Retailers looking beyond value for growth

by Keith Nunes
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KANSAS CITY — It is clear such retailers as Target Corp. and Wal-Mart Stores, Inc. have watched the success of Whole Foods and Trader Joe’s from afar and are attempting to develop programs designed to attract the consumers who repeatedly frequent the upscale retailers. These shifts highlight the quickening pace of change taking place throughout the food and beverage industry.

As the market research firm Packaged Facts noted in a recent report about Whole Foods and Trader Joe’s, their average consumers have a higher than average education; are more conscious of labels, ingredients, nutrition, and eating healthfully than the average consumer; are more interested in natural and organic products; are more interested in gourmet foods, ethnic foods, and the way food is presented; and are more concerned about environmental issues. Gaining the attention and hopefully the foot traffic of that audience is one of the reasons Wal-Mart is partnering with Wild Oats to offer organic food items that are at least 25% less expensive than the national organic brands it carries. The products will cover a broad variety of categories, ranging from from salsa and pasta sauce to quinoa and chicken broth, and initially will be available in about half of Wal-Mart’s 4,000 U.S. stores.

Several of Wal-Mart’s competitors have ramped up their marketing efforts around organic and clean label products. Cincinnati-based Kroger Co. has noted solid growth in its Simple Truth lines, one of which displays the U.S.D.A organic seal on the front of packaging, and Target Stores on April 9 announced the launch of “Made to Matter — Handpicked by Target,” a collection of products from 17 leading natural, organic and sustainable brands. Target’s products will be featured near “Made to Matter” signage that will span most of Target’s product categories, including the grocery department, where featured brands will include Horizon Organic and Plum Organics.

Consumer retail shopping patterns have become more fragmented, with consumers more willing to make multiple shopping trips to purchase the products that meet their expectations. Wal-Mart’s organic gambit combined with Target’s effort to highlight the clean label, environmentally friendly aspects of some of the products it carries reflects the impact changing consumer shopping patterns are having throughout the supply chain.

These trends may continue to develop and must be watched carefully by food and beverage manufacturers. This past March, in a conference call to discuss financial results for The Kroger Co.’s most recent fiscal year, Mark Ellis, president and chief operating officer of the retailer, noted that consumer demand for products perceived as cleaner or fresher is having an impact on the retailer’s in-store mix.

“When we look at space allocation, especially in some of our new stores, you’ll find that we are allocating more and more space to perishable, refrigerated, and the categories that the customer really cares about,” he said. “And the customer is telling us that’s what they’re interested in.”

Value is a powerful trend and will remain so for the foreseeable future. But retailers realize an intense focus on providing value may hinder their opportunities with consumers who appreciate a good price, but also have other expectations about the products they buy. This shift is having a ripple effect throughout the food industry and it will continue to do so as retailers seek to grow foot traffic and sales.
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