LOOKING AHEAD 2007

INTEGRATION

PRICE CHOPPER, WEGMANS AND BASHAS' are among the retailers that have started taking steps to integrate health and wellness into their conventional aisle layouts. The activity marks a key turning point in the way such items are merchandised in mainstream supermarkets.

What's changed? There are several forces at work, according to industry observers:

In general, comfort levels dealing with natural and organics seem to have reached a threshold, prompting mainstream retailers to move forward with the next phase of their integration plans. In a regular column she writes for shoppers, Mary Ellen Burris, senior vice president of consumer affairs at Rochester, N.Y.-based Wegmans, provided some insight into why the chain is moving toward full integration in the produce department. “There are higher organic sales with such integration,” Burris wrote, noting one customer who was pleased with the change, since it allowed the shopper “to move from section to section — broccoli to apples to greens — and know immediately whether I had an organic option.”

There's little doubt that a direct correlation exists between the degree of integration and consumer satisfaction. Jesse Singerman, a consultant and former director of natural and organics for Roundy's Supermarkets, notes that integration is a merchandising plan that's based on shoppers, not reset speed or the cost of labor.

“When people are shopping for green peppers, they want to shop for green peppers, and they want to shop for soup when they're looking for soup,” she said. “Most of the trials I've seen do increase sales of natural and organic.”

As a merchandising scheme, segregation has limited appeal, because it goes against natural shopping behavior, adds Harvey Hartman, president of The Hartman Group, Bellevue, Wash.

“Why they never went to the segregated section in the first place is, ‘I'm a mainstream shopper, and when I shop I'm habitual in how I shop as well,'” he said. “They're not necessarily looking for health and wellness. What they're looking for today are products that they're comfortable with.”

At Bashas', based in Chandler, Ariz., four stores in the chain have been reset to reflect the integration trend, according to Paul Howland, the retailer's natural foods buyer/merchandiser.

“We are building sections right next to the conventional sections, with merchandising tools like side flags, headers and green strips in the shelf channels,” he said, describing the plan as segregated-integrated.

“We still see the trend of people wanting to eat and live healthier. So we feel that if we put these products in line next to theirs, they're more likely see that item and change over,” he added.

The Natural Choice store-in-store sections in the four stores are also changing. In a few, Bashas' has begun displaying energy bars, New Age waters and related lifestyle products within the section to occupy the space vacated by the outgoing conventional aisle-bound products, which include higher-volume categories like cereals, snacks and non-dairy beverages.

Segregation-integration planograms can be found in 95% of Price Chopper stores. The 115-store chain, based in Schenectady, N.Y., has been slotting natural and organic foods into at least a few conventional aisles for at least 10 years, according to Mona Golub, the chain's spokeswoman.

“The difference today is that there are so many products that fall into natural and organic categories that it's practically impossible to boutique them, so integration is necessary,” she said. Golub added that the remaining stores have large boutique store-in-store sections that are very popular with customers, and the chain has been more careful about “determining how to break those down and still deliver the message that we carry all of these products.”

As chains gain experience and confidence with natural and organic products, they'll continue experimenting with any number of variations on the segregation-integration theme. According to Hartman, it's no longer just about reformulated cereals and low-sodium frozen meals for this growing group of consumers.

“In their eyes, what isn't a health and wellness product today?” he asked. “It's not driven by a particular category anymore.”
— ROBERT VOSBURGH

ENERGY EFFICIENCY

THESE DAYS, THERE'S AN ENERGY-EFFICIENT ALTERNATIVE to every square inch of the supermarket: Smaller packaging, recyclable bags, skylights and solar panels. Companies can even plant rooftop greenery to naturally absorb heat and help keep a building cool in the summertime.

Implementing any of these measures is good for publicity. But that's not the sole reason why more and more supermarkets have decided to go green as of late.

“There's clearly a human benefit,” said Alexis Karolides, architect and principal with the Rocky Mountain Institute, a Colorado-based consulting firm specializing in energy-efficient design. “But there's also a cost benefit.”

Often, it's a matter of scale. Energy conservation can save retailers millions, sometimes billions, of dollars. Several months ago, Wal-Mart announced its plan to reduce overall packaging by 5%, a move that the company estimates will save more than $3 billion over the coming years. And studies have long shown that natural lighting — something many supermarket chains have started to embrace — not only cuts electricity use, but can also make the shopping experience more pleasant for the customer.

All of this begs the question: Why aren't supermarkets doing even more? Every national chain has taken steps toward energy efficiency, but most merely have their toes in the water.

According to Karolides, who has worked on energy projects with the likes of Wal-Mart and Ahold-owned Stop & Shop, the capital cost of outfitting a supermarket with solar panels or a new refrigeration system is steep. Since the industry operates on low profit margins, executives are often reluctant to open their wallets.

