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Alternative measures.

Once considered a niche market, natural and organic products now are seen as a growing source of income by mainstream retailers.

There was a time when The Beatles were an unknown club band from Britain, ESPN was a diminutive cable station that covered Australian Rules Football, and Starbucks was a one-shop operation serving coffee in Seattle's Pike Place Market.

But with popularity comes financial success. And with financial success comes an inevitable crossover from niche to mass-market acceptance.

The fact that natural products have continued to show growth in the areas of sales, distribution, manufacturing and production is not news. Rather, the news comes from the increasing number of mainstream consumers who have introduced these products into their lives, and the growing number of traditional supermarkets and manufacturers who have incorporated what long had been regarded as niche or alternative merchandise into their operations.

The bottom line is turning a profit, and the retail market for natural foods is growing at five times the rate of the total retail food market, according to The Henry A. Wallace Institute for Alternative Agriculture, Greenbelt, Md. And it's not just long-time customers of natural and organic products who are contributing to the growth. Fifty percent of all natural-product consumers are new shoppers to the channel, and more than two-thirds have been shopping the category for four years or less, according to the Natural Marketing Institute (NMI), Telford, Pa.

"People want to live healthy lives and are looking for healthy solutions. They want products with natural ingredients that provide healthy options," says Robin Sweet, president, The Well Fed Baby Inc., San Diego. "Successful retailers are smart enough to know that if they don't offer what consumers want, consumers will go elsewhere to find them."

If category growth continues at its current pace, natural foods will exceed $60 billion in sales by 2008, accounting for nearly 10% of the total retail foods market, according to The Wallace Institute. Sales of organic products have grown 20% annually for the past nine years and exceeded sales of $4.5 billion in 1998, according to the Organic Alliance, St. Paul, Minn.

The key here is that these categories no longer are the exclusive shopping domains of ultra-health enthusiasts, vegetarians or Jack LaLanne. Approximately 53% of American consumers purchase natural and organic products, according to The Hartman Group, Bellevue, Wash. More than 30% of organic products now are sold through mass-market grocers, according to the Organic Trade Association (OTA), Greenfield, Mass.

"We've seen a competitive response from everywhere," says Mike Gilliland, president and CEO, Wild Oats Markets, Boulder, Cob. "But we see those competitors as feeders for new customers [for our stores]."

Indeed, many major mainstream retailers have jumped on the natural and organic bandwagon in a big way. Prominent among those supermarket chains that have established natural and/or organic sections in their stores are Pratt Foods, Shawnee, Okla.; Wegmans Food Markets, Rochester, N.Y.; Publix Super Markets, Lakeland, Fla.; Kroger Co., Cincinnati; Albertson's, Boise, Idaho; Fred Meyer, Portland, Ore.; WinnDixie Stores, Jacksonville, Fla.; Vons, Arcadia, Calif.; H-E-B, San Antonio; Randall's Food Markets, Houston; Steele's Markets, Fort Collins, Colo.; Raley's, West Sacramento, Calif.; Safeway, Pleasanton, Calif.; Urkop's, Richmond, Va.; and King Kullen, Westbury, N.Y.

If you hadn't noticed, that list represents supermarkets from coast to coast and throughout the heartland of mid-America.

"The power of one-stop shopping is the ultimate power. Just give customers access and they'll buy natural products at a conventional store," says J.B. Pratt Jr., CEO, Pratt Foods.

It also means that alternative markets such as Wild Oats and Whole Foods Market, Austin, Texas, are making inroads in catering to traditional customers. That would be a case of one-stop shopping in reverse.

"One of the biggest changes I've seen in the business is customer awareness. People are aware that they have choices, and we try to offer as many choices as we can," says Jim Lee, president, Wild Oats. "If a customer who generally shops at a [traditional] store comes into our market, we want them to find what they want, and then to keep coming back because we fill all of their grocery needs."

The crossover marketing between alternative and traditional was apparent in September when 350 mainstream supermarkets nationwide participated in the "Organic Food Celebration," which was coordinated by the Organic Alliance. The aim of the promotion, which involved retailers, producers, manufacturers and distributors, was to educate shoppers about the variety of certified organic food available in traditional supermarkets.

Among those retailers who participated in the month-long event were King Soopers, Denver; Food Emporium, New York; Byerly's and Lund's Foods, Minneapolis/St. Paul; Publix, Pratt and Wegmans.

"In our efforts to educate the public about organics, we need to stress the importance of buying certified organic products," says Angela Sterns, marketing director, Organic Alliance. "When consumers find the certification on a product, it assures them that what they are buying has been grown and processed under strict organic guidelines."

In fact, one major cause for concern among leaders in the organic industry is that organic food production has been misrepresented to the public-at-large as being something less than safe, and that mainstream consumers may be distancing themselves from organic products because of perceived health problems.

