SN Whole Health: Wellness Sales Feeling the Pinch

SN Whole Health: Wellness Sales Feeling the Pinch

Will new competitors, mergers squeeze wellness sales? 2012 WH Asks poll respondents think so. “It seems mainstream consumers are coming back into health and wellness-related categories, partly because of confidence in the economy, but also all the news about GMOs, antibiotics, etc. in their food.” — Poll respondent

Some point to the rise of natural food retailers like Whole Foods Market and Sprouts Farmers Market. Others suspect the dollar channel. But no matter who’s responsible, the mainstream supermarket industry reports that maintaining health and wellness sales is much more competitive today than it was even a few short years ago.

Mass merchandisers were also seen as a principal rival, according to stakeholders surveyed in the 2012 WH Asks poll, conducted by SN Whole Health.

“As center store shrinks, health and wellness-related items are the first to get cut,” responded one industry veteran.

“The dollar store has made a difference with their lower prices,” said another.

Until recently, the retail borders were a bit more defined, with each channel fulfilling a particular consumer need. The rise of natural and organic as a key growth category shook up the status quo, and the ensuing success of wellness has attracted all store formats. A look around demonstrates that about every one of them markets better-for-you products to some degree.

It’s a good thing there’s still plenty of profit to go around.

Poll respondents noted a “large increase in gluten-free products,” “deeper pricing/advertising” and “expanded distribution” as among the forces driving continued growth. It’s no surprise, then, that a significant majority of those surveyed — 68% — said sales of health and wellness-related categories grew in 2011, up slightly from 66% the prior year.

The scope of the growth also showed a high degree of optimism: 42% stated that sales increased at least 10%, though single-digit growth was also represented. Some 25% believe sales went up only by 4% to 6%, while slightly fewer (22%) report that sales grew in the 7% to 9% range.

The added sales didn’t occur by themselves, to listen to stakeholders. “There were more aggressive selling events with a proper mix of key items,” said one.

“There are more quality offerings,” said another.

One observer credits consumers for becoming more aware of food-related issues.

“It seems mainstream consumers are coming back into health and wellness-related categories, partly because of confidence in the economy, but also all the news about GMOs, antibiotics, etc. in their food,” he wrote.

Behind the near-universal success, however, is that growing threat from competitors that have begun selling natural and organic products, or have invested more heavily in the categories by adding SKUs and services.

SN blog: Organic Industry Needs a Check-Off Program [4]

“We are struggling with new competition that discounts deeply often, or very close to our cost,” stated one retailer. “So we are to learn to compete differently.”

All levels of the playing field are facing change. While retailers grapple with other formats, there’s a distinct feeling among respondents that the coming year will bring an increase in mergers and acquisitions throughout the industry. Just over 60% of those polled think the M&A pace will pick up in 2013, while 40% believe it will remain the same. Not one of the 191 respondents thinks the level of activity will go down.

“This is no longer a niche business,” is how one stakeholder put it.

Top Trends

The wellness business is made up of many parts, and some are stronger than others. In recent years, the top choice has been skewing hard toward special needs rather than more universal wellness segments.

For instance, gluten-/allergen-free leads the pack again in 2012, the second year in a row that this category attracted the most votes — and it is seems far from topping out. If anything, gluten-free has room to grow further, according to the WH Asks results. Thirty-two percent chose gluten-free as the top trend of 2012, up from 30% the year before.

Organic received strong support as well. Some 23% of respondents named that cornerstone category the top trend of this past year, up from 18% in 2011.

Whole grains, which dominated the list in 2010 with an impressive 56%, fell back to third place this year, garnering only 9%. One reason for this drop could be the decision by many food manufacturers to boost the grain content of their mainstream products, thereby eliminating the need for consumers to seek out specially marked packages touting a product rich in whole grains.

Interestingly, the debate around genetically modified organisms did not perform as well as expected. Despite the effort by natural food proponents to raise awareness and to boost non-GMO certification of food items, it still hasn’t caught fire with consumers to the point where it’s registering on retailer radars. Only 9% of those polled said non-GMO is a trend their customers are aware of.

Also of note was the middling performance of local. Only 5% of respondents cited the popular category as a leading trend, ranking eighth and behind low-sodium and natural/organic private label, both of which were chosen by 7% of those polled. There are two possibilities that could explain the result: Local is still largely confined to the produce category, cutting into its ability to achieve broad acceptance, and there remains a measurable gap between demand and what producers are actually able to supply.

That’s not to say local isn’t popular in the categories in which it’s represented. Some 60% stated they do carry local food products, primarily in produce/floral (73%) and dairy (49%). Local products in other categories didn’t provide as strong a showing.

Identifying all these different wellness items on the shelf has become more complicated as stores stock more of them. Despite the best efforts of the industry, some segments remain more familiar than others.

