Friday, December 28, 2007

The Friday Fishwrap: Week-ending news, analysis and insight

India's largest publicly-owned retailer says the country is ready for a gourmet retail format and international specialty foods product revolution

India's largest publicly-owned retailer, Pantaloon Retail (India) Ltd., this week opened its very first upscale, gourmet food store or bazaar in Select Citywalk mall, a new upscale shopping mall in south Delhi.

The new market is called Gourmet Food Bazaar. It's 4,500 square feet and is packed with gourmet, specialty and natural foods and groceries from all over the world. the format is targeting consumers' who've developed a global palate, and who can afford to indulge that palate because they have relatively high-paying jobs.

India has the second-fastest growing economy in the world after China. However, it has a far-higher percentage of college educated professionals than China, including millions of professionals who work in the country's high-tech industries. India has the fastest growing high-tech sector in the world. High education level is a key consumer variable in specialty foods purchasing and consumption.

With its first Gourmet Food Bazaar store (other new stores in the format are planned for Bangalore and Mumbai, plus more stores in New Delhi), Pantaloon Retail (India) Ltd. is betting the fast developing country is ready for a chain of upscale, high-end gourmet/specialty foods stores.

"We believe in food. And there is a customer (in India) that is ready for more lifestyle shopping, more branded items and more international cuisine," says Damodar Mall, the retailer's director of new business ventures, in explaining the creation of the company's gourmet food store format.

Pantaloon Retail (India) Ltd. is a huge, multi-format retailer. The company operates more than 1,000 stores in 51 cities in India. The company's retail formats include Food Bazaar, a supermarket chain (and now Gourmet Food Bazaar, the upscale division), Big Bazaar, a chain of hypermarkets, Pantaloons, a fashion outlet chain, and many more formats, including the home store and electronics categories. (You can read more about the company and its many retail formats here.)

Mall said the company doesn't presently now know the total number of Gourmet Food Bazaar stores it will open. However, he says there will be numerous gourmet stores opened over time, based on when and where the retailer feels they will do well. In other words, the gourmet stores are a venture, rather than a mere experiment.

Gourmet Food Bazaar is a division of Food Bazaar, which is a chain of supermarkets that offer a wide selection of products at discount prices. The Food Bazaar supermarkets are a unique blend of India's retail bazaar tradition and the modern western supermarket.
The gourmet and specialty foods' format stores will be a bit more western in their design and merchandising than the supermarkets. But the stores' will still retain such Indian food traditions as displaying assortments of bulk food products out in the open in a "touch-and-feel," "bazaar-like" manner. This tradition will be offered side-by-side with numerous packaged goods and other foods from all over the globe.

In addition to its numerous retail formats, Pantaloon Retail (India) Ltd. also operates a number of food-service type formats. These include: Brew Bar, a bar/pub with a neighborhood feel, Cafe Bollywood, which offers Indian street food with an upscale twist, Chamosa, a restaurant chain that specializes in the Indian snack combinations of tea and samosas, and Sports Bar, a sports-themed bistro. These retail operations are part of the company's foods group, along with the Food Bazaar supermarket chain and now Gourmet Food Bazaar.

India and its fast-growing economy, prospering upper class, and growing middle class, is ripe for new food retailing innovations and formats, ranging from the the upscale, small format-style of Gourmet Food Bazaar, to the hypermarkets of France's Carrefour and the supercenters Wal-Mart is building with an Indian partner.

A recent report released by consulting firm Ernst & Young says food and grocery products account for around 54%, or about $152 billion (U.S.) of India's total retail sales. However, modern style supermarkets, hypermarkets, supercenters, gourmet stores, natural-specialty stores and other western-style formats, account for only a tiny 1% of that total, according to the report.

Obviously, Pantaloon Retail (India) Ltd, along with dozens of other retailers based in India and throughout the world (like Wal-Mart and Carrefour) see this huge market and are moving on the opportunity.

In fact, Pantaloon Retail (India) Ltd. won't be all by itself for long in terms of building a chain of upscale, gourmet food stores in India. Another Indian retailer, Mumbai-based HyperCity Retail Pvt. (India) Ltd., which operates a chain of hypermarkets, is planning to launch its own gourmet and specialty foods format food store in 2008.

Hypercity's format, called GourmetCity, is based on the success the retailer has had with a gourmet kiosk it runs in one of its hypermarkets in Mumbai's western suburb of Malad. The gourmet kiosk or counter offers imported cheeses, handmade chocolates, upscale deli goods, fresh baked breads and sweets, marinated meats, and stocks gourmet and natural groceries from upscale British grocer Waitrose's store branded line specialty, gourmet and natural products.

