ORGANIC TO THE PLAN

STEPHEN DOWDELL

MONTVALE, N.J. -- A&P here is enjoying an organics renaissance thanks to a commitment, now two years running, to elevate the presence of certified organic produce in most of its stores.

The focus on certified, pesticide- and chemical-free fruits and vegetables is still spreading throughout A&P, and is currently sharpest in its upscale Food Emporium division.

While it is part of a larger A&P strategy, also launched in 1995, to become a leading merchant of produce, A&P's revived organics program is a standout in its own right, offering evidence of how a $10 billion supermarket giant, with close to 1,000 stores operating under nine different banners and divergent marketing positions, can nonetheless make a go of the small-scale, quirky organics business.

Industry observers praised the chain for its progress. Sources who have watched A&P's produce revival with interest said that the chain has established itself as a reliable organics source for consumers, with programs that, if not very profitable, still clearly show that mainstream food stores can sell organics.

"Organics is a tough business because it is very pricey, sourcing is tough and the shrink is high," said John DiFeliciantonio, president of produce wholesaler Procacci Bros. Sales Corp./Garden State Farms, Philadelphia, whose company has also been working hard to build its organics business for the last couple of years. "There is a lot of leg work to garner a full line of organic products. It will take you a whole day to find 20 items."

"A&P is a case of a supermarket chain making a commitment to organics. The time is right, and I think it is working for them," said one East Coast fresh-food distributor.

"Sure, you have operators with huge organic departments, but they are kind of the smaller specialty stores, where the stuff is high priced and they are playing the classical music in the background," said DiFeliciantonio. "Those stores are great, but it is not what the mass retailer can do.

"Then there is somebody like A&P, a very forward looking company that knows it is in markets where it should be in this game, especially in Manhattan, northern New Jersey and other affluent areas. They don't want lose any business to someone else, and they have the stores and the buying expertise to handle these lines.

"They would be remiss if they didn't have organics," DiFeliciantonio concluded, "and I think they do a pretty good job of it."

Ken Green, A&P's corporate vice president of produce merchandising and procurement, would surely agree.

"We have a lot of stores that are very successful with the organics," Green said in an interview with SN. "We made a real commitment to the program and it has been working well for us. The organics business at A&P is growing, and the category will play a role at every new store and remodel."

Having left behind a legacy of spotty, less successful merchandising of the category, A&P now has significant numbers of organic items week in and week out in the produce departments of at least 750 stores or more, with expansion continuing rapidly. While Green said A&P's organics business is strongest on the East Coast and in Canada, it is making modest inroads in the South and Midwest as well.

There is still quite of bit of chainwide experimentation going on in merchandising and assortments, but organics have definitely hit the mainstream at A&P. Green said that in the future, a produce department without organics will be the exception, not the rule.

"There is a philosophy to choosing which stores, but surprisingly, it does not necessarily follow what you would think," Green said. "It will sell in a lot of different areas. The appeal is broadening, and we are seeing that happen in our stores.

"It is more developed in our East Coast operations than in the Midwest and South, but that may be because we set out to put more emphasis on organics in those locations. It is also doing quite well in our Toronto division."

The chain is doubtlessly benefiting from a resurgence of interest in organic and natural items -- in produce and other food groups as well -- brought on by the public's increased awareness of food nutrition and safety issues, and by the proliferation of natural-food supermarkets that make a science out of organics merchandising.

In addition, the organics growing community has itself grown, and become more professional and successful at producing high quality, reliable supplies.

But on top of that, A&P has layered commitment that starts at sourcing and carries through to handling and marketing in the stores.

"About two years ago, we decided we needed to dedicate a buyer exclusively to the organics business because we thought it would become a bigger business," said Green. That buyer, based in the chain's Fresno, Calif., buying office, procures organics for A&P's operations across the country, maintaining close communications daily with the handful or so of the country's major suppliers.

It's an edge that has made selling organics that much more of a viable proposition, according to Jeff Piering, who is director of produce merchandising and procurement for the 35-unit Food Emporium chain.

"When it actually gets to the point that a chain will assign a buyer just to source organics, you know that chain is seeing substantial increases in tonnage. I see it as a sign of a very large commitment on the part of A&P," Piering told SN.

"Still, it is very time consuming, and it is important to have a single person on it, otherwise the business can easily just pass you by," Piering said.

"The business" is not passing A&P by. Green said organics capture anywhere from 2% to 6% on average of produce sales companywide. "And that is a lot, if you compare it to bananas, which will do 7% to 10%. Organics is not just a small business anymore. It is getting to represent some dollars for us."

It is representing even more dollars, proportionally, for Food Emporium. Piering said organics' share of produce sales in his stores is over 12%. "Generally, as far as supermarkets go, that is quite a high percentage of the overall business," he added.

Food Emporium does it by offering a substantial selection all the time -- an average of 40 to 45 certified organic fresh fruits and vegetables, as well as about 15 dried items, such as raisins, prunes, organic cashews and dried mixed fruit.

"Two years ago, my average [quantity] in the stores was in the 20s. Last year, the average was up to 30. We might be looking at a 20% increase or more every year," he said.

Now, the mix rarely dips below 35 items, and can climb past 80, depending on seasonal market conditions and the size of the stores. But Piering is careful to maintain a notable presence of organics chainwide.