“It's that perception of cost that's keeping them from getting over that hurdle and making those changes,” said Karolides.

Saving energy in the supermarket world, analysts say, is more of a snowball effect than a jumping-in. Companies like Safeway are enjoying the benefits of buying wind power. There's also Price Chopper, which is weeks away from unveiling plans for an ultra-efficient prototype store using environmentally friendly building materials; in the

Southeast, Food Lion has cut energy costs by more than 27% since 2000 by implementing standards like more efficient refrigeration.

As they move forward, so too should the rest of the industry.

“We are heading in the direction of a new generation of supermarkets,” said Mona Golub, Price Chopper's spokeswoman.
— JEFF WELLS

CO-BRANDING

STRIKING THE RIGHT BALANCE between healthfulness and mainstream awareness translates into big bucks for manufacturers these days. But finding a strong enough toehold can be difficult, especially in an increasingly crowded marketplace.

Many companies are finding a blissfully uncomplicated solution: Rather than building a new name from the ground up, they're simply co-opting another brand that fills their need.

“As consumers become more health-conscious, manufacturers are taking the health equity that some of those brands out there are building, and they're transferring it to their product,” said Jeff Hilton, president of Integrated Marketing Group, a Salt Lake City-based brand consulting firm that focuses on the health and wellness market.

The co-branding process allows mainstream players to get the healthy edge they desire, while up-and-coming wellness manufacturers get the exposure they need. Sounds like an easy win-win, right?

Not quite, according to Allen Adamson, managing director at the New York office of Landor Associates, a major player in brand consulting. Co-branding can be a very basic, cost-effective step forward, he explained. But finding the right match is the most important challenge.

“Both brands need to be very well defined and make sense together,” said Adamson. “If you force it, it never works.”

Despite the tricky footing, more and more companies are trying their hand at co-branding. For example, Newman's Own has been enjoying a great boost in visibility — and sales — since it partnered with McDonald's in a line of entree salads. And, earlier this year, Price Chopper Supermarkets adopted the Newman's Own label for some of its private-label cereal offerings.

And unions aren't just forged between food companies. More and more branded ingredients — ginseng, ginkgo biloba and the like — are also partnering with well-known manufacturers. This all started with the beverage industry, Hilton said. Now, it's begun to spread into foods like energy bars and cereals, and is especially popular with the Baby Boomer generation.
— JW

LOCAL SOURCING

LOCAL FOOD HAS REALLY MADE A HOME for itself in supermarkets, and retailers are making room. Sales of locally grown items are expected to top $5 billion in 2007, according to a new report from market research publisher Packaged Facts. Produce by far is the most popular category consumers are buying, but bakery, meat and even dry grocery are benefiting from the trend.

“People who care about local are pretty passionate about it,” said Mona Doyle, president of The Consumer Network, a shopper alliance tracking retail issues. “They do think it's something worth paying more for. Local and small is part of an anti-Wal-Mart, anti-corporate mentality that's popular right now.”

The trend has caught the attention of retailers large and small, including Steve Smith, president and chief executive officer of K-VA-T Food Stores, Abingdon, Va.

“We bought $6 million of locally grown produce last year,” he said. “We started in 1999, when we bought half a million, so it's just grown exponentially over the last seven to eight years.”

Some chains have gone so far as to restructure their buying offices to more aggressively seek out local foods. Whole Foods has done it, as well as Great Britain's Tesco, which last year launched an initiative with a dedicated staff to include more local items throughout each of its market regions.

“[The products] also have a story or narrative behind them, and are meaningful to consumers,” said Harvey Hartman, president of The Hartman Group, a consulting and research firm in Bellevue, Wash.

Supermarket retailers enjoy enormous advantages as purveyors of locally sourced products. Experts point out that the new importance of food in consumers' lives means retailers often resonate more authentically than manufacturers. The growing emphasis on fresh, local items only reinforces that opinion.

“Retailers can create an architecture for themselves that's very powerful and believable at the consumer level,” said Hartman.
— RV

CONVENIENCE

HEALTH AND WELLNESS CONSUMERS are still on-the-go consumers, and are demanding easier and faster — but still healthful — foods that can keep up with their pace. Manufacturers are trying to meet them halfway with reformulated products and new entries. For example, Campbell Soup Co. has crafted options like V-8 Fusion, a beverage containing a full serving of vegetables and fruits in each bottle. In snacks, there's the portion-control, 100-calorie packs pioneered by Kraft Foods. Sales of those small-portion items grew 47% last year, according to Information Resources Inc., Chicago. And what retailer isn't up to his or her neck in food bars?

“Manufacturers have the health thing down, they have the taste part down, and now they're starting to add in convenience as well,” said Sheila McCusker, editor of IRI's “Times and Trends” report, which tracks the retail industry.

