NATURAL BEAUTY

SAN DIEGO -- West Coast supermarkets are among the leaders in natural product trends. Yet like other retailers, they are still experimenting with merch-andising health and beauty care products in their own section, or together with the main category, SN found in store visits here.In addition to interviews with key industry executives, SN went to representative stores of all the major supermarket chains,

SAN DIEGO -- West Coast supermarkets are among the leaders in natural product trends. Yet like other retailers, they are still experimenting with merch-andising health and beauty care products in their own section, or together with the main category, SN found in store visits here.

In addition to interviews with key industry executives, SN went to representative stores of all the major supermarket chains, as well as other classes of trade, in the San Diego area. SN observed a highly competitive natural and organic marketplace.

This was confirmed by Rob Morton, director of community merchandising, Wild Oats Markets, Boulder, Colo. "The main situation that you're faced with down there is you have a very savvy consumer who is very familiar with the industry and very familiar with the products. At the same time, because of the same customer base being so knowledgeable, you have a lot of competition and you have a lot of different outlets for those products."

The four largest grocery players in the San Diego market are Vons, Albertsons, Ralphs and Henry's Marketplace, according to data from International Demographics, Houston. In 2003, 41.8% of adults said they had shopped at Vons, a Safeway banner based in Arcadia, Calif.; 37.6% shopped at Albertsons; 24.9% shopped in Compton, Calif.-based Ralphs, a division of Kroger; and 11.7% shopped at Henry's Marketplace, operated by Wild Oats. Other retailers competing in that market include Food 4 Less, a Kroger operation based in Compton, Calif.; Costco, Issaquah, Wash.; Stater Bros., Colton, Calif.; military commissaries; Trader Joe's, Monrovia, Calif.; and, last on the list, Wal-Mart Supercenters, Bentonville, Ark.

Executives at Vons, Ralphs and Albertsons did not return calls requesting comment.

What drives the relatively young natural/organic HBC category are the beauty items, sources said. Nationally, organic personal care had sales of $170 million in 2003, and growth of 19.4%, according to data from the Organic Trade Association's 2004 Manufacturer Survey. The association, based in Greenfield, Mass., defined personal care as skin care, soap/bath items, hair care, aromatherapy products, feminine hygiene, oral care, deodorant, nail care and shaving products.

In comparison, organic foods accounted for $10.38 billion in sales in 2003 1.9%. While sources agreed organic HBC is still a small segment, it is one with potential, and one consumers expect to see in stores. The remaining question is how to merchandise these products.

"What you see in the natural/organic HBC category is a more rapid approach toward the integrated/segregated approach," said Jim Wisner, president, Wisner Marketing Group, Libertyville, Ill.

Integrated/segregated merchandising uses a combined approach to merchandising, often integrating products into their department within a store, then segregating the natural and organic offerings into their own distinct set.

To set apart the natural/organic HBC products, Ralphs stores in neighborhoods around San Diego have taken a variety of approaches, but with each location making the natural/organic HBC obvious for consumers through different fixtures, signs, and varying degrees of segregation.

In a Chula Vista store, for example, natural and organic HBC is merchandised within its own section, but adjacent to other HBC products. Natural and organic HBC and household cleaners occupy a four-foot section each, side by side, next to approximately 12 feet of vitamins facing the pharmacy.

A Ralphs in La Jolla has a store-within-a-store, whole health-oriented approach in a dedicated "Natural Choices" section near the produce department, with distinctive fixtures. The section includes eight feet of HBC next to 12 feet of vitamins, four feet of natural household cleaners, and four feet of nutritional books down one side of the aisle. Facing those products are nutritional bars, supplements and vitamin enhanced waters. The pharmacy is located at the opposite end of the store.

Henry's Marketplace stores in the area merchandise one section of natural living products, often located near the front of the store where customers enter. Personal care items and vitamins and supplements are located in sections set apart by a sign and low, wooden fixtures in keeping with a conventional supermarket approach, where over-the-counter products and HBC items are often near each other in the aisles.

Henry's stores combine elements of conventional supermarkets and large health food stores, Morton said. There is a rising trend of organic body care items, he said. Products in that category are found in Henry's and at Wild Oats stores.

Vons stores in the market don't offer segregated natural food products, nor do they draw attention to specific product offerings in those areas. High-end HBC brands were visible throughout the store. Longs Drug Stores, Walnut Creek, Calif., posts "Live healthy. Live happy. Live Longs." banners throughout the store, but also does not segregate a specific section of health offerings. Organic HBC items were mixed in with their categories, most heavily in lotion and skin care, but were not labeled or advertised as natural and organic.

According to OTA's Manufacturers Survey, the top three personal care sub-categories in 2003 were skin care, soap/bath and hair care. Skin care accounted for $72 million, hair care for $38 million, and soap/bath products for $36 million of the total $170 million in sales for the category.

Whether to integrate or segregate natural and organic HBC products is an issue for retailers in other parts of the country, too.

Kowalski's Markets, St. Paul, Minn., integrates natural/organic HBC into its aisles to help consumers find the products more easily, said Debbie Leland, natural and specialty foods buyer for the upscale independent chain. Kowalski's operates eight stores in the Minneapolis/St. Paul market and plans to open two more next year.

"You don't need to make a separate department out of [natural and organic HBC] items. For the convenience of your customers, it should be right in the aisle with the other product to get better exposure."

Within its shampoo and body care sets, Kowalski's segregates some products, Leland added. For example, in an eight-foot hair care or lotion set in many of the chain's stores, the top two shelves are set aside for natural/organic offerings.

Retailers who combine integrated and segregated merchandising in presenting natural and organic products sell more, Wisner said.

Even more important than the strategy chosen is the commitment to that strategy, sources said.

"The underlying management posture is what is important," said Jay Jacobowitz, president and founder, Retail Insights, Brattleboro, Vt., a consultancy for natural product retailers.

If the decision on how to merchandise natural/organic products isn't embraced from the top down, then the implementation will reflect that inconsistency, Jacobowitz said. Stores committed to store-within-a-store concepts are more likely to have natural HBC products in their mix, he said.

"Many supermarkets today are debating what they should do. If they have a store-within-a-store concept, you can rest assured that they are talking about whether or not strategically this is the best," said Tom Chappell, president and founder, Tom's of Maine, Kennebunk, Maine.

Recently, Tom's started to supply retailers with a stand-alone merchandising kiosk to draw attention to its full line of personal care brands, he said. Kiosks are either three-foot endcaps or two-by-two-foot walk-around displays placed within the HBC department or as outposts in other areas of the store, Chappell said.

Henry's featured a Tom's of Maine kiosk in front of its HBC and vitamin section in Chula Vista, along with a Burt's Bees counter and some natural cosmetics offerings. Chappell said the dedicated Tom's of Maine kiosks are in Hannaford, Fred Meyer, Albertsons, Wild Oats, Whole Foods and Brooks Pharmacy.

Organic Personal Care

Forecasted Average Annual Growth 2004-2008

Feminine Hygene: 18%

Shaving: 12.8%

Deodorant: 14.1%

Soap/Bath: 13.1%

Nail Care: 9.9%

Aromatherapy Products: 13.6%

Oral Care: 13.8%

Skin Care: 16.5%

Hair Care: 13.1%

Total: 14.8%

Source: Organic Trade Association's 2004 Manufacturer Survey