Although volumes are low in many categories, retailers with an eye toward the future are embracing private label organics.

According to the Organic Trade Association, Greenfield, Mass., sales of organic foods in the United States have grown between 17 and 22 percent each year for the past decade to almost $17 billion in 2006 — more than triple the total in 1997. But organics still represent only about 3 percent of total U.S. food sales, a figure that wouldn’t normally elicit much of a response from the folks running private label programs at the nation’s top supermarket chains. But respond they have — some in a very big way.

From The Kroger Co. and Safeway Inc. to Price Chopper and Publix Super Markets, the list of “conventional” retailers now offering — and in many cases, expanding — their own line of natural and/or organic products continues to grow. As a result, a whopping 31 percent of all organic food sales in 2006 went through mainstream supermarkets, suggesting conventional retailers have been somewhat successful in their quest to keep organic consumers in their stores. But their decision to add private label organics goes way beyond a basic desire to distract shoppers from more specialized organic retailers such as Whole Foods Market and Wild Oats Markets.

“It’s not about what’s happening today,” explains vice president of sales Doug Baker of Arlington Heights, Ill.-based Federated Foods. “It’s about 10 years from now.” The shift to organic isn’t just a trend that’s likely to fall out of favor after a couple of years, he continues. “It’s a lifestyle choice that’s only going to gain momentum over time.” Although core organic consumers tend to be young, he adds, they’re the high-income shoppers of tomorrow. “Retailers want to show their commitment to organic today so they can gain the loyalty of those shoppers now. They want to take care of them, their children, their children’s children, etc.”

Just how big will the organic movement become?

While some manufacturers see organic topping out at 10 to 15 percent of total food sales, others predict it will eventually become the dominant culture. “I know it may seem hard to believe,” says Martin Ventre, president of Ventre Packing Co., Syracuse, N.Y., “but in my opinion, organic/natural products will control more than 75 percent of the market several years from now.” But it’s not all about the future. In fact, many retailers already are enjoying some of the benefits associated with organic store brands.

“There’s definitely a halo effect associated with offering organic private label,” says consultant Jay Jacobowitz, president of Brattleboro, Vt.-based Retail Insights. “It says you’re a retailer with a conscience, a retailer concerned about its customers’ health and well-being.” And, that kind of goodwill goes a long way toward creating customer loyalty over the long haul.

Clearly, adds Tim Sullivan, sales and marketing director at Mad Will’s Food Co., Auburn, Calif., “Organics are about a lot more than dollar sales.” At a company like Safeway, for example, “The contribution of its O Organics program to the company’s goal of being perceived as a lifestyle retailer is just as important as the tangible revenue contribution.” The program also gives the Pleasanton, Calif.-based retailer a unique opportunity to establish itself as a leader in a category where few national brands have achieved widespread recognition.

Easy Pickins for Private Label

“[Natural and organic is] essentially virgin territory from a branded perspective,” Jacobowitz says, who characterizes it as “low-hanging fruit ripe for the picking.” Those retailers quick to market with a private label have already reaped some of the rewards.

For example, reports Randy Skoda, executive vice president at Skokie, Ill.-based Topco Associates, the company’s 600-plus SKU Full Circle line already ranks as the number-one natural and organic “brand” at many of Topco’s 32 member stores that carry it. “No national brand owns the natural and organic space,” he says, “[creating] a terrific opportunity for a brand like Full Circle to offer a holistic solution.”

But it’s not just a matter of beating the national brands to the punch because the fact is, organic consumers simply don’t care as much about brand names as they do about where a product comes from, how it’s made and how it functions (yeah, they’re big label readers). If the store brand has the right credentials and performs to their satisfaction, organic consumers will buy it — regardless of the name on the package. In some cases, however, the store brand is actually preferable to certain well-known national brands that organic consumers have come to associate with “big, bad corporate America.”

“The organic consumer doesn’t want to buy Kraft organic macaroni and cheese,” Baker says, offering one explanation for the less-than-stellar performance of some of the big brands’ organic offerings. But there is still a place in the organic section for non-private label brands. In fact, they’re the best way to highlight the savings offered by store brand versions.