"Organic stands for a production system that strives to work in balance with nature, using methods and materials that are of low impact to the environment," says Katherine Dimatteo, OTA's executive director. "It does not mean that organic foods are produced in a haphazard or unsafe manner."

Certified organic producers and processors have to abide by rigorous standards verified by a third party, either an independent or a state-certified organization, she says.

"Organic farmers must adhere to strict growing and processing regulations to help ensure that the resulting food is safe for human consumption," DiMatteo adds.

For many mainstream supermarkets, the challenge regarding natural and organic products is twofold: what to carry to best fit their consumers' demographics and buying patterns, and how best to display the merchandise so that both regular customers and newcomers will find it interesting and worthwhile.

"The natural foods market has the potential to make a positive impact on the environment and consumers' health and well-being. But growing the market smart is just as important as growing the market fast in the long term," says Nessa Richman, author of "The Natural Foods Market: A National Survey of Strategies for Growth," which was released this year by the Wallace Institute.

According to the report, trends in the natural food market are significant, enough so as to affect the entire U.S. food system, from agriculture production to food processing, distribution and retailing.

"Natural foods are no longer seen as the exclusive purview of a small, marginal group of consumers. Mainstream shoppers are increasingly demanding such products," Richman says.

The report also pinpointed three major obstacles to success for the natural food marker:

* There are no widely accepted standards for defining and producing natural foods.

* Natural food and mass-market food companies view the natural food market and conduct business in critically different ways.

* Many natural food and mass-market food businesses do not have the information they need to market and price natural food.

In an effort to overcome such hurdles, numerous mainstream supermarkets nationwide have embraced a whole-health marketing concept, incorporating food, OTC and natural remedies, nutritional supplements, self-care devices and pharmacy. In stores where operators have established a natural and organic products section, statistics showed that health-related issues were high priorities. Of those consumers surveyed, 78% considered their supermarket a good source of information for health-related issues, 47% shopped more frequently at the retailer because of its whole-health offerings, and 37% purchased these whole-health products at the retailer because of the convenience of one-stop shopping, according to Food Marketing Institute (FMI), Washington, D.C., and the General Merchandise Distributors Council (GMDC), Colorado Springs, Cob.

While he stresses the need for retailers to do their homework regarding consumer needs and demographics, J.B. Pratt recommends that if the situation is right to add or expand natural and organic sections, "Just don't put your big roe in. If you're going to do it, jump on in. You need to carry all the categories."

Part of that homework involves not just product placement, but raising consumer awareness of natural and organic products via marketing, advertising and promotions, similar to efforts used by traditional manufacturers to sell their mainstream products. In a survey involving 53 top natural product brands, only 10 had mainstream consumer-awareness levels greater than 20%, according to "The 1999 Natural Marketplace Trends Report (NMTR)" from NMI.

"NMTR reveals that the availability and selection of natural products is perhaps the only hindrance standing in the way of attracting mainstream customers," says Steven French, NMI senior vice president. "As the availability of healthy and natural products increases in mainstream stores, the NMTR shows that this will actually increase the frequency of shopping within the natural products channel, with some stores benefiting more than others."

Does that mean natural and organic products are the right fit for every store? When it comes to mainstream supermarket operators, likely not.

However, among natural and organic retailers, manufacturers, wholesalers and distributors, too much natural and organic is never enough.

A prime example is the Natural Products Expo East '99, being held at the Baltimore Convention Center Oct. 22-24. The show includes 167 booths displaying certified organic products, 129 booths with vitamin/supplement products, 118 booths with personal care merchandise, 45 booths featuring specialty foods, 22 environmental related booths, and another 40 with international or vegetarian products. The show also features more than 500 industry innovations that have been on the market for less than 12 months, including natural or organic merchandise in such categories as HBC, pets, grocery, and vitamins/supplements.

The category itself easily can be intimidating when trying to incorporate merchandise into existing formats and demographics. Mainstream supermarkets looking to initiate or enhance their natural/organic product sections might be advised to embrace categories that industry analysts have targeted as having the highest growth rate and the best potential for continued growth. Among these categories, according to a joint survey released this year by SPINS Inc., San Francisco, and ACNielsen Co., Schaumburg, Ill., are:

* Energy bars and gels. Mainstream stores now contribute more than 50% of category sales, and overall market growth was 40.2% last year vs. 1997.

* Frozen and refrigerated meat alternatives. Sales of frozen veggie burgers and hot dogs grew 50%, and refrigerated veggie burgers and hot dogs grew 40% in mainstream supermarkets in 1998, with overall market growth at 33%.

* Cold cereals. The overall category grew 12.5% last year and is expected to show an even greater increase in 1999 due to the addition of General Mills' Sunrise cereals to mainstream supermarket shelves earlier this year.

