Retailers Move To Organic 2.0
Specialty stores get exotic to fend off supermarket chains
Alex More, a law student in Austin, recently shopped at Whole Foods Market to load up on sprouted oatmeal, almond milk, and flavored flax crackers. "It's health food that I couldn't get at a normal big supermarket," he says.
Specialty food stores need customers like More to survive the mainstreaming of organic food. It's not just Whole Foods and quirky natural-foods outlets offering organic apples and cereal anymore. Big supermarket chains like Safeway and Food Lion have gotten into the game, with 3 out of 4 conventional grocery stores in the country now selling organic food, according to the Food Marketing Institute. Overall, organic sales reached $13.8 billion in 2005, up 285 percent since 1997, the Organic Trade Association says. Organic yogurt sales, for example, grew 25 percent between 2004 and 2005, compared with 4.7 percent sales growth for conventional yogurt.
In response, specialty stores like Whole Foods are going beyond organic by offering exotic products, locally grown produce, and meat from humanely treated animals, as well as a more enjoyable shopping experience. So far, the strategy seems to be working.
"You can't just slap on an organic label anymore," says Laurie Demeritt, president of the Hartman Group, a market research firm. "Consumers are always aspirational and trying to get to the next layer of quality."
Advice. Focusing on high-quality, unusual foods has helped specialty stores retain customers, says Chuck Cerankosky, managing director at FTN Midwest Securities. Wild Oats Markets, a natural-foods chain that Whole Foods is acquiring, sells items like chanterelle and enoki mushrooms, truffle oils, and locally produced honey. Store employees offer cooking and entertaining advice, says spokeswoman Sonja Tuitele. "That's one way we differentiate ourselves from the bigger grocery stores," she notes.
Whole Foods CEO John Mackey says that the increased competition is having a small negative impact on sales. "They have seen how successful Whole Foods has been, and they are copying us. ... We are no longer differentiated on the basis of products," he recently told analysts. The company is still gaining customers, he added, just not as quickly as it once did. But some company watchers are a bit worried amid a 40 percent selloff in the stock over the past year. A recent Morningstar report noted that not only have sales been decelerating but "there has been concern that the Whole Foods brand is losing some of its luster and competition is catching up."
To help keep its edge, Whole Foods now adheres to stricter standards than federal organic certification requires. It buys meat only from suppliers that follow its animal treatment requirements, which include allowing cattle the freedom to range for at least two thirds of their lives. The store also promises customers that its buyers visit farms where produce is grown.
Local natural-foods stores and the specialty chains often post stories about and photos of the farmers who grow the food. Wild Oats launched a "Choose Local" campaign last summer. Whole Foods' website promotes individual farmers. Michael Straus, executive producer of the Beyond Organic podcast, says, "I really think people are feeling physically and emotionally disconnected from their food. People want a connection—people are yearning for it."
advertisement
