Stampede to Organics Awakens Sleeping Giants

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\"wholeWhole Foods has succeeded beyond all expectations, but, strangely, that’s not all good for Whole Foods.

Whole Foods was founded 35 years ago in Texas based on the premise that there had to be a safer way to produce food than the mass-manufactured and over-processed approach. (Deep background: Whole Foods was originally named Saferway, a poke at supermarket chain Safeway.)

The Whole Foods concept was to leave conventionally manufactured food behind wherever possible in favor of natural and organic food, and to put a heavy emphasis on fresh. The concept also was that consumers would warm to the idea and pay a premium for such products. Development came slowly to Whole Foods because at the time, there was little consumer buy-in for such an idea.

That started to change. Over the years, Whole Foods evolved from a tiny operation to one with some 420 stores, albeit thinly spread. Most are in urban areas of the U.S, plus a few in both Canada and the U.K. Its sales volume is nearly $15 billion annually.

Through its growth trajectory, Whole Foods continued to preach the gospel that fresh, natural and organic food was a good path for consumers to follow to better health.

And so it came to pass. Many factors, including the growing presence of Whole Foods, played into the now-near-unanimous agreement by consumers that organic and natural food is far better than over-processed food.

Now that organics and natural food are all but completely mainstream, it might seem that Whole Foods would greatly benefit. However, the reverse may prove to be the case. That’s because Whole Foods hasn’t entirely shaken off the perception that its price points are absurdly high. Many consumers simply wouldn’t consider shopping Whole Foods, even if a store chanced to be nearby.

Meanwhile, incumbent food retailers haven’t been slumbering. They too are jumping on the organics and natural bandwagon.

For instance, Kroger, the largest conventional supermarket in the land with annual sales approaching $110 billion, inaugurated a moderately priced private label line called Simple Truth and Simple Truth Organics, both aimed at health-conscious consumers who feel locked out of Whole Foods because of price or lack of store proximity. The line is huge, about 2,700 stock-keeping units across multiple food categories.

In less than two years, the line now accounts for $1.2 billion in annual sales. Kroger says it is by a wide margin the most successful private label introduction it has ever had. Granted, the sales volume of the line isn’t much against Kroger’s entire top line. Conversely, in the not unlikely event that the line grows about ten fold, it alone would approach Whole Foods’ entire sales volume.

Kroger has plenty of company. Many other retailers are entering the organics game, and some did so earlier than Kroger. One example is membership club Costco. It may achieve sales in organics of $12 billion by the end of this year, nearly equaling Whole Foods’ top line.

All this has implications for manufacturers, too. Campbell Soup Co. is the quintessential packaged-food manufacturer. Nevertheless, it has been moving to natural and organic food and beverages lately, but by means of acquisition (that was probably to avoid muddying the message of the core brand). Yet, in recent weeks, Campbell rolled out a small line of organic soups under its own name: Campbell’s Organics. The line is expected to grow quickly. This is a big step for an old-line company.

Other manufacturers, including PepsiCo, General Mills, Kellogg and Coca-Cola, use various methods to burnish the image of their brands. The methods range from sponsorship of studies t0 paid opinions from dietitians, which conclude that these products aren’t so unhealthy after all. Results appear as blogs, on newspaper websites and sometimes as “native ads,” paid ads camouflaged as news articles.

The consumer stampede to organics shows once again that retailers who fail to see the gathering and maturing of a big consumer trend will be left behind. It also shows once again that sometimes pioneers are the ones with arrows in their backs.



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