All Aboard the Organic Bandwagon

Natural and locally-grown foods are among the latest foodservice trends, but can c-stores meet this growing demand without alienating its core consumer base?

By Erin Rigik, Associate Editor.

Retailers who toured the National Restaurant Show in May know natural, organic and other healthy food options took the show floor by storm. In fact, the National Restaurant Association’s (NRA) “What’s Hot” survey of more than 1,500 professional chefs from the American Culinary Federation found healthy foods, locally-grown ingredients and menu simplicity to be among the hottest trends on menus in 2011.

What’s more, organic products appear to be more popular than ever with mainstream consumers. The Organic Trade Association’s 2011 Organic Industry Survey conducted from Dec. 22, 2010 to March 7, 2011, found the U.S. organic industry grew at a rate of 7.7% in 2010 to more $28.6 billion, outpacing the growth of total food sales, which grew 0.6%.

In total market share, organic now makes up 4% of the $673 billion food industry. The highest growth was seen in the areas of organic fruits and vegetables at 39.7% of total organic food sales and nearly 12% of all U.S. fruit and vegetable sales, which reached $10.6 billion in 2010, up 11.8% from 2009. Organic dairy was close behind with 9% growth to $3.9 billion—now 6% of the total U.S. market for dairy products. The organic non-food category grew by 9.7% to reach nearly $2 billion.

The survey also found mainstream supermarkets, club stores and mass merchandisers sold 54% of all organic food in 2010, followed by natural retailers at 39%. All of these are signs that organic is surging with U.S. consumers.

Retailers Responding
In February, Whole Foods, the top seller of organic and natural food products in the U.S., increased its profit outlook for 2011 after sales at its established stores grew 9.1% in the fiscal first quarter of 2011 (ended Jan. 16), compared with 8.7% in the prior quarter.

But while restaurants, mass merchandisers and supermarkets are hopping on the organic, natural and locally-sourced foods bandwagon, does Bubba really care if his snacks or burritos are made with organic ingredients?

“In general, we’re seeing a trend where everyone is trying to eat healthier—even our core customers are smoking less, eating healthier and exercising. So we’re looking at these trends as a huge opportunity to serve the products these customers are looking for,” said Joe Hamza, vice president of sales and marketing for Rockland, Mass.-based Tedeschi Food Shops.

At the end of March, Tedeschi Food Shops, which operates 190 convenience stores throughout Massachusetts, New Hampshire, Rhode Island and Connecticut, opened its newest store in Quincy, Mass., designed with health-conscious consumers in mind.

Tedeschi’s new concept store in Quincy, Mass., includes an array of healthy and organic foods for customers.

“The Quincy concept store includes a lot of new categories we’re experimenting with as we try to gauge what categories work with c-store customers and to what extent. If it does work, we’ll try it in other stores until we find the right mix of products for each unit,” Hamza said.
The unique offerings at the Quincy store include a butcher shop featuring all-natural certified angus beef; hot take-home meals; made-to-order pizzas; freshly-baked artisan breads, rolls, pastries and muffins; specialty cheeses; an extended produce section that includes freshly-cut flowers; smoothies and shakes; and all-natural frozen meats and prepared meals.

 

“The transition to these categories is not as easy as one might think—we’re talking about a major change in the product mix, so we need to ensure the supply chain will have these products available to us on a regular basis,” Hamza said. “We are doing a lot of research on healthier options and looking at what customers want. We’re examining the top-selling organic snacks, drinks and foods and making them available to our customers. If we have to go outside our normal supply chain to get them, we’re going to do whatever it takes.”

Taking a chance on adding fresh and all-natural meats is another challenge. “To do something like that you have to be very committed because there is a risk there for a lot of loses,” Hamza added.

Tedeschi added organic and all-natural options in its packaged goods, packaged snacks and packaged grocery sections, in addition to adding organic/healthy ingredients to its foodservice operation. In the snack aisle, it also beefed up its offering of low-calorie, gluten-free and no-preservative products.

Response from customers in the snack category has been particularly positive. “In the snack category we’re seeing huge increases in sales, and it’s not cannibalizing on other snack sales either. So customers are embracing what we’re trying to do,” Hamza said.

Getting Fresh
Fresh is definitely a trend c-stores need to watch, agreed Timothy Powell, director of research and consulting at Technomic Inc.

“What c-stores are already doing with fresh food in new grab-and-go packaging with a clear window so customers can see the food and the expiration date, and with made-to-order food options it’s going to become a normal part of operations throughout the industry,” Powell said. “Operators that prepare food fresh in front of customers, like a Quick Chek or Wawa, have the upper hand.”

But while Powell agrees the organic and all-natural trend is moving through fast casual restaurants, he said c-stores have a big obstacle in that a gas station is often the last place a customer would think to look for something natural and organic, and might not trust the quality of the offering.

“Fresh is a big trend for 2011, and that includes organic and local foods that support local farmers,” Powell said. “I don’t think c-stores should miss the bandwagon on this, but they have typically lagged behind restaurants because of who they are and where they are in the evolutionary cycle of foodservice.”

Another obstacle to this emerging segment is that natural and organic foods overwhelmingly cater to high-end, affluent and mostly female customers, which is not the typical c-store demographic.

“Those who really are blazing the trail like Wawa, Rutter’s and Quick Chek, and those who have their own commissaries like Tedeschi, they’re going to be better equipped to meet this growing demand because they understand they need to attract a new audience with these foods rather than forcing it on their existing customers,” Powell noted.

In other words, capitalizing on organic and natural foods cannot come at the expense of serving your core customers. It’s incremental business with a strong upside.

As such, for c-store chains still growing their foodservice operations, Powell recommended first focusing on attracting a broader base of customer before heavily investing in the organic and natural arena. “The first step is to prove you can serve fresh food that is good and consistent,” he said.

Hamza agreed that in adding more organic and all-natural products, Tedeschi is looking to gain momentum with growing demographics. “Our target market with these new product offerings in our Quincy store is female consumers and younger adults,” Hamza said. “But we are also being careful not to alienate our core customers. The good news is even Bubba is getting healthier, so we’re just broadening our overall appeal.”

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