Observers of the health and wellness category report that while some  fringe consumers are cutting back, core shoppers continue to purchase wellness products at a comparable pace to a year ago, despite the current economic climate.

To maintain market share the remainder of the year, it will be critical for retailers to uphold their commitment to the category and to the supplier partners they’ve been working with, experts note. “Health and wellness are not going to drop off consumers’ radar screens just because money is tight. In fact, many consumers say it is even more important because of the preventative measures it offers,” says Shelley Balanko, vice president of ethnographic research for The Hartman Group, based in Bellevue, Wash. “Consumers are very pragmatic when it comes to food and beverages and understand there is nothing more important to their health and well-being than the food they put in their body.”

Balanko says that while consumers might be cutting costs elsewhere they still are placing a premium on high quality food. “People may be buying less of it but they are still going to buy the brands they trust to give them healthfulness and treat themselves to products that are accessible and indulgent to some degree,” she says. “They understand the correlation between spending more now on healthful foods so that they do not spend more on healthcare in the future.”

Tripp Hughes, director of category management for Organic Valley Farms, based in La Farge, Wis., agrees that the economy is not dampening consumers concerns about their health and wellness. “This isn’t a category that is going away any time soon and hopefully its performance to date has shown retailers natural and organic product’s long term potential in mainstream,” Hughes says. While he notes organic sales have slowed down a bit, based on past experience he has every confidence things will rebound. “Based on the strong growth rates witnessed during past few decades the organic industry is here to stay,” he says. “Consumers may not be taking a vacation this year, but for many natural and organic products have become part of their lifestyle choice.”

Looking at the current economic environment, Hughes says shoppers are searching for value. “Consumers that are relatively new to the category, who may only be using one or two entry level organic products and for whom this is not a lifestyle, are those most at risk for leaving the category in today’s environment. These are the people most likely to turn to private label organic and focus on buying on deals,” he adds. “This group is also most likely to switch back to conventional products. As a result, this year we can expect the number of new dabblers to decrease compared to previous years.”

However, he says when talking to the core and mid-level consumers, the group that drives the majority of their sales, Hughes says these consumers say they are continuing to buy organic at a steady pace. 

Maria Emmer-Aanes, director of marketing and communications for Nature’s Path Organic Foods, based in Richmond, British Columbia, Canada, agrees that the occasional natural food shopper may be cutting back but believes that core consumers will stick to their guns concerning organics this year. “Given the recession, people are reviewing what is important to them and issues such as health and family definitely rise to the top of the heap,” she says. “From what we are seeing there is still a strong core of people willing to pay a premium for quality, fresh, wholesome foods.”

Even with the slight dip in organic sales overall, Emmer-Aanes notes that Nature’s Path is experiencing healthy double-digit growth rates. “People are looking out for their own health and understand the value a preventative approach plays in their lifestyle and are migrating to companies whose values are appealing to them,” she says. “Yes, people are stretching their dollars but that doesn’t mean they will stop buying organic,” she adds. “One look at our sales growth confirms that. When you look at year-end 2008 data from the overall ready-to-eat cold cereal category, cereal sales in conventional channels was up about 6% but with 11% growth our company outpaced industry gains by nearly double.”

Anna Sebastian, director of marketing for York, Pa.-based Stauffer’s, counts herself among the optimists who feel the economy wont hold back the true natural food consumers this year. “All-natural product sales are growing,” says Sebastian. “This is not a niche market anymore. Consumers want healthier product options in every category, cookies and crackers are no exception. Natural products appeal to consumers’ desire for a healthier snack, something that especially holds true when it comes to their children.”

She notes that consumers are increasingly looking for minimally processed products free of artificial colors, flavors preservatives and sweeteners. “We created our 14 variety line of all-natural crackers and cookies to appeal to mainstream consumers looking for healthy snacking options. Our most recent addition, all-natural fudge-dipped grahams, proves cookies and crackers can be healthy and taste good at the same time,” says Sebastian. 

Shopper dedication to natural and organic products extends to pets. “There are clear education and lifestyle parallels between what consumers want for themselves and what they ultimately want for their pets,” says Shelley Gunton, co-owner of Castor & Pollux Pet Works, based in Clackamas, Ore. “Retailers are beginning to recognize that as people expand into better and healthier quality products for themselves they want that same type of offering for their pets.”

RETAILERS TAKING STOCK
Despite past growth and interest, some key retailers are in a “wait and hold” mindset when it comes to expanding the number of wellness products they are carrying, as well as closely scrutinizing those already in the store. Matt McLean, CEO of Uncle Matt’s, based in Clermont, Fla., feels his company is fortunate that their organic juice products have been in mainstream markets for nearly a decade. “If we had just started in this industry given the economy my feeling is our acceptance would be much tougher,” he says. “That said, this year more than ever retailers need to market and convey the value of organics. If you don’t you stand to loose those middle customers.”

Despite the economic struggles in the country, officials at Salem, Ore.-based Kettle Foods note they are not seeing reluctance from retailers to add new products. “Our launches are getting great reception, better than usual, and we’re moving full speed ahead with our new product pipeline,” says Julie Dunmire, brand director. “We’ve got new flavors as well as a new People’s Choice product on the horizon.”

