Organic cash cows – Selling healthy lifestyles
Elsevier Food International Vol.9, Number 3, september 2006 Vincent Hentzepeter
Today most retailers offer a selection of organic products. In some cases up to 20 per cent of the assortment is certified as organic. The arrival of certified products in the conventional supermarket has made consumers familiar with ‘organic’. Still, the organic choice at the daily grocery shop is limited to everyday products in categories like dairy, meat, fruit and vegetables, baby food and convenience products. Pure organic grocers in contrast offer a 100 per cent organic one-stop-shopping experience with thousands of products or even ten thousand items in bigger stores. Many of these are unique and cannot be found in conventional supermarkets. The organic grocer is the place to be when it comes to unprocessed products, vegetarian foodstuffs, delicatessen from local distributors and farms and lots of products that are too specialist to handle for an average supermarket.
Mainstream
Consumer demand for organic foodstuffs continues to grow and at faster growing rates. An increase of per cent a year, like in Germany, is no exception. According to a Just-Food.com report the global organic food and drink market reached US$36 billion last year. Europe now accounts for the majority share of this value. Here Germany is one of the biggest markets with a turnover of over US$4 billion. The US leads in terms of total organic consumption. A recent survey of the Organic Consumers Association estimates US sales at US$15 billion in 2005, over three times the size in 1997. According to information company ACNielsen this is an extra US$4 billion in one year. A better availability of organic products in regular supermarkets and newly opened stores by organic grocers have given organics a push. Furthermore, an increasing number of consumers include organic products in their shopping trolley. Out of 106 million American households, 13 million consistently buy organic. It shows that organic is becoming more mainstream. This is true in both America and in Europe.
Price premium
For a long time natural food stores were a domain for the happy few. Now this is changing. Lower income groups are now also starting to find their way to the organic supermarket. Customers that buy certified foods pay a 25 to 100 per cent price premium for their purchases. Surprisingly enough, most of them seem very willing to pay this. The very fact that organic food is generally considered as healthier, justifies this ‘bonus’. Especially young parents, motivated by the health aspects, choose to buy their shopping (partly) at organic groceries. In a 2004 study conducted by the Hartman Group, a Washington based consulting and market research firm, having children is mentioned as the most important trigger for consumers entering the organic category. By purchasing organics, parents believe they can keep food containing hormones, pesticides, herbicides, fertiliser traces, GMOs, trans fats, artificial additives and other dreaded substances away from their children. The child factor is therefore a key strategic issue for the expansion of organic chains. Of course health is not the only reason why people buy organic as natural or exclusive taste, local produce instead of mass production and sustainability issues also trigger consumers.
Advice
Once familiar with the organic grocer, consumers may at their common supermarket swap their regular cow’s milk for an organic variety. However, for whole foods, indulgence foods, down to earth specialities, and GMO-free guarantees, they will make a well-worth extra trip to the health food shop. Where else can the customer find products like unpolished basmati rice, traditional sour cream butter, and an extensive choice of fresh produce from certified farms? And what’s more important: obtain advice about allergens in food stuffs. Selling healthy lifestyles, that is what it is all about in organic grocery stores.
At Whole Food Market, the world’s biggest Texas-based natural foods chain, informing the consumer is ‘core’ in any of the company’s supermarkets. Stores have well-trained employees who promote products from their own region, thus adding value to the shopping concept. They explain to customers, for example, why fewer ‘food miles’ yield fresher products, but leave them the choice to select overseas products that are also available in store. The same goes for certified quality. Organic comes first, but if organic varieties are unavailable, stores offer a second best selection such as regional products from top quality producers or farms. Consumers will always have the feeling that they are buying the best quality. All products are selected by taste, look attractive and are presented in an inspiring store design.
Proof of the pudding
A financial analysis of Whole Food Market shows that the company is performing well. In 2005, sales amounted to approximately US$4.7 billion. That is substantial for an organic grocer. The company is a giant compared with some of the larger European organic chains that have sales well below US$100 million. Moreover, Whole foods is the proof of the pudding that organic supermarkets can be cash cows. In the first quarter of this year gross profits came out at 34.9, while costs like direct store expenses amounted to 28.5 per cent. Yet, founder and chief executive John Mackey is ready for more. Last March he told his shareholders that he expects the company to reach US$12 billion in sales by 2010. To realise this, the company will have to open about 25 to 30 new stores, beginning in 2007. In addition, the grocer will broaden its product assortment, which will include a greater variety of produce, a larger array of private label items, and more speciality, ethnic and prepared food products.
Flagship store
Whole Food Market is also the first in the sector to pursue an international strategy. In 2004 the company opened its two first organic shops in Canada and took over seven stores of the British natural food chain Fresh & Wild. Insiders say it is a matter of time before Whole Foods will set foot on the European continent. Before this moment, a flagship store is to be opened in 2007 in Kensington (London). With 75,000 square feet and three floors, this supermarket will be larger than all Fresh & Wild outlets together.
France
Should Whole Foods Market enter Europe, it will not face strong competition. The European organic retail market is highly fragmented with many local players that operate small scale stores. This is especially true in the southern countries and France. In France, for example, artisan, natural food stores are widespread and organic products from local farms are part of the culture. Nevertheless, the country harbours no retail formats like Whole Foods Market. Since retailers like Casino have started to include organic products in their stores, organic store owners have woken up. At this moment 60 BioCoop supermarkets operate under the same banner. BioCoop is a federation that provides a local and international supply and distribution infrastructure for organic stores. About 200 independent consumer co-operatives and shops, some of them in Spain and Portugal, are part of the 'BioCoop' network. Although store appearance of BioCoop markets may differ from place to place, it is a first sign that the French organic market is professionalising.
Bio-Planet
In Belgium, the Netherlands and Germany the market is more developed (see table). Here organic retail chains, offering some kind of one-stop-shopping concept, are proliferating. Mostly initiatives of organic pioneers but in some cases retail organisations were the initiator. In Belgium discounter Colruyt started five Bio-Planet stores. Delhaize Group reacted with a new fresh organic shopping-concept called Bio-Square (100 m²) near Brussels but discontinued this project. The shop, with over 2000 organic products, now partners under the name of Biocorner with Bonterre, the biggest French distributor of organic products. In France, Bonterre cooperates with 130 natural stores, all of which are independently operating supermarkets.
In the Netherlands ‘De Natuurwinkel’ is a fast growing chain. With a growth rate of 7.8 per cent and over 70 outlets this retail organisation is outpacing the regular supermarket that has lost organic market share after a price battle that victimised many certified products. Ekoplaza is a new organic retail concept with large stores that was introduced in 2005. In Germany the organic market is also developing rapidly. Here Rewe is active in Cologne and Düsseldorf with two Vierlinden stores. These organic supermarkets are used by the retail player as a weapon against discounters Lidl and Aldi. But Germany’s biggest organic supermarket player is ‘Basic AG’ with 16 outlets. Last June the retailer opened its first one outside of Germany, an 850 m² store in the centre of Vienna. More are scheduled for Berlin and Bonn.
Major organic grocers in Europe and America
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