For example, respondents feel that only 38% of consumers have a “high rate” of awareness of the USDA Organic label; most of them have an “average” awareness (52%), according to the survey. As low as those numbers might seem they fare better than non-GMO certified, where the majority of 51% stated there appears to be “little or no” awareness by shoppers.

“Little/no awareness” dominates the other segments examined: Fair trade certified (48%), sustainable fisheries (56%) and certified natural HBC items (58%) all received more negative than positive votes.

On the opposite end of the spectrum, gluten-free foods had the sunniest response set, with 58% of respondents reporting a “high level” of awareness among their customers, and 38% with an “average” sense of what gluten-free stands for.

Labels aren’t the only element on packaging and signage today. Debate continues on the best way to educate customers about nutrition. Here, too, a number of different informational programs have taken hold, most notably Guiding Stars and NuVal, as well as the food industry’s own campaign, Facts Up Front.

Despite the best efforts of these rating systems to attract new participants, only 28% of those responding to the WH Asks poll stated they are currently using any nutrition rating system, while 72% said they are not.

When asked if they would support a single, national nutrition rating program, 60% said they would, as opposed to 40% who said no.

Of those replying in the affirmative, most believe that a national standard would greatly simplify packaging and make it easier for customers to get accurate nutritional information, regardless of where they shop.

“Consumers need consistent information in a way that is easy to compare between brands of similar products,” said one stakeholder.

Another person was more blunt: “It’s the right thing to do — period.”

Some respondents feel that a national system is inevitable given recent actions taken by federal regulators.

“The industry better start speaking with one voice as this labeling is moving from a consumer-driven to a regulatory-driven requirement,” wrote one.

Not everyone approves of a unified system. Those opposing a single standard conveyed numerous reasons for their thinking.

“Competition leads to better messaging,” wrote one respondent. “It’s too early for everyone to be on one program. The ‘best’ hasn’t been developed yet.”

“Federal guidelines have already been established to prevent/prohibit false claims,” stated another. “Within reason, we need some creativity.”

The financial burden of labeling was a concern among some, as well.

“The ultimate cost of unifying labels under a federal program would be reflected in increased packaging costs and ultimately higher retails for the consumer.”

Outside Threats

Almost anyone selling food offers some natural, organic or eco-friendly products. The combined pool of retailers marketing wellness has meant consumers have more choices.

For the first time since the WH Asks poll was launched in 2006, a specific natural food stores option was added to the question asking which channel presented the strongest competition to supermarkets in wellness sales. Other choices have always included mass merchandisers like Wal-Mart and Target, drug stores, club stores and dollar stores, among others.

With the new addition, respondents overwhelmingly chose natural food stores as the primary competitor to conventional supermarkets. Just over 53% said retailers like Whole Foods [5] and Sprouts Farmers Market [6] posed the greatest threat of siphoning consumers looking for wellness products.

Mass merchandisers had always been the No. 1 choice since the poll’s inception. Nearly 56% of respondents selected this channel last year, for example. However, with a wider field from which to choose, mass was the choice of only 29% of those surveyed in 2012, a significant drop from prior years. Percentages of the other segments were in the mid to high single digits.

Including a specific natural channel option also switched up the most popular choice for the follow-up question asking what competitive advantage the respondent’s choice had over supermarkets.

In past polls, when the top choice was mass merchandisers, stakeholders always chose price as the differentiating factor. But this year, price was the second-most-popular option, chosen by 40% of those polled. The winner in 2012 was selection, favored by 50% of respondents.

Credentials and reputation were cited by one person asked to explain his choice. Another echoed the opinion, stating that natural food stores seem to enjoy special status as a wellness destination.

“They have sophisticated marketing appeal,” this stakeholder wrote. “They have smart community programs to promote well-being and education.”

While natural food chains might have a better image, when it comes to the shelf, pricing is tough to beat at the supermarket. Most respondents — nearly 37% — said that the price gap between organic and conventional food products has narrowed “somewhat.” Another 25% believe pricing remained largely unchanged from the prior year, and 29% saw the gap widen somewhat. The fewest votes went to the extremes: Only 8% stated that prices widened “significantly” while 2% said prices narrowed as much.

“I find our local Kroger and Safeway stores becoming a better resource for a variety of organic items,” stated one respondent, noting that she must drive “a ways” to get to a natural food store, which isn’t always possible.

Increased availability and demand for organic products have also helped the category reach parity with conventional. “Conventional food costs have risen more dramatically than organic, bringing the prices of each closer to one another,” wrote one person.

One stakeholder invented the term “premiumization” to better describe why he thinks the price gap has widened since 2011. Another person was more direct: “Retailers are stretching and testing the elasticity of the organic premium.”

In the 2011 WH Asks, the number of respondents who found that the price gap had narrowed somewhat was higher — 50%, while 23% felt pricing widened somewhat and 22% felt prices from the prior year had remained unchanged.

