COMFORT ZONE

WHOLE HEALTH IS A constantly moving target, but watch out. Mainstream supermarkets are improving their aim.

This year's WH Asks poll shows retailers moving closer to the elusive bull's-eye, that ideal sweet spot of sales and merchandising they've been firing at since the introduction of the National Organic Program five years ago. There are fewer potshots these days, as this class of trade zeroes in on best practices that can truly impact the bottom line.

“Our chain has recently taken on a massive organic expansion,” wrote one respondent. “It seems we have selections in most every category in our stores.”

Last year, 95% of survey participants said they expected to see an increase in health and wellness sales. This year is no different, with 91% predicting another year of strong growth. There was a slight increase in the number of those who said there will be no change, though not among chain food retailers. They remain the most optimistic of the groups polled, with 92% expecting an increase over last year.

READY AND ABLE

In a sure sign that supermarket retailers have become more adept at merchandising health and wellness to mainstream consumers, a significant majority of those polled indicated that their stores will see some degree of integration over the next 12 months.

Not bad for an industry that, five years ago, didn't handle much more than a few stockkeeping units of organic produce.

Nearly 80% of chain food retailers stated they foresee some degree of integration at their stores within the year, while 19% replied in the negative. The opinion was shared by retailer trading partners, with 74% of wholesalers and 77% of manufacturers agreeing that mainstreaming initiatives are going to accelerate in the near future.

Such replies are consistent with a question posed last year, in which 47% of all respondents stated that, ideally, integration is the most effective merchandising strategy for health and wellness.

Why the changes, and why now? As the National Organic Program approaches its fifth anniversary in October, health and wellness is bigger than ever. It seems consumers are done exploring the newness of the category, and are moving earnestly to incorporate whole health into their everyday lives.

This helps explain why most respondents expect another year of double-digit growth. Almost half in the latest poll said sales in health and wellness-related categories will increase by 10% or more in the coming year. Among chain retailers, just over 43% agreed with the assessment. The rest put growth in the single digits.

By comparison, 60% of wholesalers and 54% of manufacturers are predicting a growth rate of 10% or more.

Among those who did not share this level of optimism, 24% of total respondents pegged future growth in the 7%-9% range; 20% said 4%-6%; and 7% said 1%-3%.

One respondent wrote for the group when he said growth in the category “will be tempered by greater financial pressures that consumers are facing.”

GREEN OPPORTUNITIES

That said, the question becomes just how much consumers are willing to spend on whole health items, above and beyond the mainstream. Nearly 64% of chain retailers in the 2007 survey said that customers are willing to spend 10%-15% over conventional-item prices, while the rest said less than 10%. Industry allies were a bit less bullish: 47% of manufacturers agreed with the 10%-15% premium assessment, as did 49% of wholesalers.

There was virtually no argument as to what is selling: Organic. More than a third, 36%, stated that this government-certified category is still driving the health and wellness bus.

However, there was a differing of opinion in one key constituency. In one of the more interesting revelations in this year's poll, 43% of chain retailers chose natural/organic private label as the key growth vehicle, while only 37% said organic. It's a noticeable margin.

Indeed, store brands have made great inroads in recent months, particularly in categories like grocery and dairy. And it seems likely that consumers will see additions to private-label SKUs in the coming months. In a question asking respondents to name the biggest barrier to growth in health and wellness, price was the No. 1 choice of both all respondents and the chain food retailer subgroup, at 35%. One of the biggest success stories for supermarkets in the whole health business has been the ability of private label to break through price-resistant consumers, while protecting margins at the same time.

Conventional supermarkets selling to mainstream customers know they have a proven track record in gateway categories like dairy. But they're also busy building a presence in other areas of the store. When asked what the next potential gateway category could be — and therefore the next area of private-label development — 27% of both chain food retailers and all survey participants chose pet food. HBC came in a close second, with nearly 26% of supermarket operators citing it as the next big thing, though overall, the No. 2 choice went to baby food, the choice of 24% of all respondents (which includes the retailers).

Current events apparently have little to do with the choices made. More than half, 54%, said that recent scares like melamine in pet food and E. coli in spinach have had little or no impact on sales of natural and organic products.

The industry is not only coping with external crises, but is constantly dealing with its own in-house issues. Besides price, survey participants revealed other barriers to category growth. Among them is the ongoing lack of expertise and experience among executives and staffers working in health and wellness. The good news is that, while 26% of all respondents stated expertise is a problem, only 21% of those identifying themselves as chain food retailers said it was lacking. Twenty-eight percent of food wholesalers thought this area presented challenges.