The popularity and success of the gourmet kiosk encouraged HyperCity to create the GourmetCity format, and launch the first store in the chain next year. it plans to merchandise an extensive line of imported groceries in the gourmet markets, along with fresh foods, meats, fresh bakery and other upscale features. The stores' also will stock natural and organic foods from throughout the world.

India offers a huge opportunity for European and U.S. specialty and natural foods manufacturers and marketers. It's especially the case since those brands that get in on the ground floor of this "quiet gourmet food store revolution" will reap the dividends of brand loyalty as the format booms in India, which it will.

Along with its fast growing economy, superlative higher-education attainment levels, prospering upper class and growing middle class, India also is a democracy. And unlike China, it has a much longer history of doing business deals with western democracies, based on its years as part of the British Empire.

The peoples of India also are traveling more and more. In fact, there's a large international class in India. It includes numerous business people and academics who spend lots of time in the west. It also includes many residents who have family living in Europe or the U.S., attending school or working. These people are well-exposed to the west, and bring back ideas about different foods and products they've tried in their travels, and want to be able to buy regularly in India.

India is positioned perfectly for both retailers to launch their respective upscale, international gourmet food store formats--Gourmet Food Bazaar and CityGourmet. Blending the new--international gourmet, specialty and natural foods and groceries--with the old--India's "retail bazaar" merchandising tradition--will allow these retailers to appeal to India's consumers with a local as well as global approach as they grow these formats into regional and perhaps even national chains over time.

Thursday, December 27, 2007

Marketing Memo: Safeway's O' Organics Brand in Asia

Safeway's O' Organics On the Shelf at Carrefour Hypermarket, Taipei, Taiwan

On Friday, December 21, we reported that Safeway Stores, Inc.'s O' Organics brand organic grocery products were being sold at a Carrefour Hypermarket in Taipei, Taiwan. France's Carrefour is Europe's largest retailer, and the second largest retailer in the world after Wal-Mart.

Further, on Sunday, December 23, we followed up our original story with a piece providing new and additional information about the O' Organics brand in the Taipei Carrefour Hypermarket and in other Carrefour stores in Taiwan, along with some new reporting and analysis about the brand's marketing in Asia.

We also reported in that story that Market Place by Jason's, the 4-store, upscale format from Hong Kong-based Wellcome supermarkets, is also currently selling O' Organics brand groceries in Taiwan.

>Read our December 21 piece here.
>Read our December 23 piece here.

Now, one of our sources, Rachel Lanning who lives on Taipei, has taken a couple pictures of the O' Organics brand shelf sets for us in the Taipei, Carrefour.

The first picture (below) shows a variety of O' Organics shelf-stable grocery items in a 3 or 4-foot segregated shelf set in the store. The various O' Organics brand items are grouped together, creating an O' Organics organic set.

Photo: By Rachel Lanning

The set pictured above contains O' Organics fruit preserves, crunchy and creamy peanut butter, salad dressings, tomato ketchup and canned goods. [Note: Ms. Lanning tells us there is a "reduced price" sign on the O' Organics peanut butter. (you can see it on the shelf rail in the picture.) She thinks the peanut butter might be being discontinued, as she said the price reduction was considerable from what she paid for the item a couple weeks ago.]

The second picture (below) shows O' Organics brand boxed pasta dinners and packaged pasta in a set in the Taipei Carrefour. Box pasta dinner items include O' Organics regular organic macaroni and cheese and O' Organics organic alfredo macaroni and cheese. The store carries a number of different cuts of O' Organics dry pasta in the set as well. (You can see the linguine in the right of the picture.)

Photo: By Rachel Lanning

Carrefour currently has 48 Hypermarkets in Taiwan. The stores are merchandising a broad selection of O' Organics grocery items including: canned goods, ketchup and other condiments, salad dressings, teas, peanut butter, fruit preserves, soy milk, boxed dinners, pasta and a few other items.

Ms Lanning, who lives in Taiwan, told us Carrefour has reduced the retail prices on the O' Organics items a couple of times since they were introduced. She says this happens often in Taiwan because it's can be difficult to get local Taiwanese consumers to try American products.
"This happens a lot in Taiwan (lowering prices from the original retails)," Lanning told us. "Carrefour, especially, will try out new products, and if they don't sell, we'll never see them again."

As an example, Lanning said last year Carrefour introduced peanut M&M's in their Taiwan stores. "I think I ended up buying about 30 bags in a span of two months, since the price kept getting cheaper and cheaper," she said. "But no Taiwanese were gutsy enough to buy them." The peanut M&M's were discontinued by the Carrefour store.

Market Place by Jason's, an upscale retail food store format of Hong Kong's Wellcome supermarket chain, also is selling O' Organics organic grocery items in Taiwan, as we mentioned above, and reported in our previous stories.

