Supermarkets join niche retailers in offering healthy fare
By Blanca Torres
CONTRA COSTA TIMES
In Safeway's cereal aisle, tucked between Tony the Tiger and Toucan Sam, is a new kid on the block: O Organics raisin bran.
Instead of regulating organic offerings to a designated section, Pleasanton-based Safeway Inc. is bringing more of them to the mainstream, joining retailers such as Wal-Mart and even 7-Eleven. The company, which makes the O Organics brand, is shelving the line of organic products next to conventional items.
Once found mostly at niche retailers such as independent health-food stores and Whole Foods Market, organic food is showing up on shelves everywhere.
The move is a response to the massive growth of the organic and natural food market, which has grown at more than 20 percent per year for the past 15 years, according the Minnesota-based Organic Consumers Association.
"We're even starting to see (organic foods) in convenience stores and institutional food sector such as corporate cafeterias, hospitals, nursing homes," said Ronnie Cummins, the group's executive director.
"There's no doubt that within a few years, most organic foods will be sold at conventional stores. Even in those sectors, you're starting to see more of a selection and emphasis."
For many consumers, "organic" means healthy and expensive. Many organic products such as produce, meat or eggs cost 50 percent to 100 percent more than conventional products, but, Cummins said, that's a price many consumers are willing to pay for food they consider to be healthier and better for the environment.
Another factor is that some Americans are adopting European-style attitudes about food, Cummins said, placing more value on their food and spending less on other things.
"I try to budget for organic milk and vegetables," said Sebastian Diaz-Ortiz, 33, of Walnut Creek. "Ultimately, it will pay off. I'm talking about my body. I'd rather spend a little more now and be healthier later."
Organic and natural foods may prove to be a savior for conventional supermarkets, a sector known for its plastic-wrap-thin margins.
With increased competition from discounters such as Costco Wholesale and Wal-Mart, and high-end boutique markets such as Andronico's and Whole Foods, stores such as Safeway and Albertsons have struggled to retain market share and not be squeezed out by the low and high ends.
"The food industry is investing in those new trends which they think are durable; organic seems to be the most durable," said Eugene Muscat, an associate dean at the University of San Francisco School of Business and Management. "Now, conventional retailers have access to this new market: People are willing to pay a lot more for the organic sticker."
The more consumers become educated about nutrition, health and food quality, the more likely they are to buy organic food, Muscat said.
"The awareness the consumer is having now is driving their choice to natural and organic, they are becoming educated about the food they are eating," said John Clougher, the Emeryville-based vice president of purchasing for Whole Foods Market.
"We educate our customers on our food standards," he said. "For every product, there's information about it."
The organic price point
Some of Safeway's O Organics brand products such as cereal or fruit preserves are priced similarly to some of the retailer's generic brands.
"People have found organic to be unaffordable or too hard to find," said James White, vice-president for corporate brands at Safeway. "We want to make organic broadly available."
The retailer also places its O Organics products among conventional items (though many stores still have a separate natural and organic section lined with specialty foods).
According the OCA, 10 percent of all money spent on consumer products are natural or organic, with 30 percent of that going toward organic.
"It certainly looks like that is not just some fad that's going to stop," OCA's Cummins said. "People are really concerned about their health and their children's health."
The OCA estimates that 12 percent of America's 106 million households buys primarily organic food, Cummins said, and half of all consumers say they occasionally buy organic products.
"When you're comparing the costs, you are only comparing the retail price and you are not accounting for the costs or benefits that are not happening at the retail store," said Holly Givens, spokeswoman for the Organic Trade Association based in Greenfield, Mass.
Givens said many consumers are concerned about the effects of pesticides on the nation's farmlands, water supply and working conditions for agricultural laborers.
The number of organic products in grocery stores has increased exponentially in the past few years, said Cummins of the consumers' association.
Consumers can now find organic or natural anything from crackers and chocolate to salad dressing and ketchup.
