SEPARATE BUT EQUAL?

Lynne Miller

Segregate or integrate -- the jury's still out on which strategy works best for selling organic fruits and vegetables in a conventional produce department.

Organic produce is a fast-growing category, particularly for mainstream retailers still getting their feet wet in the organic pool.

In the 52 weeks ending June 11, sales of organic packaged fresh produce grew nearly 26%, reaching $511.7 million in the conventional food, drug and mass channels, according to SPINS, a San Francisco-based information and service provider for the natural products industry.

Separate organic produce sections within produce departments make a stronger statement about the size of a retailer's organic offering, retailers told SN.

"It's more noticeable," said Sam Fantauzzo, director of operations at Angelo Caputo's Fresh Markets, Addison, Ill.

Caputo's four stores in Chicago's western suburbs offer 12 to 18 linear feet of organic produce in a three-deck case. Packaged salads, organic and conventional, are in a separate case. The stores used to integrate organic with conventional produce, but in the past year switched to the segregated approach, Fantauzzo said.

"We've definitely seen increases in the movement of products," he said. "Generally I think people are able to notice the variety of items all together. It makes more of a statement than one or two items."

At the end of 2004, Kowalski's Market stores in the Twin Cities began rolling out segregated organic sections. Managers decided to create separate sections after listening to consumers in focus groups, said Terry Bennis, perishable-foods director for the St. Paul, Minn.-based chain.

"They would say, 'Do you carry organics?' When we pulled customers together, they'd say, 'We wish you would carry more organics,"' Bennis said. "We weren't getting credit for the variety of organics we had until we grouped them all together."

The only integrated categories are strawberries and bagged salad greens. Strawberries "sell better in a strawberry set, along with greens," Bennis said.

The rest, including bulk and packaged organic items, stretch across 16 to 20 feet, filling up five-deck produce cases. An eye-catching copper sign, stating "Organic" hangs above the case.

Since they made the change, store officials are seeing double-digit increases in organic sales, Bennis said.

"It was too confusing for the customer and too hard to keep everything separate when we integrated it," Bennis said. "We've found we had nice increases when we actually have separate organic cases."

SN toured H.E. Butt Grocery's Central Market in Austin, Texas in November, just after the 70,000-square-foot store had rolled out a segregated wall of organics in the produce department. The store had positioned all the organic items together to make shopping easier and more appealing for organic buyers, including those who feel strongly about keeping organic and conventional produce separate, officials said. They also thought a separate area would make a powerful statement about the large size of the offering -- 140 to 150 items, marked by yellow plastic signs.

"Listening to focus groups, we weren't getting credit for all our organics," John Campbell, the retailer's vice president of innovation, and the architect behind H-E-B's Central Market format, told SN during the store visit.

Since then, however, the store has switched back to displaying organic items near their conventional counterparts, an associate in the store's produce department said early this month. The separate section, near the entrance to produce, "confused" customers who were looking for conventional items that were on sale, the associate said. Sales actually declined when organics were separated. Within days of dismantling the separate section, however, officials saw organic sales jump back up to their previous levels, he said.

By merchandising organic and conventional side by side, consumers can compare the items and make better decisions, he said. "We gave [segregation] a good shot, and it proved that's not the way to do it," the associate said.

Other produce experts who favor integration point to the success Whole Foods Market and Wild Oats stores have had, using a mixed approach to sell both kinds of produce.

"We're going to stay with integration," said Brian Gannon, director of produce at Big Y Foods, Springfield, Mass. "People forget what the leaders in the organic business are doing. Whole Foods and Wild Oats don't have the merchandise segregated. There's a reason for that."

Separate sections appeal only to hardcore organic shoppers, who represent a tiny piece of the business, Gannon said. Segregated areas do not attract occasional or infrequent organic buyers and certainly don't entice shoppers who never buy organic. Gannon also thinks it's a mistake to display unlike fruits and vegetables in the same refrigerated case. Certain items, like tomatoes, should never be refrigerated anyway, he said.

"You won't get the majority of your other customers, the majority of your business, to go to that section," Gannon said. "It only makes sense if you have organics to integrate it in your normal category settings. Then all customers have equal opportunity to make choices. Segregated sections tend to look poor over time.

"When you segregate like that, people will tend to get more organic sales than they had before, but not anywhere near what you can achieve by putting organic choices into a normal setting. You can give yourself that visual punch by having that segregated section, but you'll sell more being integrated. There are other ways to get credit for the amount you have."

For example, eye-catching signs that identify the organic items can help boost sales and make a statement, he said.

Across the country, Seattle-based Town & Country Market stores follow a fairly complex scheme that integrates and separates the produce. The retailer sets up multiple displays when certain fruits and vegetables come into season. In certain produce subcategories, the retailer carries only organic product. Town & Country adopted the hybrid plan 10 years ago, and, until recently, saw healthy double-digit, year-over-year increases in organic sales, said Joe Pulicicchio, Town & Country's produce specialist. He blamed the recent slowdown on supply problems caused by bad weather.

"If I were promoting blueberries, you'd have a display of organic with conventional," he said. "During the melon season, you'll find organic melons in the organic section, but also in the [conventional] melon section. The stuff that's at its peak of season gets the regular organic display and goes up front with conventional. If it's in season and it's good and promotable, it earns more than one display. Year-round, we only sell organic, bunched carrots. We only sell organic leeks because they're the best quality. There are times we'll substitute an [organic] item for conventional and only sell that item for the week. We'll substitute organic Fuji [apples] when supply and cost is close. We'll merchandise it in the organic section and substitute it in the conventional area.

"By segregating you're catering to the hardcore organic shopper who wants to come in and buy all their organic stuff. Then you have the trendsetter who buys both. They may want to look and compare. They'll walk through both [sections]. That's why we display in duplicate. Then you have the conventional customer. If you display an organic item closely priced to a conventional item, they may buy organic. They need to be shown the item is [priced] competitively."

Town & Country's produce departments, ranging from 2,000 to 10,000 square feet, carry from 150 to 250 organic items, filling up about 30% of the department. Organic sales contribute a full 30% to overall produce sales, far above the industry average, Pulicicchio said.

"We merchandise organic aggressively," he said.

On a visit to a Safeway in Tahoe City, Calif., a veteran organic marketer noted the organic salads were displayed in the value-added produce section. Next to the case was a mix of organic vegetables, including celery hearts, romaine hearts and carrots. The other organics were integrated throughout the department, she said.

"It was really one of the best examples of merchandising that I have seen for organics," said Tonya Antle, vice president of organic sales for Earthbound Farm, a leading grower and shipper of organic produce, based in San Juan Bautista, Calif.

Antle acknowledged there's no one-size-fits-all strategy.

"However, integration consistently proves itself as the best way to keep existing consumers shopping organics as well as for introducing the borderline shopper to organics," she said. "It allows the consumer to make a buying decision based on a side-by-side comparison of appearance as well as price. If the retailer is wanting to only segregate the organic produce, then it must be located in the power alley, next to the salad set."