WHOLE HEALTH 1998-11-30

MICHELLE BREYER

HOUSTON -- Randalls Food Markets here has launched a new store-within-a-store concept called Nutrition Zone, which offers an expanded line of vitamins, minerals and nutritional supplements, as well as sports and weight-management products. The department also features books, magazines and videos about health and fitness.

The retailer opened its first 2,500-square-foot Nutrition Zone in Houston earlier this month, followed a week later by an 1,800-square-foot department in a remodeled store in Austin.

Tye Anthony, group vice president of nonperishables for Randalls and the main force behind Nutrition Zone, said the concept is the result of a growing number of customer requests over the past nine months. Randalls waited to find the right locations for the concept, stores with the right demographics and ample space.

"A lot of people believed the only place they could get these products was a Whole Foods," Anthony said, referring to the Austin, Texas-based chain of natural-foods supermarkets. "As they've seen them in more mainstream retailers, they've come to expect to find them there."

Randalls has around 1,500 stockkeeping units at its Houston Nutrition Zone -- including 1,200 SKUs that are new to Randalls -- and 1,000 SKUs in the Austin location. The number of SKUs in the average nutritional department at mainstream supermarkets is between 1,800 and 3,000, according to the Food Marketing Institute, Washington.

"Our approach has been not to go overboard with it," Anthony said. "We want to capitalize on an opportunity. But we want to make a profit as well."

The Nutrition Zone differs from other supermarket nutrition departments in that it places a larger focus on fitness and diet products. At the Austin store, for example, an entire aisle is dedicated to diet products like Slim Fast.

Rather than the metal gondolas found elsewhere in Randalls stores, the Nutrition Zone has low wood shelving and special signage. The Austin store also has a refrigerator unit along one wall.

Randalls hasn't gotten a lot of supplier support for the project, Anthony said. So far, the company has tried to manage on its own, using Randalls personnel experienced in these kinds of products.

The chain has yet to advertise the Nutrition Zone, but Anthony said it was essential to locate both departments near the stores' pharmacies, a high-traffic area for Randalls. The location, he said, is the main form of advertising for the department.

"A lot of people getting prescription drugs are looking for whole-health items as well," Anthony said. "That more than anything attracts attention to the department."

The Houston Nutrition Zone is located away from the store's main traffic area, while the Austin department is located in the center of the store, in back of the pharmacy.

In the future, Randalls may consider using print and direct-mail advertising to draw customers into the department. Additional Nutrition Zones will be added in several Houston stores, Anthony said. "The decision to expand will depend upon our success."

As the Nutrition Zone illustrates, the line between natural-food supermarkets, health food stores and traditional grocery stores continues to blur.

Large supermarket chains like Albertson's, Safeway and A&P are attempting to take advantage of the double-digit annual growth for whole-health products -- a market projected to make up $42 billion in sales by the year 2000, according to FMI and the General Merchandise Distributors Council, Colorado Springs, Colo., the supermarket industry's two main proponents of a whole-health merchandising strategy.

GMDC and FMI are urging supermarkets to integrate natural and over-the-counter remedies, nutritional supplements, self-care devices, healthy foods and the pharmacy -- a move meant to increase consumers' interest in wellness and to boost revenues.

Anthony said Randalls has gleaned some important information from the FMI and GMDC whole-health initiative. "It's exactly what we're trying to accomplish," he said.

If the statistics are to be believed, many more Nutrition Zones may be popping up in Randalls' 116 stores. Prevention magazine's annual "Shopping for Health" study, conducted in conjunction with FMI, showed that 57% of 1,000 supermarket shoppers surveyed said they are more aware of the benefits of healthful eating than they were 12 months ago. Fifty-six percent said they now are eating more healthful food than they were 12 months ago.

Conventional supermarkets may have a leg up on the competition. A 1997 study by Hartman & New Hope, a Bellevue, Wash., research firm, found that 80% of consumers seeking organics would rather buy them in conventional supermarkets.

"People don't want to make special trips to 10 different stores," Anthony said. "They depend on their supermarket to be as much of a one-stop shop as possible. [The Nutrition Zone] is another step in that direction."

The move into whole health makes good business sense for grocery retailers like Randalls, many of which are enjoying double-digit sales growth in the related categories. Products sold at natural-foods stores, such as vitamins and organic products, bring high profit margins, too. For those supermarkets with nutritional departments comprising packaged natural and organic foods, vitamins and supplements, sales are running at 1% to 1.5% of total store sales. Average profit margins range from 30% to 40%, depending upon the category.

Whole health is also a way to hold on to customers. Howard Solganik, president of retail food consultant Solganik and Associates, Dayton, Ohio, said chains like Whole Foods pose an increasingly bigger threat to conventional supermarkets, taking away shoppers who tend to have a lot of disposable income. The market for whole-health products ranges from senior citizens to Generation Xers and includes high- and low-income shoppers alike.

"Many customers will buy natural and organic products if they are available in the place they already shop," Solganik said. "But they may not go out of their way to buy them."

In Texas, Randalls' Nutrition Zone rollout follows on the heels of one of its most formidable competitors, H.E. Butt Grocery Co., San Antonio, which has been dedicating a growing amount of space to natural foods, vitamins and supplements. Natural, organic and specialty foods have been the focus of H-E-B's Central Market in Austin, which opened four years ago. Central Market now has a healthy-living section devoted entirely to nutritional supplements, herbs and natural self-care products.