WHOLE HEALTH 1999-03-08

CHRISTINA VEIDERS / Additional reporting: JOEL ELSON

For supermarkets to compete in the fast-emerging wellness market, dietary supplements are critical.

By virtue of the fact that the $10 billion category is slated for continued growth into the next century, with double-digit increases expected for herbs and miscellaneous supplements, retailers need to rally around a platform that emphasizes the benefits of healthy living.

The entire category is projected to grow at an annual rate of 8% to 9% over the next five years, according to market research firm Hartman & New Hope, Bellevue, Wash.

"Vitamins and supplements are the fastest-growing segment and the most exciting part of the market," said Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill., who authored the two "whole-health" studies now being embraced by many supermarket chains.

The early forerunners of the whole-health movement, of which dietary supplements are a main component, have been natural-food supermarkets such as Whole Foods Market, Austin, Texas, and Wild Oats Markets, Boulder, Colo. Now mainstream chains are coming on board with whole-health and wellness concepts that provide a stage for nutritional supplements.

Last month, Bashas' Markets, Chandler, Ariz., opened its second Natural Choice store-within-a-store department, which combines healthy foods, natural and herbal remedies, over-the-counter medications, pharmacy and self-diagnosis services. The vitamin section, which features homeopathic products from manufacturers Frontier, Natrol and Boiron, as well as Futurebiotics and Twinlab brand herbal remedies, is located next to the pharmacy in the 500-square-foot section.

"Our goal with Natural Choice is to make Bashas' the source of wellness for our customers," said George Fiscus, director of merchandising. By year's end, the chain expects to have 20 Natural Choice departments opened and staffed by dedicated and trained natural-food specialists.

The first Natural Choice opened in December at a new store in Tucson, Ariz. According to Lucy Moore, the store's specialist, the department is getting good repeat business from customers of all ages and backgrounds. Although there is a full dietary-supplement offering, she has also been placing special orders for customers.

"A lot of people are going to specialty stores for vitamins and healthy foods and then they are going to the grocery store for everything else," said Rich Dalton, a Bashas' spokesman. "We're trying to make it convenient for customers to do all their shopping under one roof."

So far, the actual practice of incorporating dietary supplements into a whole-health merchandising concept has varied broadly. Different strategies have included stand-alone destination departments or mini health-food sections, integrated sections with related healthy and organic foods, expanded vitamin departments located in front of the pharmacy -- and combinations of all three.

Retailers who have rolled out distinct departments include Randall's Food Markets, with its Nutrition Zone concept; Giant Food Stores (Wellness Center); Wegmans Food Markets (Nature's Marketplace); Smith's Food & Drug Centers (Natural Choices); Associated Wholesale Grocers/Valu Merchandisers (Natural Solutions); and Pratt Discount Foods (Natural Healthcare Center).

Others, such as H.E. Butt Grocery Co., Ukrop's Super Markets, Albertson's and Safeway, are experimenting with different merchandising tactics to better position dietary supplements in a whole-health format.

Like Bashas', Mollie Stone's Market, a small independent in Mill Valley, Calif., has also hired knowledgeable personnel who have been trained in nutrition for its new wellness center. General Nutrition Cos.' Nature's Northwest, Lake Oswego, Ore., has even expanded into alternative therapies like acupuncture and hydromassage.

But as most supermarkets awaken to the importance of nutritional supplements and related products, and begin to make them a focus of their in-store presentation, the competition is quickly moving ahead.

Wal-Mart Supercenters, Bentonville, Ark., continues to roll out its One Source format. Rite Aid, Camp Hill, Pa., and Pittsburgh-based GNC have agreed to place GNC stores in 1,500 Rite Aid locations and to launch a joint Web site, gnc.riteaid.com. Phar-Mor, Youngstown, Ohio, is partnering with Rexall-Sundown, Boca Raton, Fla., on a Web site, PVSvitamins.com, launched last month with a full line of dietary supplements available at discount prices. In perhaps the highest-profile of these developments, Drugstore.com, Redmond, Wash., backed by a 40% stake from Amazon.com, Seattle, made its debut last month.

In terms of mass-market distribution for dietary supplements, drug chains have been the leaders. According to data compiled by Hartman & New Hope, drug stores captured 22% of the total number of dietary-supplement purchases and 17% of dollar volume in the third quarter of 1998. Mass merchandisers kept pace with 22% of purchases and 16% of dollar volume. Running third were food chains -- they captured 16% of purchases and 11% of dollar volume.

Harvey Hartman, president of Hartman & New Hope, said supermarkets are doing a fairly good job with vitamins and minerals. It's in herbals that the food channel has ample room for improvement.

"Grocery stores have to start thinking about the experience and their dialogue with the consumer," he said. "This experience [with nutritional supplements] needs to happen and potentially could happen beyond the shopping experience or purchase activity."

Hartman & New Hope is working with retailers on category management models built around wellness.

Michael Langenborg, director of marketing at Traditional Medicinals, Sebastopol, Calif., whose company is a corporate sponsor of the whole-health initiative led by the General Merchandise Distributors Council and the Food Marketing Institute, points to built-in foot traffic as grocery's real advantage over the competition.

"With supplements as a cornerstone, grocery has a unique opportunity to capture this business just in terms of the number of store visits per customer," he said, adding it's important for retailers to train their customers to shop the product category and the store.

"We also have healthy and natural foods as well as other natural remedies available in the store," said Dick Swain, executive vice president of Valu Merchandisers, the nonfood subsidiary of Associated Wholesale Grocers, Kansas City, Kan. "The key is merchandising these correctly with the right adjacencies to create synergy."

Bob Teas, a pharmacist at the Pratt Discount Foods store in South Walker, Okla., is trained in dietary supplementation and nutrition. "A supermarket can supply all the right organic food products and supplements and bring these together and educate the consumer that the supermarket is the place to shop for these items," Teas said.

Retailers can take heart that the future growth of whole-health categories is assured by an aging population and a thriving self-care movement, Hartman said.

Langenborg pointed out that "the trend of ginseng has been around 1,000 years, and the trend of St. John's Wort has been around 2,400 years." They're just now being discovered by American shoppers.

A Resonant Category

Supermarkets have room to capture a greater share of the herbal segment, which is expected to post double-digit increases.

Consumer education, science, shifts in distribution channels, health care trends, media attention and government regulation all could significantly affect the category in the future.

The following projections are based on a nationally representative survey of more than 3,000 households that reported on purchase and use of dietary supplements.

5-Year Sales Projections for Dietary Supplements (in millions)

Category Year Year % Increase

1998 2003 1998-2003

Vitamins & Minerals $5,800 $7,331 26.4%

Herbs & Misc.

Suppplements $4,200 $7,805 85.8%

Total $10,000 $15,135 51.4%

Source: Hartman & New Hope's Natural Product Census: Supplement Report.