Product availability is also continuing to cause headaches. Sourcing ingredients or finished product can be a full-time job in and of itself, and it's no surprise that in the WH Asks poll, manufacturers had the highest response rate to this question, with 22% agreeing that availability is the biggest hurdle they need to jump. Only 21% of chain food retailers and 14% of wholesalers thought so.

In an interesting aside, 24% of supermarket operators said that consumer interest — or lack thereof — was blocking growth. If nothing else, the response rate is a reminder that for all the hype surrounding the whole health movement, there are plenty of consumers still out there who are either not aware of, or not interested in, purchasing wellness-related products or services.

“Health and wellness takes extra time and money,” wrote one person. “With the immense amount of choices already in the supermarket, customers in my opinion shy away from the task of picking items in the health and wellness categories. Besides, most brands are now offering healthier versions of their current products anyway.”

CONSUMER KNOW-HOW

The industry has extensive tools available to gauge consumer behavior and determine not only what's selling, but who's buying. Many of those who commented in the 2007 survey specifically mentioned Baby Boomers as a big source of corporate income. “Boomers are getting older, and there's more awareness and interest in food as preventative medicine,” said one.

Another pointed to young people as well, noting their commitment to environmental and social causes: “The younger generation is all about being healthy.”

Stuck in the middle — literally and figuratively — is a near-universal acknowledgement of woes associated with obesity and disease states related to it, such as diabetes.

“Health is finally becoming a top consumer priority,” noted one thoughtful respondent. “Consumers have become aware of products that contain trans fats, tons of salt and questionable ingredients. They desire to feed their families healthier foods, and are beginning to shop that way on a consistent basis.”

More than three-quarters of chain operators, 76%, said they offer their shoppers resources for more healthful lifestyles through their main website, the largest percentage of any of the subgroups. By comparison, only 23% of wholesalers and 39% of manufacturers said they had established a health and wellness page.

More than half of retailers provide recipes (73%), featured products (63%) and a dietitian column (54%) on their whole health sites. Nearly half (48%) link visitors with health condition information and referrals. Only 13% include a blog section.

Certainly there are other forms of outreach, or at least ways of communicating a retailer's commitment to more healthful living. Nearly 62% of chain food retailers said they have introduced bag recycling or cloth bag programs, while 29% are undertaking capital projects that improve energy use. Almost a quarter, 24%, specifically said they are enrolled in solar-power or wind-power credit programs.

About this survey

This year's WH Asks poll was conducted by Penton Research via email newsletter to regular subscribers of Supermarket News from June 5 through June 19, 2007. Analysis was based on 348 completed surveys. Eighteen percent described themselves as chain retailers; 6% as independent retailers; 10% as wholesalers; 29% as manufacturers; 11% as sales agencies; and 26% as “other.”

All respondents were asked how wellness sales will perform in 2007:

By how much will sales increase?

Retailers were asked what sustainability measures their company had undertaken in the past 12 months:

The Wal-Mart Factor

It's been almost a year and a half since Wal-Mart announced in 2006 that it would start selling organics. Last year's WH Asks survey inquired as to how the announcement would impact the marketplace. Thirty-nine percent said Wal-Mart's presence would help increase total awareness of organics, followed by 29% who felt the giant retailer would depress prices. Only 3% didn't believe Wal-Mart would have any effect at all.

This year, WH asked respondents if their opinion has changed. Fifty-two percent of the total panel said the retailer is still a threat, with 64% of chain retailers agreeing with that assessment — the highest percentage of any of the groups surveyed. By comparison, 57% of wholesalers and 52% of manufacturers think Wal-Mart is still a force to be reckoned with. The chain is “a major influencer of public expectations and market acceptance,” stated one person.

The question elicited a number of write-in comments from those who feel Wal-Mart is not a threat in this category. “Wal-Mart is only a threat to the retailers if they have not done anything to sell groceries alongside Wal-Mart,” summed up the feelings of one respondent.

“They still haven't figured out how to play in that space yet,” observed another. “Very poor execution, no true program and a significant departure from their core competency have made this attempt a failure,” was a more blunt assessment of Wal-Mart's organic initiative.

Wal-Mart has been the subject of media reports that suggest it is scaling back its organic selection in many stores, or slowing rollout of product in others. One respondent felt this is indicative of a larger problem within the chain. “I believe this is a time of turmoil for Wal-Mart; they aren't what they used to be nor what they have purported to have become.”
— RV

All respondents were asked if they operated a health and wellness page on their websites:

What elements are present on the page?