"As far as basic organics, they all carry them," he said, alluding to a base of his best organics movers, supplemented by "the most variety I can get" into a given store.

"Depending on the size of the stores -- some of our Manhattan stores are very small -- it can be a limited amount, including the not-so impulsive organics items such as the high priced varieties of organic mushrooms.

"Or, for some of the not-so-popular organics, I might not have both bagged and loose items in the smaller stores. If I have the loose red potato in a smaller store, then I won't have the bagged version because there is not enough room for both," he explained.

His available supply fluctuates significantly by season, he added. "Right now, for example, you have organic orange flesh honeydew, organic cantaloupe and organic honeydew. Now, next week I might go to buy, but there might have been some extra rain and they did not harvest or the crop is not ready to be picked, so for three or four days I might not have four or five kinds of melon."

Such sourcing instability is still part and parcel of the business. "The deal with organics growers is they are very small," Piering said. "They are not a multipacking house where the harvest comes from 25 farms. In organics, you'll have one grower who has 50 acres, so I have to go by what he has harvested that week.

"It's like going back to basics. You are dealing with three or four basic growers, the larger growers, and they give you their availability of the stuff for the following week, and you get as much as you can of those items. A lot of times, you will order 100 cases, and when it comes time to get it, you get 10. That is common with organics. You have to be very flexible."

According to Green, the size of the organics assortments at other A&P banners vary, at least in part because the company continues to put different merchandising approaches to the test.

"Right now, we are working with two different approaches. At first, we thought the way to go was to merchandise as many items as we could get, to give an overall impression of variety, where we can have as many as 60 to 80 items.

"On the other hand, we are also testing to see if we might be better off concentrating on the top sellers, and pricing them better, say the top 25 items, such as grapes, tomatoes and broccoli -- the most consumed items. The approach there is a little bit smaller selection, but with expanded display space for that selection.

"It is too early to say which is working better. That experimentation is going on even within individual chains," Green said.

Both he and Piering named the growers themselves as a rich source of assortment and merchandising ideas, which in some cases informs the chain's experiments.

"We talk to a lot of people in the business, the growers, and we listen to what they recommend, too," Green noted. For example, A&P is currently comparing the effects of segregating organic items into a separate section, vs. integrating them with conventional produce.

"It is too early to tell which way is the most effective. Most growers will tell you that integration is the proper way to merchandise it. Now, they work with some of the retailers that have been the most successful with organics, mostly the specialty-type stores, and they integrate it," Green said. "If you ask for expert advice, then you have to at least try it."

Organics are fully integrated at Food Emporium and Piering is convinced that helps account for the stores' strong sales results. For him, the key is to present organics not as a niche, but as an option throughout the department; that, he said is how you hook the "everyday customer" into the category.

"If a consumer comes in wanting a head of romaine, green leaf, or red leaf, there is organic or there is conventional. If they are buying summer fruit -- peaches, plums and nectarines -- I have organic and conventional," he explained.

"I don't believe in grouping them for the organics customer in a section where that is all I have. I am trying to sell organics to my everyday customers, to show them organics may cost a little bit more, but at least they can make a comparison just by walking the department.

"In the last three or four years, organics prices have come down. In that green leaf, red leaf and romaine display right now, I have almost the same prices for organics and conventional. There is, routinely, only 20 cents or 30 cents a pound difference. Fruits may be a different story, because the supplies of organic fruits are a lot more sparse, and a lot more seasonal," Piering said.

Both at Food Emporium and A&P overall, the pricing strategy is to offer a fair price reflective of the product costs, and with what could be called a realistic expectation in terms of profit.

"We try to make as much money on it as on conventional," Green said, "but we are not, because there is more shrink associated with it, more labor and everything else. We are not artificially pricing organics really low -- we try to get a fair markup just like anything else.

"The truth is profitability is not as great as with regular produce at this point, but we knew that going in -- that it was going to take time to build the category."

That kind of patience comes in handy for supermarket executives used to getting what they want from suppliers.

"There was a wonderful crop of orange flesh honeydews coming on," Piering recalled with a sigh, "and last week they informed me that a fly infestation had wiped out the whole crop; there were none.

"Despite the obstacles faced by growers, and by us, my organics business has been growing rapidly, especially in the last year or so. This year, I will probably double my leaf lettuce business because prices have come so far into line. I might sell an equal amount of organic leaf to conventional, a 50/50 business, which is the first time I've ever done it. And I am excited about that."

To keep the momentum going, Food Emporium has been promoting a minimum of five or six organic items weekly in its circular for the last year.

"That is the result of communicating with growers all the time. They work with us on those promotions. It is stable enough to do at least five items week in and week out.

Depending on what the item is, advertising can double the tonnage, he said. "And it lets people know you have it on a regular basis."

Signage in the store is also crucial. A&P chainwide uses bright orange "certified organic" signs for each item. "We don't want to hide it and we don't want it confused with conventional," Piering said.

Both Piering and Green said that customers and store associates quickly adapted to the differences organics bring to the department. Clear signage and consistent product coding greatly mitigates the problems in the department and at the front end that used to be presented by a selection that includes organics, as well as conventional produce. In each store, a large overhead signs explains what "certified organic" means, and enumerates the items available.