ORGANIC DILEMMA

MARYELLEN LO BOSCO

What's the best way to merchandise natural and organic products? While this question remains very much on the minds of retailers and industry leaders, there doesn't seem to be one simple answer.

Early on, supermarkets created a separate section or "store-within-a-store" concept for natural and organic products. As the demand for these products expanded, some stores began to "integrate" items within their regular sets. Still other retailers chose to create an organic/natural section that was separate, but sat beside the mainstream category. "Some stores that used to be integrated are now becoming segregated, and vice versa," said Angela Sterns, executive director of the Organic Alliance, St. Paul, Minn., which specializes in marketing organic foods. "As far as an industry standard goes, I don't think there will ever be one, because [merchandising] is based on the demographics of the store, and what works best within the store's layout. I'm finding more people are using the 'segregated/integrated' approach, in which a separate section is set up within the mainstream category."

Sterns noted that while the Edina, Minn.-based Byerly's used to integrate natural and organic items, the store now seems to be taking a more segregated approach, while Jewel Food Stores, Melrose Park, Ill., has integrated its items.

She said the most important thing is to have a signing program that calls attention to the items, especially in the organic category. As far as manufacturers go, each has its own idea about what sells the product best, according to Sterns.

"Just because one organic product does well in a mainstream set, it doesn't mean that all will do well. There's no consensus among manufacturers either," Sterns continued. "A lot of them like to get on the mainstream shelf, and they have proof that they will sell more product that way. Consumers have different opinions too. Some want it in one section, so they don't have to sort through other stuff, while others like the convenience of having the product integrated."

Lund Food Holdings, based in Edina, Minn., has spent the last year developing a new whole-health initiative for Lunds and Byerly's stores, in which it is using a mixed model of merchandising.

For example, at the Lake Street store in uptown Minneapolis, an entire mezzanine area, about 3,000 square feet, has become a Living Wise lifestyle center, where health care, beauty care and lifestyle items are sold, along with a full complement of vitamins, supplements, herbs and the like. Meanwhile, natural and organic foods are sold downstairs in-line. But what Lunds has done is create a separate section alongside the mainstream items.

"The sections are highlighted with Living Wise signage," explained Bea James, whole health manager. "As you walk down the aisle, you see a 'wing' that juts out on either side of the section. It says 'Living Wise,' and it runs from the top of the profile to the bottom and sticks out about 4 inches."

Living Wise, a companywide initiative begun about a year ago, is meant to bring health and wellness products and services to the Twin Cities marketplace, according to James. All the stores will have natural and organic selections, she said, but some stores will have a very large selection. For example, the Lake Street store has about 25,000 stockkeeping units of dairy, frozen and grocery products.

As for the merchandising strategy, James noted that "We are doing our own idea of convenience. As customers weave up and down the aisles, they find the [natural] section that ties into that category."

So far Lunds has redone four stores with the new merchandising plan and a complete selection of items. One other store, a Byerly's in Maple Grove, also has a separate lifestyle section. According to James, the chain expects to have all its stores remodeled according to the new whole-health model by the end of this year.

"Part of making the program successful is to have a promotion program to get [these items] into the consumers' mouths," said James. Lunds has been working with the Organic Alliance to this end, by participating in its national promotions. In addition, the chain runs its own promotions on a monthly basis and plans to have a regular promotional program for natural and organic foods once the remerchandising of all stores is completed.

At Rosauers Supermarkets, Spokane, Wash., natural and organic foods are merchandised in separate sections in most units, although some stores still have the items integrated, according to Don Whittaker, grocery buyer.

Rosauers started with integration but has since moved in the other direction. "We went to separate sections in some stores to give the products their own identity," said Whittaker. "We started that about a year ago. It's just an in-line set, but [separation] has improved sales."

Whittaker said Rosauers followed the lead of competitors, some of whom have large, separate sections of natural and organic foods. In stores where natural/organic is still integrated, Rosauers uses signage to call attention to the items.

"We have quite a few organic items," said Whittaker. He noted that Rosauers, which has units in Washington, Oregon, Idaho and Montana, has a great variation among stores. Thus, a major reset chainwide would create logistical problems. Overall, the chain is working to create bigger sections of natural foods, especially in areas where the demographics support such a strategy.

Separate sections in the "store-within-a-store" format are still the model at one mid-Atlantic chain, according to one buyer who did not wish to be identified. The "store-within-a-store," which is usually near produce, was originally designed to create a strong sense of separation, the source said. But now the chain has brought the natural/organic section into the store proper, by adding a service desk where the boundary line used to be, and by bringing one of the natural aisles out across the boundary. In addition, the chain is putting more natural products on endcaps in the main part of the store.

Natural-food chains have different issues with merchandising than do mainstream stores, since most or all of their product is cut from the same cloth. At Henry's Marketplace, San Diego, for example, buyers like Steve Fernandes are more concerned with making sure that signage provides consumers with information about products.

"We have signage that explains things," he said. "For example, we explain in the bakery department that malatol is a natural sugar alcohol, as opposed to aspartame." Henry's also creates signage that provides recipes for some of the more esoteric offerings -- in bulk bins, for instance.

The Henry's chain was recently bought by Wild Oats Markets, Boulder, Colo. Since Henry's is also value-oriented, it has a somewhat different strategy, standards and philosophy from Wild Oats. According to Fernandes, the chain is still operating under its own banner and will continue with its own merchandising strategies.

Tim Kasper, a grocery buyer at Henry's, noted that between 25% and 30% of grocery items are organic, and that Henry's has been able to carry more organic products because of the change in availability over the last few years. The biggest issue for natural-food buyers right now, said Kasper, is the genetically modified organisms controversy, and Henry's provides printed information to consumers on genetically modified food.

In the last year, GMOs have appeared on consumers' radar screens, when it became more widely known that some farmers are using bioengineered seeds for certain crops, and especially for large crops like soybeans and corn. These two ingredients are in a large number of packaged goods. The genetically modified seeds can have any number of modifications. One seed, for example, expels a bacteria that kills certain pests. Bioengineered seeds are created by crossing species boundaries through gene splicing. In 1997, when the U.S. Department of Agriculture issued the first draft of regulations for the proposed national organic standard, one of the major objections was that the USDA had allowed GM foods to be included. The revised organic rules were released by the USDA in March, and the organics lobby and consumers were happy to see that, among other things, the second draft has excluded GM foods.

Annie Hunt, director of grocery purchasing at Wild Oats, agreed. Wild Oats provides education about the GMO issue to both employees and customers. "We are not in a position to remove GMOs from our shelves. There was a lot of confusion around the issue initially, and [no one] understood the level to which GMOs had infiltrated the supply chain."

Hunt noted that GMO food is very much a source/supply issue. The Wild Oats chain is mainly focused at this time on ensuring that its private-label lines of grocery products are GMO-free. "We are in the process of making the second tier of private-label products GMO-free," Hunt said.

Wild Oats also remains focused on organics. "In terms of merchandising, we are trying to identify where organic vs. nonorganic becomes a primary concern to consumers. If that is true, you want to separate them." Wild Oats is currently running tests in the dairy and grocery sections to determine if the majority of consumers are looking at the category first, or whether they are checking to see if the item is organic.