expect the 10% increase," wrote one, in referring specifically to fresh fruits and vegetables.

Another foresaw single-digit growth because of the cyclical nature of dieting habits associated with New Year's resolutions.

"While the beginning of the year will show a large increase, potentially in the double digits, not all customers stick with their choices and revert back to old habits, thus balancing growth by year-end," the person wrote.

Commenting on retailer activity, another put his growth estimate this way: "It'll take awhile to change behaviors, so I don't see huge gains overnight. However, slowly I think some good supermarket operators can improve [their position] -- with employees, products, material, services -- in the area of providing health solutions."

Last year's low-carb phenomenon flavored the opinions of retailer respondents evaluating growth of whole health categories.

"The 'carb craze' accounted for a large increase in health and wellness sales last year as a lot of companies rolled out product to jump on the bandwagon," wrote one operator. "I think this year there will be a displacement of those products, as many were less than well-received. Natural and organics will see the largest dollar and percentage increase in sales [this year]."

WH asked respondents about their stores, or, if they were not retailers, the stores they primarily shopped in. A majority of all those polled, 58%, said that natural and organic items were relegated to a separate section; another 25% said these products were integrated. Most, 82%, said they did not anticipate that the current merchandising scheme in their store would change over the next 12 months.

One person stated that the problems supermarkets may be experiencing with the expansion of health and wellness categories can be tied directly to the issue of segregation.

"Most chains are treating the wellness products as a separate department, merchandised together," the person wrote. "To gain greater exposure and adoption it must be integrated into the normal category sets throughout the store."

Nearly one-half of retailer respondents -- 48% -- stated their sections are currently segregated, while 34% said health and wellness items are integrated with their conventional counterparts. Here also, a majority -- 73% -- said they did not anticipate any change to the current merchandising setup over the next year.

One retailer wrote that his chain employs all the merchandising strategies listed in the poll question, depending on location.

"Our stores are diverse in size and demographics. We have stores that have 'store-within-a-store' concepts with separate sections," he wrote. "We also have stores that integrate product in regular sets. And further, we have stores that have separate sections and additionally integrate certain items in regular sets."

The WH survey asked respondents whether they or their households shopped for health and wellness-related items. Seventy percent said yes, and most of them, 44%, made their purchases in the supermarket channel. Another 18% patronized independent natural food stores.

Interestingly, many products that respondents are purchasing in the health and wellness categories are private-label items. More than 60% stated that the supermarkets they either operate or shop in offer natural and organic private labels. Mirroring the findings of other surveys, milk and produce were the top categories mentioned (41% and 40%, respectively); followed by snacks (38%); frozen foods (34%); beverages (33%); other dairy (32%); breads/baked goods (31%); and meats (26%).

Of those respondents who are retailers, 4% stated developing natural/organic private label has been or is currently a priority in their company, and another 18% stated they are researching private label's potential in health and wellness.

WH also asked whether the stores that respondents operate or shop in offer a dedicated information area on issues related to health and wellness. This question was posed to determine how much attention retailers are devoting to the consumer education aspect of the category, since it is mentioned frequently as an essential component of any successful health and wellness program.

To that end, it appears that a lot of information is still lacking in stores. Nearly 63% said there is no such area, but 34% said a space is stocked with pamphlets and related printed materials. Sixteen percent said there is a staff person in the area, and 9% said the area includes an interactive information kiosk.

About this survey

WH's survey was conducted via e-mail newsletter and from the Web site of parent publication Supermarket News, www.supermarketnews.com, for two weeks in early January. Respondents included retailers, wholesalers, sales and marketing agencies, manufacturers, etc. Nearly 450 responses were received.

Identify your type of company:

(Choose all that apply)

Food retailer: 24%

Food wholesaler: 12%

Manufacturer: 32%

Sales agency: 15%

Other: 25%

What is size of your company/division in dollar sales:

Under $500 million: 62%

$500 million to $1 billion: 10%

$1 billion to $2 billion: 6%

$2 billion to $5 billion: 7%

Over $5 billion: 15%

What store format do you believe will benefit most from the whole health movement in the coming year?

ALL RESPONSES; RETAILERS

Supermarkets: 61%; 59%

Mass merchandisers: 13%; 9%

Drug stores: 2%; 0%

Independent natural food stores: 22%; 31%

Other: 2%; 1%

Do you believe supermarkets are taking full advantage of the emerging opportunities in health and wellness?

ALL RESPONSES; RETAILERS

Yes: 15%; 18%

No: 85%; 82%

If "No," why not? (Choose all that apply)

ALL RESPONSES; RETAILERS

Poor forecasting: 20%; 26%

Management reluctance: 55%; 51%

Lack of consumer interest: 10%; 14%

Other: 17%; 17%

How do you expect health and wellness-related categories to perform in supermarkets in 2005 compared to 2004?

ALL RESPONSES; RETAILERS

Increase: 89%; 91%

Decrease: 2%; 0%

Remain the same: 9%; 9%

If "Increase," by what amount do you expect?

ALL RESPONSES; RETAILERS

10% or more: 35%; 33%

7%-9%: 24%; 21%

4%-6%: 33%; 32%

1%-3%: 9%; 14%

If "Decrease," by what amount?

ALL RESPONSES; RETAILERS

10% or more: 30%; 0%

7%-9%: 30%; 0%

4%-6%: 30%; 0%

1%-3%: 10%; 0%

Do you currently shop for specific health and wellness-related items?

ALL RESPONSES; RETAILERS

Yes: 70%; 66%

No: 30%; 34%

If "Yes," what is your primary store choice?

ALL RESPONSES; RETAILERS

Supermarkets: 64%; 68%

Mass merchandisers: 6%; 6%

Drug stores: 2%; 3%

Natural food stores (Independent): 26%; 24%

Other: 2%; 0%

Exercising Your E.S.P.

WH's survey also asked respondents what issue will shape nutritional trends in the coming year. Multiple answers were allowed.

Not surprisingly, low-carb foods received the fewest votes, though 23% believe that last year's incendiary diet plan still has some fat to burn. Of the seven specific choices offered, the majority (58%) cited an old mainstay, organics, as their No. 1 choice, followed closely by trans fats (56%). Other concerns gaining high numbers included: low-sugar foods (42%), omega-3 (34%) and low-fat foods (33%). Soy-enhanced foods rounded out the seven choices, with 28%.

Retailers' responses differed in that 61% chose trans fats as the top issue, followed by organics (59%). Supermarket operators agreed with the total respondents group on the order of the remaining four: low-sugar foods (41%), low-fat foods (36%), omega-3 (38%) and soy-enhanced products (34%). Here again, the issue with the least responses was low-carb foods, at 24%. A number of write-in responses were entered on this question. Three retailers who did so stated that gluten-free products would be key topics over the next year; another three mentioned whole grain/higher-fiber products. Yet another was a bit more jaded.

"Whatever diet fad replaces low carb will be the next trend," the retailer wrote.