What comes after natural, organic? Think fresh

by Keith Nunes
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KANSAS CITY — The penetration of natural and organic food and beverage offerings into traditional, mass merchant retailers and others is putting pressure on the independent retail operators who initially launched the trend. To understand what the next stage of growth in the space may be it is helpful to watch what independent retailers do to remain competitive and profitable.

United Natural Foods, Inc., Providence, R.I., is a distributor of natural, organic and specialty foods. During a presentation at the Piper Jaffrey Consumer Conference on June 10, Mark Shamber, chief financial officer and treasurer of the company, said that while demand for natural and organic products has never been greater, the category’s expansion to traditional retailers and mass merchants has caused a deceleration in U.N.F.I.’s business. He added that part of the reason for the deceleration is because during the past 12 to 24 months, natural and organic products have added an estimated 100,000 points of retail sales. Those points of distribution extend well beyond traditional outlets and even include convenience stores and such hard goods retailers as Toys R Us.

Independent retailers are shifting their product mix in an effort to differentiate.

“I think that what we’ve found is that the independents are particularly resilient and they’ll shift from a competition standpoint to better align with what the consumer tastes are,” Mr. Shamber said. “They tend to be innovative and be the leaders in that sense. They’re not always in a position to match strictly on price but they try to match on service and with the uniqueness of offering.”

He added that, based on a number of surveys, fresh, as it relates to natural and organic as well as conventional products may be the next point of differentiation for independent retailers.

“I think the belief is that the millennials are really driving a lot of that shift of the channel,” he said.

Fresh perimeter products now represent approximately 15% of U.N.F.I.’s total revenue and are the fastest growing categories, according to the company.

The shift toward fresh has not been lost on other companies. On June 9, the Campbell Soup Co. announced plans to acquire Garden Fresh Gourmet, a maker of fresh salsa, hummus and other dips.

“Garden Fresh Gourmet will allow the Campbell Fresh division to expand in the deli section of the grocery store perimeter and will complement our strong presence in the produce section,” said Jeff Dunn, president of the Campbell Fresh business unit. “It is a logical extension of our fresh food and beverage platform that resonates with today’s consumers. This is a critical next step in our journey to becoming the leader in the fast-growing packaged fresh category.”

As more consumers shift their purchasing patterns to the perimeter of retail outlets, it will be interesting to see how retailers and food manufactures adapt. Different dynamics, most notably a sophisticated supply chain, are necessary to succeed in the fresh category. One may expect such investments to continue as more companies look beyond natural, organic and clean label for growth.

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