“If you skip a step and go right into private label organics,” warns Gary Lloyd, president of Toronto-based Green Organic Vegetables Inc., “consumers have nothing to compare them against except conventional national brands, which shrinks the spread considerably.” Although he admits it may be difficult to justify offering multiple brands when movement is still relatively slow, Lloyd says the best approach is to offer a mix of both national and store brand organics so consumers can better appreciate the value of the latter. He adds that, in the long run, offering a more affordable private label alternative will open up the category to many consumers who wouldn’t have considered it in the past.

What about All Natural?

What about those consumers who want to eat better but still can’t afford even private label organic? In some categories, at least, all-natural store brands might be the solution. In the fresh meat segment, for example, organic beef, chicken and turkey often sell for two or more times the price of non-organic items, making a 20 percent or so up-charge for all-natural items seem like a bargain. In the meat category, however, the USDA has established certain standards for all natural, so consumers who purchase natural meat know that it’s free of growth hormones and antibiotics.

In other categories, however, there’s no government standard for natural like there is for organic. So it’s up to retailers to determine which products sold under their own brands truly deserve to be called natural. Because if consumers feel they’re being duped, the store will get the blame. For example, reports Mike Hackbarth, director of private label sales for The Fremont Co., Fremont, Ohio, one competitor labels its ketchup “all natural” even though it’s sweetened with high fructose corn syrup, which — though it’s made from corn — hardly meets most consumers’ definition of the term. (For the record, The Fremont Co. uses cane sugar in its all-natural ketchup). Without a national standard, “It can be confusing,” admits Hackbarth. “But, because [natural] ingredients cost less, [all natural] may be a viable alternative to organic.”

Moreover, says Ron Rash, president of Yanceyville, N.C.-based The Wizard’s Cauldron, plenty of products sold in the natural foods channel aren’t organic. “It’s a $50- billion channel,” he explains, “but only about $17 billion of that is organic (food and non-foods). The other $33 billion is natural or conventional,” he adds. “It’s something to think about when creating your mix. You may want to look at some products to better pull the ‘natural’ consumer.”

Whether natural or organic, another consideration is where products come from. In fact, consumers responding to a recent survey by the Hartman Group listed “taste” and “from a local source” as the two most important product attributes.

“Local is a very powerful trend, almost bigger than organic,” Jacobowitz says. That’s because, in addition to keeping the local economy afloat, locally made or grown products are viewed as fresher, less processed and more nutritious than those coming from thousands of miles away. Plus, the shorter the distance traveled, the smaller the carbon footprint — a big concern among today’s environmentally minded consumers.

Where to Start

Although some manufacturers think private label organics should be available in every category, clearly, some make more sense than others. “Items with universal acceptance in traditional [categories] make the most sense for organics,” says Mark Stieglitz, senior vice president of business development at Taylor, Mich.-based Mirab USA. “I would start by looking at items that index high in CDI and see if there are comparable items available in natural/organic.”

In addition to high-frequency purchases, adds Jacobowitz, retailers should consider organic versions of conventional products that may expose consumers to pesticides, growth hormones or other potentially harmful additives: milk, fresh and frozen produce, meat, fruit juice, etc., Jacobowitz adds.

Next, look at what products are important to organic vs. conventional consumers. According to Rash, certain better-for-you categories do a lot better in natural food vs. conventional stores “so you really need a firm understanding of what goes on in that channel.”

So, while soymilk, granola and herbal tea may not be big movers in mainstream supermarkets, they sell like hotcakes at Whole Foods and Wild Oats, making organic versions at conventional stores a good bet. On the flip side, no matter how big the category in traditional supermarkets, organic versions of certain not-so-good-for-you junk foods just won’t fly. Consumers who eat that stuff don’t really care about its healthfulness, and consumers who care about healthfulness don’t eat that stuff — organic or not. Healthy snacks, on the other hand, represent a huge opportunity for organic private label, says Tina Nelson, director of sales and marketing at Hope, Minn.-based SunOpta Grains & Foods Group. “It’s a key category that will continue to grow as we try to find solutions to the obesity crisis, especially in children.”

According to Skoda, the first products offered under Topco’s Full Circle brand were high-volume, center-store items like pasta, coffee and canned vegetables. But when it moved into the milk category — considered an “entry point” for organics — sales across the entire line really took off. The brand has since expanded into more than 60 product categories, including fresh and frozen produce and, more recently, the non-foods arena. By early 2008, the line will include more than 700 SKUs.