Safeway introduced about 150 products with its O Organics line, whereas Whole Foods sells 1,300 items under its proprietary label, 365. Not all of 365 products are certified organic, however.
White said he expects Safeway's best sellers to include milk, eggs and yogurt. The retailer also plans to improve its organic produce selection in the next several weeks.
"If it's available, I'll always buy organic over nonorganic," Kerri Knox of Berkeley said while shopping recently at Safeway in Walnut Creek. Knox, 34, said she regularly buys organic milk, eggs, fruits and vegetables. Her main concern is avoiding harmful pesticides.
"People who are health conscious aren't buying tons of processed foods," Knox said. "I don't really buy processed stuff. I buy fresh foods."
Knox said she was disappointed by soft, old-looking Granny Smith apples she saw in Safeway's organic bins. She shops mostly at specialty stores such as Andronico's and Berkeley Bowl because they have good produce sections, she said.
Access boosts growth
Improved access to organic food at conventional retailers will it make it easier for the segment to grow.
"Some shoppers may not go out of their way to buy it, but if they see it where they are shopping, they will buy it and try it," Givens said. "Six or eight years ago, you had to make a special trip someplace to buy organic food."
Diaz-Ortiz is that type of shopper.
"I'm not organic-obsessive," he said while looking at a can of Izze natural fruit juice on sale for 99 cents at Safeway. "If I see it, I might buy it."
Retailers such as Whole Foods have built their fortunes on the organic and natural format -- the Austin, Texas-based chain is seeing double-digit yearly growth -- but don't necessarily consider themselves catering to a niche market.
"We consider anybody who sells food a competitor in the marketplace," Clougher with Whole Foods said. "Our mission is to be the largest natural and organic retailer. In some ways, we are appreciative of other retailers coming into the market."
Whole Foods has grown from one small store in Austin in 1980 to 181 last year, with plans to open 72 more. Its average store size has nearly doubled in the past decade, from 29,000 square feet to 45,000 square feet, after adding expanded bakery, salad bar and deli offerings.
"We want people to live healthy lifestyles, that is our business plan," Clougher said. "We are about everything we sell being natural and organic. This is who we are and who we've been."
Safeway is trying a similar strategy with its "lifestyle" stores, which feature high-end decor such as soft lighting, hardwood floors and warm color schemes. Those stores also sell larger varieties of high-end products, such as imported cheeses, wine and prepared foods.
"This is very Whole Foods style," Diaz-Ortiz said as he pointed to the hardwood floors in the natural and organic aisle of Safeway.
More than 400 of Safeway's stores are lifestyle, and the company expects to eventually convert all of its stores to that approach. By doing so, Safeway is catering to customers who have more money to spend, which is what Whole Foods has done well.
"For us, this is part of our overall strategy to understand our consumers better," Safeway's White said. "We want to replace the need for shoppers to go anywhere else, to make a separate trip to get organic food."
Organic foods usually have larger profit margins than conventional foods, which is helping conventional supermarkets stay afloat.
The advantage that supermarkets have is the ability to be a one-stop shop for consumers who want a mix of high-end natural and organic foods and less expensive conventional foods.
"People expect organic to be expensive, so Safeway is actually in a great spot," said Muscat with the University of San Francisco. "The future is that they are going to take the educated consumer and draw that consumer back on the basis of convenience."
What the labels mean
• Organic: Produce grown without pesticides, synthetic fertilizers or bioengineering; or meat, poultry, eggs and dairy products that come from animals not given antibiotics or hormones. The official label is a U.S. Department of Agriculture certification. Foods with the seal meet U.S. standards, regardless of their country of origin.
• Made with organic ingredients: Processed products that contain at least 70 percent organic ingredients.
• Natural: Food that is free of artificial ingredients, such as dyes, preservatives, antibiotics and hormones. The term is not regulated by the government.
• Free range: Poultry that comes from animals raised or partially raised outdoors.
-- Blanca Torres
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