ORGANIC GROWTH 1999-03-08

JONNA CRISPENS

On the eve of the passage of a national rule that will govern the production and labeling of organic foods, the future of the category couldn't look brighter.

The number of organic packaged and frozen goods available in Center Store continues to grow and, according to some observers, organics have already gone mainstream. The category, which currently represents only about 1% of the country's total grocery industry, according to New York-based Packaged Facts, is expected to increase to $6.6 billion by the year 2000.

The organic industry's rate of growth is impressive: 20% to 24% per year throughout the 1990s, with 1997 sales totaling about $4.2 billion, according to the Organic Trade Association of Greenfield, Mass. The category is expected to grow even more, once the U.S. Department of Agriculture releases its final regulations. Currently under revision, the regulations are expected to be re-introduced for comment again before the year's end, said Katherine DiMatteo, the OTA's executive director, who believes that actual implementation will occur sometime in the year 2000.

Also fueling growth, according to retailers contacted by SN, is increased competition among producers of organic products, resulting in improved flavor profiles, more sophisticated, eye-catching packaging -- which can supplement or replace the need for point-of-purchase materials -- and lower, more competitive price points.

"The potential marketplace for organic products is huge," said Harvey Hartman, chairman of The Hartman Group, a Bellevue, Wash.-based market research and consulting firm specializing in the wellness arena.

"Years ago people bought organic products because they wanted to protect the environment, but today they're buying them for health reasons," he said. That is why supermarket executives are taking a closer look at organics and viewing the category as something that should be part of their "core" product mix, rather than just a fad to be dabbled in, according to Hartman.

A large number of retailers are moving full-speed ahead in the organics arena by strengthening and expanding their organics programs or introducing organic products for the first time.

At Wild Oats Markets, Boulder, Colo., the organics category in Center Store has seen a "phenomenal increase" during the past four years -- with a growth rate of about 20% annually for the first three years and only slightly less during the past year, according to Dale Kamibayashi, director of purchasing for the grocery category.

Organic products currently comprise about 50% to 60% of the chain's total product mix in grocery, said Kamibayashi, and that figure is expected to increase in the future.

The chain will be tapping into a growing consumer demand for frozen foods with a mid-March rollout of a 23-item private-label organics line that includes vegetables, french fries, juice concentrates and waffles. The company is also looking into creating a private-label line of frozen entrees.

The frozens category is showing strong growth, according to the OTA's Manufacturers' Market Survey, which was released in December of 1998. Conducted by an independent marketing research firm, the survey found that organic frozen foods -- defined as frozen vegetables, juices and entrees -- grew an estimated 69% in 1998 and are expected to grow at an average annual rate of 40% until the year 2002.

Among the factors fueling growth that were listed by retailers are consumer demands for healthier products that fit busy, on-the-go lifestyles and the growing number of manufacturers who are entering the frozen organics category with new products.

"There's a trend toward frozen, because consumers are looking for fast foods in a healthy format," said Kamibayashi, adding that frozen entrees currently represent the chain's strongest growing organics category, followed by cookies and crackers, and then cereals.

"Organics is definitely here to stay," according to Rick Lane, an assistant manager at Dahl's Food Markets, Des Moines, Iowa, which has seen the sale of frozen organic products practically double during the past year in two remodeled locations. Organic frozen food sections were increased to about 16 feet, or one-quarter of the total frozen-case space.

"The frozen line just keeps growing, and it's really moving out of the store," he said. "I think it's mostly driven by convenience, with so many families on-the-go, and the fact that everyone is looking for a healthier lifestyle."

Among the chain's top sellers are entrees, frozen pizzas and juices, according to Lane.

Frozen foods -- specifically frozen entrees -- were listed as the "hottest" organics category by an executive at a large wholesale operation who did not wish to be identified.

The executive, who said the overall natural category was "growing by leaps and bounds," was hired about a year ago to develop and implement a natural-product program for the stores supplied by the wholesaler. During the past six months he has introduced natural-food formats in five supermarket locations and plans to increase that number sixfold within the next six months.