While retailers new to the organic private label game may be tempted to start small, Jacobowitz says they’d be better off following Topco’s example. Chains that really want to make a statement about where they stand can’t just dabble in organics, he explains. “They need to cover as many categories as they can. If it’s a half-measure, a tentative toe in the water, well, that doesn’t say much about their conviction.

Integrate or Segregate: The Debate Rages On

Once retailers decide what to include in their private label organics program, they have to determine where they’re going to put it. But the question of whether to integrate natural and organic products within the conventional set or segregate them in a separate natural and organic section or store-within-a-store remains one of the most hotly debated questions in the industry.

But according to Nelson, neither is right for every retailer. “It depends on the consumer that shops the store,” she explains. Retailers have to ask, “Are [organic consumers] going to bother going into a separate section or will they just continue going up and down the aisles in their usual manner?”

In most stores, says Aleni Pappas, organic product manager at Seabrook, N.J.-based Clement Pappas, it’s the latter. In fact, the company recently participated in a study, the full results of which will be released at the PLMA show, that found “71 percent of consumers want private label organic juices merchandised in the main juice aisle” where they can compare them to conventional options.

Rash adds, “If consumers have an opportunity to see [organic and non-organic] products side by side, to really consider the differences, it just might trigger a ‘try-me.’” But if organics are in a segregated section visited by only a fraction of the store’s shoppers, “many consumers will never see them,” thus eliminating the opportunity to convert them.

But according to Baker, consumers who buy organic products don’t do so on a whim. “It’s a lifestyle decision,” he explains, adding that shoppers know whether or not they’ll buy organic before they even set foot in the store. “So let’s make it easier for them to find exactly what they’re for” by segregating organics in their own section.

But it’s not only for the sake of convenience. A separate section also communicates to consumers that the store has a good selection, a strong offering of organics, which suggests you’re in this for the long haul.

“The organic shopper is very committed,” Baker explains. “You need to show them that you’re equally committed by not dabbling in it with a few SKUs here and there.”

An even better solution than integration or segregation? A combination of both. Ideally, Hackbarth says, retailers will merchandise organic products within the conventional set, but if they have an organic section, feature the products there as well. That way, consumers who walk the aisles, as well as those who head straight for the organic section, will be exposed.

And don’t forget cross-merchandising opportunities. “If you’re selling organic hot dogs, it just makes sense to sell organic ketchup next to it,” Hackbarth says.

Separate Organic Advertising

While retailers and manufacturers continue to debate the merits of integrated vs. segregated merchandising, when it comes to advertising and promotion, they agree: Segregation is the way to go.

“Grocers are used to managing their business category by category — meat, produce, etc.,” Rash says. “They need to think of organic as a category as well” and promote it as such. Instead of scattering organic items throughout a circular or ad, where they’re likely to get lost in a sea of SKUs, “take a part of the front page [for private label organics],” he suggests. “It lets consumers know you’ve taken a stand, that you’ve got all the products they want.”

But don’t be afraid to highlight new arrivals. “You really want to be aggressive in your launch to get customers to try new items,” Heilmann says, who also supports IRCs, BOGOs and other methods designed to stimulate trial.

Another easy way to spur that first purchase is sampling. “I believe there’s still the perception out there that organic and natural foods are not as flavorful as conventional products,” Nelson says. “[Retailers that] sponsor demos will have a better chance at bringing new users to the category,” especially when the organic item is priced significantly higher than its conventional counterpart.
“Nobody wants to spend extra money on an organic, natural or gluten-free product that doesn’t taste good,” Baker adds. “If you don’t offer product sampling to allay those fears, you’re missing the boat.”

But traditional sampling isn’t the only way to get organic products into consumers’ mouths. In fact, the foodservice side of the store offers a wide range of opportunities: Put your organic deli meat in store-made sandwiches, stock the salad bar with your organic dressing, fill pre-made veggie trays with your organic produce and hummus. And while you’re at it, Baker adds, try offering some organic meals. “Organic shoppers are just as busy as conventional shoppers,” he explains. “They’re looking for retailers to help them save time as well.”

The final piece of the organic promotional puzzle is consumer education. “The natural and organic consumer is thirsty for knowledge,” Baker says. But retailers can’t always include all the information they’d like to on package. So, in addition to signage, point-of-sale materials, and store circulars, chains should use their Web sites to communicate additional information to organic consumers, especially where your products come from, who’s making them, and how they’re made. “That’s what organic customers want to know,” he concludes. Give them what they want, and you’ll have a customer for life.