NATURAL RESOURCES

SARAH MULHOLLAND

By many accounts, one of the fastest growing segments in Center Store today is the organic processed food category. With consumers' growing concern over health and food purity issues, conventional retailers and their natural food counterparts are poised to offer their customers an affordable, organic alternative through the expansion of their private label lines.

Linda Gilbert, president of HealthFocus, a marketing research and consulting firm based in Atlanta, feels an organic line is a huge asset given private labels' current position in the marketplace.

"There's been a real trend for private label to become better quality and organic really speaks to better quality in the consumer's mind," she said.

An organic private label line could prove especially fruitful for conventional retailers. As a manifestation of environmental responsibility and a desire to take care of consumers from a health and wellness vantage point, the organic presence could bolster consumer perceptions of the store's private label line as a whole.

Gilbert noted that consumers connect with these products at a level that goes beyond basic sustenance, associating the organic label with quality, purity and wholesome nutrition. These attributes play particularly well in the processed food arena.

"Consumers are willing to pay for premium quality in certain items, such as coffee, and they're looking for purity when they're buying for children, or even pets," she explained. Wholesome nutritional value becomes a factor in the cereal and pasta and bread categories, she added.

According to the HealthFocus 2000 survey, a questionnaire containing more than 300 questions mailed to pre-screened primary grocery shoppers, 38% of shoppers buy organic products. In addition, the survey indicates that grains are a particularly popular category in the organic grocery niche. While 7% of all shoppers use organic processed foods, 14% of those same shoppers purchase organic grains other than cereal, such as snacks, rice and pasta.

In accordance with the increasing popularity of organic products, the USDA recently published the National Organic Program Proposed Rule of 2000, intended to establish national standards governing the production and marketing of organically produced products.

The Proposed Rule, which has been in the works for 10 years, it is hoped will eliminate the inconsistencies inherent in the third party certification system currently employed. Federal guidelines could prove particularly beneficial for retailers as they venture into store brand offerings by minimizing problems related to label liability.

The process will take some time to reach fruition; however, industry sources are optimistic and are hoping to see the initial stages of implementation by January 2001.

"This is really going to help push organic into the mainstream," said J.B. Pratt, chief executive officer of Pratt's Foods Supermarkets, Shawnee, Okla., a grocery chain emphasizing natural and organic options. "That certification seal with the USDA stamp will add a lot of credibility. That kind of addition to any label boosts awareness and credibility."

Jim Lee, president of Wild Oats Markets, a natural foods chain based in Boulder, Colo., was similarly enthusiastic.

"We're very positive about this," Lee stated. "It's taken 10 years and a tremendous amount of consensus, and although nothing is perfect, it's going to provide a more level playing field. The proposed rule will be of benefit for the entire supply chain -- farmers, manufacturers, retailers and consumers."

Many of the larger traditional chains that SN spoke with were unaware of the USDA's efforts, yet most expressed concern over the increasingly common incidence of dual shopping between conventional retailers and natural food markets. Offering a private label organic line is a possible remedy for the situation, and indeed, some of the major national players are heading in that direction.

According to an industry consultant, who wished to remain anonymous, Kroger, Cincinnati, Ohio, has an organic line, called Naturally Preferred, in development.

Topco Associates, a buying cooperative out of Skokie, Ill., has introduced the Full Circle line, a private label approach to the natural and organic market. The line targets the wellness consumer, but is positioned for the mainstream consumer, said Fred Arnal, director of category development and brand management for Topco.

The first wave has been launched, according to Arnal, which consists of more than 60 items in 15 categories, but the majority of it will hit stores after Christmas to avoid the hassle of resetting stores during the holidays. A number of retailers are already lining up for the second tier, Arnal told SN.

"We are competing with the mainstream products for the mainstream consumer who is concerned about GMOs and pesticides. We are finding that the wellness consumer is the same one who believes taste is paramount and food is special, and is returning to foods that make you feel better," he explained. "This is not a trend, but a functional change."

Those retailers catering to the organic and natural foods customer have been expanding private label offerings for several years. According to Pratt, his stores have had a house label, Natural Value, for a year-and-a-half, and it is doing very well. Some Natural Value offerings are simply all natural, as opposed to organic, but the chain focuses on the organic items.

"The label makes organic processed foods affordable, offering these items at 30% to 40% less than the branded items," said Pratt.

Pratt believes the focus should be on introducing the consumer to the benefits of organic rather than on the big ticket rings, yet he maintains that his margins on the private label products are roughly equivalent to his margins on other organic products.

The Natural Value line features 48 individual items, with some of the best-sellers being basic staples like peanut butter, pasta and pasta sauce, according to the company.

At Pratt's, the marketing strategy behind organics and all natural has always been integration, and the private label offerings are positioned in a categorical scheme. The key to converting consumers is getting them where they generally go to buy any given product, claimed Pratt.

"Get the organic product out there right where they're going for the Ragu," he said.

However, Pratt also sees the advantages of a store-within-store approach for the retailer who is trying to introduce a line like this, establishing a massive presence and highlighting the good price. In fact, Pratt's stores do exhibit an Organic Wall of Values, which includes some Natural Value selections.

Wild Oats' Lee told SN that organic private label has been a key component since the company's inception 12 years ago. According to Lee, organic is the fastest growing segment of his business and the company has more than doubled its private label assortment over the past two years. And, the line is still evolving, constantly expanding and experimenting with new packaging, he added.

"We are working very hard on developing non-GMO and organic products for our private label line," he said. "That is how we keep natural, natural."

Wild Oats offers two private label lines: Wild Oats premium brand, which is primarily organic, and the Wild Oats Down to Earth Value brand, a commodity-based all-natural line. According to Lee, the top-selling private label items are often the leaders in the category, such as rice and soy milk. He also mentioned cereal as a big seller.

In line with Pratt's, Wild Oats takes an integrative approach toward merchandising the private label organic products.

"We have a fundamental belief here. We want to offer the customer a choice," Lee said. "It is more difficult to make a choice when the products are not side by side."

While the larger natural food retailers have installed fairly extensive organic private label lines, some of the smaller markets have begun to tentatively explore the emerging opportunity.

At Earth Fare, an Asheville, N.C.-based chain operating five stores dedicated to quality organic and all natural products, consumers can find private label water and vitamin options at the present time, John Swann, purchasing director for the chain, told SN. Although the organic label is not relevant for these particular items, Swann said the company has plans to grow the line to include organic grocery items.

"The two items next on our list are apple juice and yellow corn tortilla chips," he said. The apple juice will be sold in the gallon size, said Swann, noting that this particular item is bought and sold by the truckload at his stores. Apple juice and yellow corn tortilla chips belong to the eight categories the company has identified as commodity-type staples for the natural and organic consumer, and the line will continue to build upon the commodity base.

Brian Riesenburger, general manager for Fairway Markets, New York, told SN his stores now offer organic private label olive oil and vinegar. The line began simply with olive oil and balsamic vinegar and has recently grown to include red and white wine vinegar.

Riesenburger has witnessed very good movement on the olive oil and balsamic, although he does not see as much with the red and white wine vinegar varieties. But, this pattern corresponds with the sales patterns of other brands of these items, he added.

The Fairway stores follow the integrative trend and display the private label oil and vinegar in line with the rest of the category.

Riesenburger has a strong interest in taking the organic private label line further, but said it's too early to tell how much further it will go.