A recent story By ANNIE GASPARRO in the Wall Street Journal pointed out some of the ways mainstream groceries are rushing to copy Whole Foods to stem the shrinking margins against rising food costs. There’s some skepticism about just how much “healthy” or “organic” food is really in the market. If you don’t believe me, just ask any grocer to point out the food products in their store that have no genetically modified ingredients. Go ahead, . . . . . I’ll meet you in the produce aisle.
Traditional supermarkets are investing more in the healthy food fad, trying to win back customers from the increasingly popular Whole Foods Markets Inc. and farmers markets. (Healthy food fad?? WTF?? Poor health and absenteeism is costing U.S. companies $564 billion a year. I think we’re past healthy food being a ‘fad’. Maybe a lifeline would be more apt).
Kroger Co., one of the nation’s largest grocery store networks with 2,200 locations, is the latest in rolling out a new natural and organic foods brand it hopes will boost profitability and help it compete more strongly in the segment.
In recent years, mainstream supermarkets have been losing their hold on the grocery business to myriad competitors infringing on the territory. Meanwhile, food cost inflation and budget-minded consumers are making it tougher for them to turn a profit.
Kroger has outpaced competitors, such as Safeway Inc. and Supervalu Inc., by marking down its prices to become value-oriented, even before the recession started, and expanding its store-branded line of products to lure budget shoppers.
Kroger’s first natural foods line, Naturally Preferred, was brought to stores in 2000. The company then launched its Private Selection Organic line in 2006. But the two didn’t generate the loyal following Kroger hoped.
“Our customers told us that having multiple brands was confusing to them,” Mary Ellen Adcock, Kroger’s vice president of natural foods division, said in an interview.
“This way it’s easy for them to find natural and organic products that they know they can trust, and to have more choices of both…. Choice drives incremental sales,” she added.
Kroger’s new brand, Simple Truth, is intended to be less complicated—by rebranding the two existing lines under one umbrella—and to be more affordable than fancy organic brands. Simple Truth reminds me of Clear Skies, No Child Left Behind and all the other attempts to co opt language to obscure meaning.
Even though private-label prices are lower, that business is more profitable for grocery stores than sales of name-brand products. Safeway, which operates regional chains such as Vons and Randalls, has said profit margins on its store-brand products are about four percentage points better than name-brand sales. And on average, store brands generate a 35% gross margin compared with 25.9% for national brands, according to the Food Marketing Institute.
Kroger has increased its store-brand business over the past few years to now constitute about 34% of the grocery items it sells, compared with just 19% at rival grocer Supervalu.
Demand for organic food is also on the rise, according to the Organic Trade Association, which claims 78% of U.S. families say they are choosing organic foods as part of their shopping. California is poised to pass the first of it’s kind GMO labeling law in the U.S. (Most foreign countries already have labeling requirements for GMO’s).
The trend has gotten credit for the continuing success of stores like Whole Foods and The Fresh Market Inc., along with the big boost in farmers markets over the past few years. Yet it appears Whole Foods has proven to be less concerned with their principles of whole food, whole people and whole planet by carrying produce from China and labeling it as organic.
“People are still value conscious, but they are even more organic conscious,” said Whole Foods Chief Operating Officer A.C. Gallo. “Supermarkets pulled back their focus on organics during the recession, and are now starting to bring that back. But for us, it isn’t something we get in to or out of based on a fad or which way we think the wind’s blowing,” he added.
As mainstream grocers try to compete with the leading organic players for the best value proposition, they will also be up against Whole Foods’ private line, dubbed 365 Everyday Value, which already has a loyal following and wide range of products. (Apparently, not all certified organic as labeled).
“The mainstream supermarkets are launching private-label organic offerings to show customers that they have natural and organic options, but that is our entire store. So our purpose with 365 is to show our customers that we also can offer a good value.” He said the store’s margins on the products aren’t always better than sales of the national brands, but that Whole Foods is more focused on building sales volume and increasing customer frequency with the line.
Kroger is rolling out nearly 250 new products to the Simple Truth line now, and plans to come out with others, such as cereals and frozen pizzas, over the next few months. The company expects Simple Truth to become a “billion-dollar brand” in terms of sales, like the rest of its private brands. (I wonder what the simple truth about these foods really is. We do know one truth about genetically modified foods — they cause tumors and organ failure when administered to mice in safe doses. That’s a simple truth.)
Other grocery stores, such as Supervalu, have also recently moved to a single private-label line across all their stores, counting on the larger-scale operations to help decrease costs and increase marketing capabilities.
Supervalu, whose brands include Albertsons, Jewel-Osco, Shaw’s and more, is also expanding its private-label business this year, including a line of natural and organic foods called Wild Harvest. Safeway introduced its all-natural brand, Open Nature, in late 2010, to complement its existing organic line and health-oriented brand
One way is to patronize merchants willing to be transparent about the food products they carry or their educational outreach about those products. For example, Earth Fare carries no products containing high fructose corn syrup ( HFCS). Mother’s Market & Kitchen offers educational information to both customers and staff. Our food is in peril. How can we be sure that what we buy in a health food store is healthy?
Lewd Food in your supermarket aisles? Rebranding is not a guananteed path to success especially when consumers are playing Russian Roulette with each food purchase. It’s still a buyer beware marketplace and the savvy food shoppers know value and what questions to ask their grocers.