One sector in which conventional operators have been most effective in competing for natural and organic sales has been private label. A vast majority of respondents — 68% — said sales of their store brands have increased over the past year, while 30% found they remained the same. A mere 2% stated that private-label sales decreased over 2011 levels.

Roughly 15% of private-label sales comes from natural, organic and eco-friendly products, according to those surveyed, a statistic that remains unchanged from 2011. The most popular categories chosen by respondents include snacks (39%), produce (30%), frozens (30%), beverages (29%) and dairy (27%).

Other categories mentioned were HBC (17%), meat (16%), in-store bakery (11%) and nonfood/household (3%).

Spread the Word

The commitment to health and wellness extends beyond simply selling product in stores. All channels in the food industry have adopted a number of strategies designed to communicate the depth of their engagement.

The medium best suited to broadcast such messages appears to be social media. Nearly 30% of respondents stated they had hired someone specifically to oversee their digital outreach efforts, a slight dip from last year’s figure of 33%.

There are multiple media outlets to choose from. A vast majority of those polled report some presence on Facebook (89%), more than Twitter (61%) Pinterest (20%), Groupon/Living Social (10%) and FourSquare (9%). Others mentioned the video site YouTube.

In 2011, Facebook was used by only 62% of those polled, and the percentages were lower with other sites as well: Twitter (40%), Groupon/Living Social (6%), FourSquare (4%) and most telling: 29% stated they did not utilize any social media services.

Stakeholders have found multiple uses for their social media outlets. Just over 71% transmit promotional deals to subscribers, while nearly as many (63%) use these digital venues for more than just sales. Social media managers troll the sites for mentions about their company, including complaints and customer service questions.

Social media is also a helpful tool for in-store guidance, with nearly 43% stating they publish ingredient lists for featured meal ideas, or product locator applications. One important use of social media saw a significant burst of growth over the past year. More companies are using social media to relay product recall information than ever before, with 22% stating they are using digital programs for such purposes this year, compared to only 18% in 2011.

Digital outreach is only effective if it’s monitored on a regular basis, however. A full 31% said they updated their social media programs just about daily, while 14% were more proactive, checking the status of sites more than once a day. The majority (29%), however, reported updating their various social media platforms once a week.

Much of that updating occurs on what some might consider old-fashioned: The company’s website. As a virtual base of operations, however, websites still play an important role in presenting a comprehensive, resourceful destination for shoppers. Just over 37% of respondents stated they operate a health and wellness page on their primary website. The vast majority (75%) includes healthy recipes that might even be tied to promotions of featured products (60%). Dietitians often have a voice here as well, and 49% of those polled said the wellness page is where consumers could find nutrition columns, Q&A entries and lifestyle recommendations.

Another 44% offers links to information on various health conditions, and 28% include a general wellness blog that may include not just a dietitian, but any other staffer or approved representative of the company, such as stay-at-home moms contributing articles on healthful, easy dinners and school lunches.

Companies have made other important hires over the past year. Nearly 14% employed a dietitian or nutritionist, roughly the same as 2011’s number. Some 11% hired a person to oversee consumer wellness and even more, 16%, brought in someone to manage employee wellness efforts, an area of business that’s grown increasingly more important as companies battle the spiraling escalation of health care costs. In 2011, the same percentage of companies invested in an in-house human resources expert.

Nearly 15% of respondents branched out beyond health and wellness to hire a sustainability manager, someone to oversee and promote ecologically friendly construction practices, energy efficiency installations and the like. Almost 41% of those polled said they have adopted energy efficiency upgrades, as well as other initiatives: solid waste reduction/waste recycling (38%) and bag recycling/reusable bags (28%).

Whether natural, organic or green, whole health has become a total-store endeavor covering every category and aisle, not just for retailers but for consumers seeking better ways to shop and eat. As one respondent stated: “Shoppers are every day becoming more aware of the ‘in me, on me, around me’ wholistic wellness trend.”

Before Facebook

The first WH Asks poll in the spring of 2006 received 158 responses. There were a few brief questions about website efforts, but nothing about Facebook, Twitter or YouTube.

Instead, there was a noticeable focus on Wal-Mart. Earlier that year, the retail giant had announced it would begin selling organic food. A majority of respondents (38%) felt that the chain’s entry into the category would improve total customer awareness, while another 28% stated it would help lower the price of organics. Only 7% felt Wal-Mart would pose a direct threat and siphon organic customers from other formats.

ABOUT THIS SURVEY

This year’s WH Asks poll was conducted online by Penton Media from Oct. 15 to Oct. 29. Analysis was based on 191 completed surveys: 16% self-identified as chain food retailers, 13% as independent food retailers, 12% as wholesalers, 33% as manufacturers, 10% as sales agents and 16% as “other.”

SN blog: Organic Industry Needs a Check-Off Program [4]

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