NATURAL SELECTION: CATEGORY MANAGEMENT STRATEGIES

Lisa Terry

Mainstream supermarkets are actively exploring the natural and organic foods category. However, it's still largely unfamiliar territory. New names, brands and ways of distribution threaten to disrupt traditional category management protocols.

Retailers oblivious to the terrain risk are stumbling in an area where they must be sure-footed and demonstrate a keen sense of consumer aptitude. According to SPINS' Natural Products Marketplace and Consumer Reports, 95% of U.S. consumers last year purchased a natural product; 46% bought organic.

As the categories grow, wholesalers and manufacturers are stepping up to aid supermarkets with an array of data-fueled tools and services. Even better, they're applying traditional category management practices to help retailers select the best possible assortments.

However, the natural and organic foods industry differs in several ways from its traditional counterpart:

- Niche manufacturers. "The natural and specialty foods category is made up of many thousands of niche products, each designed to meet specific consumer needs," said Greg Leonard, vice president of trade marketing and communications for specialty food distributor Tree of Life.

- Lack of dominant brands. Certainly, there are larger names with loyal followings, but none rivals the status of mainstream brands. To Coborn's, the St. Cloud, Minn.-based retailer, that spells opportunity. "For customers that are not brand-loyal, that's a good opportunity for us to improve margin and give consumers a lower cost option," said Andy Knoblauch, vice president, sales and marketing. Coborn's adopted Topco's Full Circle as its private-label natural brand. Dan Mazur, senior vice president, center store program management at Topco, said the line includes more mainstream types of natural and organic products, such as cereal, that "fit into regular category management systems."

- Slower turns. Perhaps related to the lower profiles of the brands, turns for many stockkeeping units can be lower than mainline categories. The increasing popularity of these foods, however, combined with better tools and data about their movement, should boost turn rates.

- More complex merchandising. Some retailers choose to integrate natural and organic foods alongside conventional counterparts. Others create a store-within-a-store concept. Other variations include setting up natural and organic sections adjacent to sections of related mainstream product.

Kent Pilakowski, division sales manager for Small Planet Foods, a subsidiary of General Mills, added price and distribution practices to that list. "Although definitely a service- and value-add to the retailers, specialty distributors do come with a cost that drives up retail prices to the end consumer," Pilakowski said. "Self-distribution has helped some retailers achieve their goal of lowering organic prices to the consumer while improving sales velocity and product awareness."

Indeed, certain wholesalers and manufacturers are increasing efforts to provide advice, tools and services to grocers to fuel smart decision-making. Amy's Kitchen, for example, serves as category captain for some operators.

"We rely on them for help with trends, since they are involved with a lot of retailers across the country," said a category manager for a national chain with stores in the Pacific Northwest. "They can detect subtle trends, items that are up and coming, or those that are past their peak."

In addition to advice and planograms from Amy's Kitchen, the chain's in-house category managers use syndicated and internal data. The retailer, who did not want to be identified, operates a store-within-a-store format, and has seen its biggest growth in frozen and chilled natural and organic foods, particularly convenience foods. "The quality of a lot of products has really gotten a lot better," the category manager said.

"We developed our own program because we are a leader, especially in frozen and now soups," said Steve Warnert, director of sales and marketing, Amy's Kitchen.

"We work with them from the beginning -- on mix, the flow of the set, making it shoppable, and keeping them current," added Gordon Hagedorn, the manufacturer's sales planning manager. Services include equipment surveys, ranking reports, market pricing surveys and schematic templates.

Similarly, Small Planet Foods is providing "Organic 101" live or online training to get retailers up to speed. "We completely mirror the traditional category management approach and principles," said Pilakowski, including syndicated data, proprietary consumer studies and store schematics.

As the natural and organic categories move from specialty to mainstream treatment, category management techniques are keeping pace. For example, Tree of Life is preparing to launch its Smart Assortment marketing service, a data-driven approach that allows retailers to drill down to individual units. In so doing, the program helps align a retailer's strategic positioning with the product needs of consumers who shop in each store location.

"Traditionally, distributors of natural and specialty food have depended upon their own internal data to determine what sells," said Leonard. "That has value, but it's push data. So it does not give a true view. It's very critical that your decision-making data be based on consumer behavior."

The new service combines demographic data; on-site client and competitor surveys; a neighborhood scan of area schools, churches and restaurants; and regional and national consumer transaction data to develop customized product and category recommendations for individual stores. Based on neighborhood demographics and a retailer's particular go-to-market strategy, there may be 10 or more optimal merchandising solutions for a given category across a 100-unit supermarket chain.

Coborn's recently switched to Tree of Life after its previous supplier was acquired and service declined. Currently, Coborn's operates a store-within-a-store natural foods department in 18 of its 30 stores, which are fully staffed day and night.

"We feel that's a big advantage," said Knoblauch. "It allows customers to ask questions and request specific products, especially with supplements."

Department heads and store managers choose products, though Coborn's is moving to planograms. The retailer is also experimenting with double-stocking natural and organic products in one store. Although he's pleased with the results, Knoblauch acknowledged it's difficult to measure the impact via scan data.

In fact, more supermarkets are seeing natural and organic foods integrated into mainline categories, even if they maintain a separate department. The advent of products like Ragu Organic and Swanson's Organic Vegetable Broth "adds complexity and confusion" to merchandising, Knoblauch noted.

Most category managers deal with this on a case-by-case basis. The Northwest retailer, for example, merchandises some Newman's products in its natural foods department, and others in mainline departments. The challenge only promises to grow as more manufacturers jump on the natural and organic foods bandwagon.