Dunmire surmises that the continued consumer support of the Kettle Brand may be due in part to people treating themselves to small indulgences, like great-tasting natural snacks as well as taking comfort in cozy, familiar foods these days. “Kettle Brand is the best selling natural potato chip brand in the country. It’s the 5th largest brand in the country, the No. 1 selling potato chip in natural supermarkets, and is a top performer in the premium category. While growth in the overall potato chip category is essentially flat, Kettle Brand is growing at a record pace,” she notes. Dunmire points out that during the last quarter, the company’s chip sales were three times the category average.

While the organic industry may be experiencing somewhat of a slow down, the last thing retailers should do, experts note, is to back away from merchandising the category. “Retailers have worked so hard to connect with organic shopper, but that doesn’t mean because things are slower that they should stop engaging the consumer and fire sale everything,” says Hughes. In fact, he says the argument should be made to keep promoting and merchandising the category to keep awareness levels high. “This is especially important for the fringe customers. When they are ready to come back into the category you want them to know you are the place for those purchases.

“During this time it is critical for retailers to continue working with brands that offer rounded marketing programs,” says Hughes. “Some consumers are going to put their interest in wellness on the back burner due to financial constraints, but a large group will continue to view it as more important than ever.”

Suppliers are doing their part to keep natural products affordable to a larger number of consumers. According to Sebastian, Stauffer’s has positioned itself as offering value, which is reflected in quality as well as price. “Budget-conscious consumers will recognize how much product they are getting at a reasonable price,” she says.

This year Stauffer’s is expanding its all-natural 100-calorie offerings to include all-natural chocolate animal crackers. Given their mainstream appeal, Sebastian suggests merchandising these products alongside conventional offerings.

OFFERING DEALS
Couponing is helping Nature’s Path continue to attract consumers, but so too, is the company’s larger pack size offerings. Its eco-packs hold essentially the same amount as two and a half boxes of cereal but feature 66% less packaging. Emmer-Aanes says depending on the particular SKU, Nature’s Path has seen 40% to 120% growth on these larger offerings.

But Emmer-Aanes is the first to say while attractive pricing and promotions help drive sales, consumers who buy organic want to be motivated beyond price and associate with companies that share their ideals. To this end, Nature’s Path, along with Organic Valley and the Rodale Institute, launched the “Farmers Can be Heroes” campaign. Consumers who buy Organic Valley milk and Nature’s Path cereal together can sign up for a free subscription to Organic Gardening magazine. In key accounts Nature’s Path is offering two-dollar tear off pad coupons on the combined purchase as well.

“Organic Valley and Nature’s Path will donate one dollar from every purchase, up to $50,000, to the Rodale Institute to help organic farmers learn how to farm better,” she explains, adding “not only is this a great way work together and spread some good will, it drives cross-over traffic from the perimeter into the center of the store.” Emmer-Aanes believes in these economic times retailers need to be smart about signage and presentation. “Retailers need to challenge themselves and do things differently than they did under previous circumstances. I understand changing planograms or placing cereal in the milk aisle is a departure, but in light of the economy retailers need to take some risks.”

McLean believes that while great strides have been made to inform mainstream consumers about organics, there is obviously more education that can be done. His company is working with groups such as the Organic Trade Alliance, to increase the amount of POS materials in stores. “Once we get the mass consumer educated organic sales will really take off,” he says.

However, the remainder of 2009, surmises McLean, will be a challenge for companies looking to get new products into grocers hands. “Retailers are very nervous on where the economy is heading and are apprehensive about making changes to their core offerings at this point in time, organic or otherwise. What we’re hearing from some key retailers is that they are not adding anything new, they just want to hold on to what they have and see what happens during the next six months,” he says.

McLean believes products that have the most value to consumers, whichever way they choose to define value, will stay and persevere. “The me-toos, those products that offer little unique value will be weeded out.,” he says. “Store managers are under pressure to scrub out low velocity items. In the end, products that can demonstrate value add and are backed by promotional programs will stay and thrive and those that don’t will go.”

Placement is key as well and while McLean believes there isn’t necessarily one correct place for organics, he feels integrating Uncle Matt’s organic juice within the conventional set makes the most sense because it captures the cross-over consumer’s attention when it is placed where they typically shop. “We don’t do anyone a favor by making a scavenger hunt out of finding a product,” says McLean.

Organic sales still strong
Organic sales may have eased off a bit in recent months but the category is still pulling off respectable growth. According to SPINS, based in Schaumburg, Ill., organic food sales achieved 9.9% growth in 2008, thanks in part to the number of new users entering the category.

Organic categories attracting the greatest number of new consumers include milk, cookies, condiments, non-dairy beverages and soup. Not surprisingly, buying behavior varies slightly depending on how committed consumers are to organic products. For example, the segment most committed to organics, which represent the top 20% of organic consumers based on dollars spent, drove 80% of the branded organic purchasing. This group, along with medium committed consumers, which comprise 25% of organic consumers, increased their organic spending on about 12% in 2008. The only segment to experience a decline came from the fickle organic consumer. This group, which represents 55% of organic consumers, are the least engaged with organics and decreased their spending 1.6% in 2008.

SPINS CEO Tony Olson hopes retailers are encouraged by this news. “Consumers clearly recognize the value of organic products and remain focused and committed on building a healthy lifestyle. As a result, organics are maintaining a strong presence and growth despite escalating economic difficulty.”