According to the executive, other strong organics categories include cold cereals and soy milk and pasta and pasta sauce. Within the frozens category he mentioned frozen vegetables, juices and ice cream as strong sellers.

At Rosauers Supermarkets, a 13-store chain in Spokane, Wash., the frozen-food category is "exploding," according to Norm Carpenter, director of natural-food store development. The chain, which opened Huckleberry's, a natural-food store, about two and a half years ago, began moving more strongly into the organics area after seeing the response to Huckleberry's product mix, according to Carpenter. He said that Rosauers recently spent a lot of money to increase its freezer space throughout its 13 locations.

Other fast-growing areas at Rosauers are soy and rice milk and packaged convenience foods, such as soups in a cup. Carpenter also lists snack bars and energy bars as a "hugely growing" area of the organics category -- growth that is backed up by data from the OTA's manufacturers' marketing survey.

According to the survey, organic "grain snacks and candy," which include chips, pretzels, cookies, snack and energy bars, crackers, crispbreads, rice cakes and candy, grew at an estimated rate of 89% in 1998 and are projected to grow at an average annual rate of 60% until the year 2002. Not surprisingly, Kamibayashi of Wild Oats Markets lists snack foods as the chain's top-volume seller, followed by bottled juices and canned tomato products and pasta sauces.

Once the decision to carry organic products is made, retailers also have to decide how to merchandise the products, with one of the biggest questions being whether to integrate them with mainline grocery items or create a separate section for organic foods.

At Rosauers, organic products are integrated with mainstream counterparts because most customers are shopping for the "family meal," and, as such, should have the full range of options before them when looking for a particular item, according to Carpenter.

The executive at the wholesale company said he is following the store-within-a-store format, as space allows, so shoppers "don't have to go through the entire store looking for organic products."

According to wellness expert Hartman, while the best format depends on the individual store, it's often a good idea to start out integrating organic products, which will increase their exposure among non-organics shoppers, and then merchandise such products later in their own section for effect and convenience.

Carr Gottstein Foods, Anchorage, Alaska, merchandises organic products in its natural-food department, but also cross merchandises some products -- such as certain frozen vegetables and pasta sauces -- with non-organic products in other parts of the store to increase exposure, according to Tammy Jerry, vice president of perishables, who also oversees the natural-food department.

Two supermarket giants -- A&P and Kroger Co. -- are currently participating in a pilot program to increase organics sales. Food Emporium, a division of Montvale, N.J.-based A&P, and the Atlanta division of Cincinnati-based Kroger are working with the Organic Alliance, St. Paul, Minn., to build awareness of organics in their stores.

Food Emporium kicked off its program with an October promotion in all 40 stores, located throughout the New York and New Jersey area. The chain merchandises its organic products beside non-organic counterparts throughout the store, according to Angela Sterns, marketing director for the Organic Alliance.

"A&P is following the theory that integration increases shopper exposure," according to Sterns, who added that about 20% to 30% of shoppers visit a separate "health" section.

For the first promotion, Food Emporium devoted at least half of an eight-page, four-color circular to organic products, with the Organic Alliance logo on each page. Moreover, the first page of the circular identified the chain as "Your supermarket leader in organic products" and said that it is in "partnership with the Organic Alliance."

Among the approximately 45 items featured in the circular were pretzels, crackers, chocolate bars, frozen bagels and waffles, ice cream, apple sauce, raisins, sugar, pasta, rice, beans, soup, canned tomatoes, olive oil and salad dressing.

As part of its ongoing promotional efforts, the chain is taking advantage of point-of-purchase and educational materials supplied by the Organic Alliance, including shelf talkers and danglers, consumer fact cards, signage and employee training materials.

Food Emporium will build its next organics promotion around Earth Day, which is April 22, according to Sterns. A&P declined comment on its organics program.

Kroger, which kicked off its program in mid-February in 30 locations in the Atlanta division, merchandises its organic products in a separate nutrition department, according to Sterns. Kroger declined comment on its strategy.

In its first promotion, Kroger highlighted produce, but used point-of-purchase materials to highlight organic grocery items within its nutrition department, said Sterns. She added that Kroger plans to broaden the organics categories advertised in future promotions.