* Functional and organic juices. The functional juice category (which includes fruit and vegetable juices, "supplement" juices and sports beverages) had a 76.3% growth in mainstream stores last year vs. 1997 as consumer awareness and distribution for these products grew. Organic apple juice grew 32.4% and all other organic juices had a combined growth of nearly 60% in mainstream stores last year.

* Organic milk. Growth was strong in mainstream markets, with about a 72% increase in sales in 1998 compared with 1997.

"Natural foods are still a very small part of the U.S. retail food market, trends toward food safety, health, convenience and increased interest in the environmental impacts of agriculture practices, she says. The market growth already is spilling over from alternative markets into the mainstream, and will continue to do so for some time.

While some people enjoy going to alternative retail outlets, many more want to buy natural foods without changing where they normally shop. The success of natural foods in conventional supermarkets is critical," Richman says.

The growth of the organic food industry was augmented in mid-September when Drew Goodman, president and co-founder of Natural Selections Foods, San Juan Bautista, Calif., announced that Tanimura & Antle, Salinas Valley, Calif., the world's leading independent lettuce producer, was joining the company as a one-third partner.

"The partnership is the ultimate example of cross-pollination in the produce industry," Goodman says. "This strategic alliance of two innovative farming enterprises will consolidate Natural Selection Foods' leadership in organic farming and help us meet the rapidly expanding market for top-quality organic produce."

The deal is expected to usher in a new era for the organic industry as Tanimura & Antle begins to transition 1,500 acres of its prime agricultural land in its Salinas Valley and Yuma, Ariz., locations to organic practices in order to meet the standards for organically grown produce.

"We recognize the rapidly-growing consumer demand for organic products, as well as the increasing importance of organic practices to the conventional farming industry," according to Rick Antle, president of Tanimura & Antle.

Shopping on-line: It's only natural

Companies and organizations that sell natural and organic products or have direct ties and links to the burgeoning industry have taken to the Internet like ducks to water. Following are some of the top Web sites in the category.

* Like being in the real store, but not. Order on-line from Whole Foods Market's array of natural and organic non-perishables, with delivery available nationwide. Also keep up on industry news and happenings.

* The virtual version of Wild Oats Markets' brick-and-mortar establishments. Food, beverages, vitamins, supplements and other non-perishables delivered throughout the country, plus industry-related news and links.

* Provides direct access to natural products for the home, body and pets, as well as links to industry and environmental information, groups and organizations worldwide.

* The Health Mall a natural products shopping site with natural products businesses specializing in health, nutrition, fitness and personal development. Also provides links for those seeking to market natural products or design Web sites.

* Botanical products company offering retail and wholesale herbs, spices, natural remedies, aromatherapy items and organic coffee.

* Home base for natural and organic food, health and playthings for your pets, including pet-related information and news.

* Natural alternatives for your animal companion, including food, supplies and health products.

* Natural lifestyle Web site with information, news and links on and about food, HBC, fitness, nutrition, investments and job opportunities.

* Home page for the Organic Trade Association, Greenwich, Conn.

* Home page for the Organic Alliance, St. Paul, Minn.

* Home page for the Food and Drug Administration, providing news, information, links and contacts worldwide regarding food, drugs, cosmetics, legal proceedings, government regulations and medical data.

Expo East set for Oct. 20-24

The latest innovations in the natural products market will be on display at the 15th annual Natural Products Expo East, Oct. 20-24, in Baltimore. This year's conference at the Baltimore Convention Center, sponsored by New Hope Natural Media and open to trade members, is expected to draw more than 20,000 attendees. The projected number of exhibition booths is 1,720.

Educational events and workshops will kick off the conference, with the trade show floor open Oct. 22-24. Conference highlights include:

* "Organic Day" on Oct. 21 presented by the Organic Trade Association and Natural Products Expo: Includes an organic farm tour, Organic Trade Association seminars, and Fresh Ideas Organic Tasting.

* Presentation by keynote speaker, Dr. Wayne Dyer, an author and speaker.

* International business seminars new for Expo East Include information on organic regulations.

* Education conference

* Forty-four seminars

* Seven product pavilions: international (22 booths), certified organic (167 booths), personal care (118 booths), specialty foods (new to Expo East, 45 booths), vegetarian (18 booths), vitamins/supplements (129 booths), and environmental (22 booths).

* Three showcases:

1. New products, with more than 500 innovations that have been on the market less than 12 months, including grocery, herbs/medicinals, certified organic, personal care, pet products and vitamins/supplements.

2. Bulk foods service, new to Expo East, geared toward manufacturers, restaurant buyers and caterers interested in bulk products offered by raw-material suppliers and bulk-quantity producers.

3. International, also new to Expo East, will feature products that are being imported or exported.
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Author:Janoff, Barry
Publication:Progressive Grocer
Geographic Code:1USA
Date:Oct 1, 1999
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