Indeed, many foods reaching to bridge the health-convenience gap are building awareness by appealing to specific nutritional needs. Trying to lose weight? Use portion-controlled foods. Looking for an early-morning boost? Grab a vitamin-rich juice. Good digestion and improved immunity come via probiotics, currently the rage in the yogurt category.

“Americans always want things to be easier, but that word ‘easier' is always being redefined,” said Harry Balzar, a veteran food analyst with the NPD Group, Port Washington, N.Y.

Virtually every supermarket category today has a shelf reserved for convenience items. Some, however, demand their own space. The stunning popularity of food bars continues to rise, exemplified most recently with General Mills' partnership this spring with weight-control plan Curves. The branded line includes four new products, including granola bars. They join Special K cereal bars and Snickers Marathon Energy bars in a category that, more than any other in the supermarket, represents just how mobile some traditional foods have become.

“Now there are just so many facets to the idea of ‘healthier,'” said McCusker.
— JW

HEALTH SERVICES

FOR YEARS, SUPERMARKET HEALTH CARE offerings were largely limited to annual flu shots and blood pressure machines. But in the past 12 months especially, retailers across the board, from regional chains to Wal-Mart, have aggressively stepped up their health services. In the supermarket segment, the trend has been toward in-store clinics and staff dietitians. Each serves a distinct purpose, but both enhance relationships with customers in an environment of food and pharmacy products. The activity is centered in and around the pharmacy, but the whole store can benefit, experts say.

Take Schnuck Markets, for example. In May the St. Louis-based supermarket chain announced the opening of its fourth in-store infirmary, operated by health care provider instaClinic. Like other companies, instaClinic sees customers without appointments, providing physicals, immunizations and minor medical care. The cost of treatment by a nurse practitioner ranges anywhere from $19 to $110 — far less expensive than a trip to a primary-care physician's office.

“As our pharmacy staff works to provide extended information and counseling, instaClinic's nurse practitioners have been a natural partner for us,” said Schnuck's spokeswoman Lori Willis. “The convenience of receiving medical diagnosis and suggested treatment in close proximity to where they can find medications has proved popular.”

According to a recent study conducted by Information Resources Inc., Chicago, 87% of retail executives reported that sales in the pharmacy outpace those in the rest of the store. Figures like this highlight why supermarkets want to add clinics.

Retailers like Hy-Vee and Pathmark are working toward this by adding dietitians to their company roster. Over the past three years, Hy-Vee has hired nearly 100 such experts.

“We've been through a rebirth of how we position our dietitians,” said Christine Friesleben, spokeswoman for Hy-Vee.

The industry won't see a slowdown on the health care front anytime soon. Hy-Vee as well as others are looking to continue hiring dietitians, and the number of in-store clinics is expected to double by the end of the year.
— JW

ICONS

BUSY TIMES DEMAND convenient solutions, and supermarket shopping is no exception. Retailers and manufacturers have responded with a palette of symbols, icons and logos designed to act as a kind of consumer shorthand.

Along with shelf tags, retailers such as Safeway and Wegmans use on-pack icons that address a variety of nutritional claims, including sodium, fat, gluten and allergen content. Dorothy Lane Market, Dayton, Ohio, uses shelf tags to identify organic and gluten-free products, and puts “Eat Real Food” stickers on store-brand items that are minimally processed. In Lubbock, Texas, United Supermarkets uses shelf tags to identify heart-healthy, gluten-free and other products, while Rosauers in Spokane, Wash., uses special blue tags to highlight diabetic-friendly items.

The master of this effort is Hannaford Bros. The Scarborough, Maine, chain last year went beyond everyone else when it introduced its Guiding Stars program. This proprietary three-tier rating formula credits a food's score for the presence of vitamins, minerals, fiber and whole grains, and debits the score for trans fats, saturated fats, cholesterol, added sugars and added sodium.

Manufacturers have developed their own slate of initiatives, such as PepsiCo's Smart Spot and Kraft's Sensible Solutions programs. While the information is helpful, critics say the end result is too many symbols and confused customers.

“It would be good to clear away some of the underbrush and get to the heart of the matter, which is what would be most useful to consumers,” observed Michael Jacobson, executive director of Center for Science in the Public Interest.

The organization is calling on the Food and Drug Administration to develop a national set of symbols to identify the health attributes of individual food products.
— RV

SUPERFOODS

OMEGA-3 FATTY ACIDS, ANTIOXIDANTS AND PROBIOTICS are just a few of Mother Nature's ingredients getting a human-grade makeover. As researchers uncover more benefits of these food elements, manufacturers are scrambling to add them in creative ways to just about any food. For example, a special formulation under refinement by ingredient processor Cargill will allow manufacturers to add up to 150 milligrams of omega-3s per serving without changing taste or texture.

