Organics as Differentiating Strategy

DAVID ORGEL

LAS VEGAS — Independent supermarkets targeting the surging natural and organics segment need to fine-tune their differentiation strategies, according to Emile Breaux, senior vice president of sales and marketing, Associated Grocers, Baton Rouge, La.

“You can't outdo Whole Foods or Wild Oats, so you must find your own positioning,” he told conventional supermarkets during a workshop presentation at the National Grocers Association's Annual Convention here. “Maybe, for example, you will become the best community-focused store in natural and organic.”

Associated serves as a wholesaler for more than 220 independent retailers in Louisiana, Mississippi, Texas and Alabama.

The distributor's strategy includes maximizing the impact of its private-label line Full Circle, a Topco brand, he said. Weekly ads focus on the healthy living theme and refer consumers to a website that educates them about the merchandise. Products appear on shelves alongside national brands and are highlighted by Full Circle signage.

Another aspect of Associated's strategy is to emphasize education. “We provide opportunities to train our retailers and their employees,” he said. “Those employees need to be able to answer consumer questions.”

PRICING PREMIUM

Associated makes available 100 natural and organic items for its retailers in grocery, dairy and frozen categories. While many items are only marginally incremental to sales, products typically carry about a 30% premium over conventional merchandise, he said.

Some of the premiums are considerably higher. For example, as part of the fresh meats category, incorporating some 40 SKUs, organic beef and pork carry a 50% price premium and organic poultry a 100% differential.

One of the more challenging categories is produce, Breaux said, because the market is flooded with fresh offerings, and consumers are confused about the difference between fresh and natural/organic. Associated offers some 25 organic SKUs in produce, which represents its longest-running natural/organic program.

In the bakery category, the biggest driver of sales is artisan and specialty products, Breaux said. Currently 12 organic SKUs are offered, with a retail premium of 60% to 70%.

A category slated for broader assortments is deli meats, which now only accounts for about half a dozen natural/organic items.

WAL-MART'S EFFORT

Another presentation at the NGA workshop addressed Wal-Mart's initial foray into organics merchandising. That venture has so far failed to keep pace with the retailer's goals, according to Scott Silverman, retail manager of the Go Organic! for Earth Day campaign.

Wal-Mart last year said it will target expansion in organic foods with price premiums of about 10% above conventional products, but the giant retailer has been unable to keep the spread that narrow, Silverman said. He based his findings on research at a Wal-Mart unit in Plano, Texas, that the retailer has touted as representing its natural/organic emphasis, and at another supercenter near Minneapolis that competes against organic-oriented retailers.

“They are not hitting the 10% goal,” he said of Wal-Mart. “It's been unrealistic for Wal-Mart to do this. It might change. But the question is whether suppliers can drop prices that low.”

Silverman also said farmers may not be able to earn a living if prices are lowered to the level Wal-Mart is seeking. As a result, he added, “I hope it stays this way.”

He emphasized that his comments represent his personal views as a consumer rather than the stance of any particular organization. The Go Organic campaign is sponsored in partnership with the Organic Trade Association, Earth Day Network and Music Matters.

WEAK PRESENTATION

Wal-Mart's in-store organics presentation leaves much to be desired, Silverman added. “It's a treasure hunt to find the organics,” he explained, noting there were only about 100 to 200 organic items in the two stores he researched.

“So it's not living up to the publicity,” he said. “The signage is small. There's no category management yet.”

He also raised the issue of potential commingling of organic and conventional products, pointing to a case of garlic, noting that it lacked clear barriers between the two.

Assessing the efforts of conventional supermarkets, Silverman said Safeway's lifestyle format is doing a great job with natural and organics. “Their private label has a beautiful package, and the product tastes great,” he said.

Independent supermarkets in general are showing mixed performance in this segment, but the best ones “compare well with Whole Foods and Trader Joe's,” he said.