“We're changing our food supply, so that consumers who don't like one type of product can find another product with the same good, wholesome nutrition,” said Roger Clemens, a spokesman for the Institute of Food Technologists, Chicago. People who don't like yogurt, for example, will be able to get their probiotics through a juice or cereal.

“It's only going to gain momentum as the companies invest in the ingredients and the clinical studies to substantiate their position,” he said.

One of the biggest beneficiaries of superfoods has been commodity categories where meat, seafood and produce are basking in a health halo. Sales for produce items like broccoli and blueberries are up because of studies demonstrating their high antioxidant content. Seafood, particularly salmon, has almost become synonymous with omega-3s, helping to increase sales in that category.

“Everybody I talk to across the country — up, down, sideways, back and forth — say sales are up, and all attribute it to the health message,” noted Evie Hansen, president of National Seafood Educators in Richmond Beach, Wash. “Twenty years ago I knew about omega-3s, but the whole science was so ‘way out there' and bizarre, talking about it in a conversation made it sound like I was selling snake oil.”

Given the direction of current research, the growth can be expected to come in processed foods, rather than perishables. Researchers are already uncovering new dietary powerhouses, including those found in algae and coffee.
— RV

IMPORTS

LIKE THE CONVENTIONAL FOOD INDUSTRY, whole health relies on imports for everything from basic commodity ingredients to finished products. The situation is especially sensitive for health and wellness, however, since products under the banner are marketed to consumers who by nature are more aware of, and concerned about, the sources of their food.

That's why regulations like those for organics are so helpful, since they apply not just to domestic manufacturers, but overseas producers as well.

“They have to have their paperwork in place. It's not something they can fudge overnight,” said Barbara Haumann, spokeswoman for the Organic Trade Association.

Right now, the focus is on products shipped from China, though dozens of countries — including Canada — have had edible goods stopped at the border due to quality or safety issues. In theory, organics are less troublesome because production methods are subject to more attentive oversight at the source, as outlined in the National Organic Standards.

“With organic you do have a way of tracking if there's a concern about specific areas,” said Haumann.

The United States will likely import $70 billion in agricultural products for the 12 months ending in September, according to the U.S. Department of Agriculture, nearly double the $36 billion purchased overseas in 1997. Critics point out that the number of inspections is falling, however, and there lies the biggest concern. They argue that the current “risk-based” system is inadequate and is merely a cover for the lack of inspectors.

In response, Andrew von Eschenbach, commissioner of the Food and Drug Administration, has said the public misunderstands the role of such evaluations.

“Inspections have a very important role but they're not the solution. They are the verification,” he said in a published report.

As import problems continue to make headlines, industry observers believe that repeated cases of high-profile stories like those coming out of China may drive consumption of local or domestic products, and may end up propelling country-of-origin legislation back onto the front burner.
— RV

SPECIAL-NEEDS MARKETING

AN ESTIMATED 2 MILLION PEOPLE in the United States suffer from celiac disease, an autoimmune disorder triggered by the wheat protein gluten. But the numbers alone don't explain the hefty sales of gluten-free food — currently at $800 million per year, according to SPINSscan data. It's become big business; over the past year, for example, those foods labeled gluten free, along with those targeted to individuals with diabetes, experienced double-digit growth.

Experts believe gluten is one of several staple ingredients that have become casualties of a self-diagnosing epidemic. From excess gas to nebulous aches and pains, ills of all sorts now have consumers pointing to ingredients like dairy, sodium and sugar — even after a diagnosis sets them in the clear.

“These people can't figure out what it is that's making them feel bad, so they're looking more and more to the food they're eating as a potential culprit,” said Michelle Barry, senior vice president of The Hartman Group, a consulting firm to the natural and organics industry.

To be sure, some of this sales boost can be attributed to the rising number of people diagnosed with celiac disease, food allergies of Type 2 diabetes. But the fact remains that self-medication is a bold cultural statement, as well as a marketing opportunity.

Eager to capitalize, retailers and manufacturers are placing special-needs foods front and center. Both Food Lion and Bashas', for example, devote individual shelves to gluten-free items.

“The numbers aren't huge, but the people who need that product will be very loyal to your store for carrying a selection of it,” said Paul Howland, who heads up Bashas' Natural Choice section.

As the category grows in popularity, so too do the dining options. These days, people can avoid usual suspects like gluten and sugar and still eat bread, cookies, pizza and cake. And they can increasingly do so without sacrificing taste.

Theories vary as to why consumers with a clean bill of health now train their sights on food to cure and prevent what ails them. One, which surveys support, holds that people are disillusioned with the medical community. Another is that consumers' food attitudes may be too sophisticated for their own good.

“We've adopted a specialized mind-set, so it's easier for us to believe we can incorporate this specialty into a health regimen,” said Barry.
— JW