The Market Place by Jason's format was just created this year (2007), and there are currently four stores open to date. The retailer created the upscale, natural-specialty foods format to target the growing consumer demand in the region for natural, organic, and international specialty foods and products. The Jason's stores in Taiwan are carrying about the same number of O' Organics items as Carrefour is in its Taiwan stores.

We thank Rachel Lanning for her field reporting for us, and for the photographs.

Wednesday, December 26, 2007

Boxing Day Memo: Giving Back

Boxing Day: Wednesday, December 26, 2007

Today is Boxing Day, the day after Christmas. It's the day when people get to play with their Christmas gifts and return those they don't want to the stores so they can select something they "really" do want. It's also a big shopping day. Many shoppers use the day to go shopping with the gift cards they received as Christmas gifts, and also to take advantage of the "day after Christmas" specials many retail stores offer.

Boxing Day, which is a statutory holiday in the United Kingdom and in Canada, and celebrated more informally in the U.S. and other nations, has its origins in the old British Empire. On the day after Christmas--Boxing Day--the lords of the manor would hand out boxes of cloth, grains, other foodstuffs and tools to the serfs that lived on their land.

It also was the day when servants who had to work serving dinner to the landed gentry on Christmas Day got to take boxes of leftovers home to eat with their families. In some parts of the British Commonwealth, some stores close on Boxing Day in tribute to the working person.

Boxing Day also is a day, based on this tradition, to appreciate what one received on Christmas--and to express generosity by helping those who have less.

In the spirit of Boxing Day, and helping those with less, we've come up with four charities or helping organizations we ask you to read about, and if possible donate to or support in any way you can. Pick one, two or more; that's your choice. We also ask our readers to share these groups--and their good deeds--with family and friends via email. Below are the four groups we would like you to learn more about:

America's Second Harvest Food Banks: The Shelves are Empty

America's Second Harvest Food Banks are the procurement and distribution arm for thousands of community-based food pantry programs in all 50 states in the U.S.

Second Harvest raises funds and obtains donations of food and grocery products from the food and grocery industry, individuals, non-profit groups, churches, business entities, and other sources. The organization warehouses and distributes these goods to food pantry programs, who in-turn assist millions of Americans who are homeless, hungry, or are having problems making ends meet.

This year, food programs across America have reported that demand for food has increased by 5 to 20%, depending on the region of the country. In fact, Second Harvest's warehouses were so empty a week before Christmas, that the group sent out an SOS call to its food industry partners and individuals, asking for emergency donations of food and money because it couldn't meet the requests for basic foods from the food pantries it supplies.

The food and grocery industry responded rapidly--and generously. Wal-Mart, in partnership with a number of it's vendors, donated 50, 18-foot truckloads of food and grocery products to Second Harvest; enough to feed 3 million people, according to the non-profit food bank network. Other grocery retailers like Kroger Co., Safeway Stores (and others) also responded with food donations, as well as launching food drives in their stores.

Food marketing giant ConAgra Foods also responded in a huge way. The company donated 35 truckloads of food, estimated to be worth $1 million. ConAgra also has set up a matching funds donation program. And THIS is where individuals can have a big impact if you make a donation today or tomorrow.

ConAgra has established a $200,000 matching fund program for Second Harvest. The company will match any individual donation made in the next few days dollar-for-dollar, up to $200,000. In other words, if you donate just $10 today, ConAgra will match your ten bucks, so your total donation will actually be $20

Individual donations of even five or ten dollars are critical for Second Harvest right now. Their warehouses are again depleted because of all the food they provided to the pantry's for Christmas Day food giveaways. Additionally, many of their major food industry partners--like those mentioned above--have just given huge donations and aren't likely to be able to do so again this week. The situation is crucial.

According to Second Harvest, every dollar you donate provides 20 pounds of food to men, woman and children facing hunger in the U.S. That's a huge value!

You can make am online donation here (including getting the ConAgra matching donation), or get more information on how to donate via snail mail

My New Red Shoes: Helping the Poor and Homeless Get Back on Their Feet

Heather Hopkins, a 30-year-old Princeton University graduate and mother of a 3-year old daughter, is the founder and director of My New Red Shoes, a non-profit organization that provides new school clothes to homeless children, and children of low-income families in the San Francisco Bay Area.

Heather Hopkins, founder and director of My New Red Shoes, with some of the brand new shoes the organization gives to schoolchildren (they give clothes and school suppliers as well) in need. (Photo: courtesy San Francisco Chronicle.)

Ms. Hopkins came up with the idea for the organization after the birth of her daughter Annie three years ago. Heather's mother shared a story with her that when she was growing up the family fell on some hard times, and she often found it hard to be able to buy Heather new clothes and supplies for the new school year. Her mother always managed to find a way to get Ms. Hopkins some clothes though, so she would feel proud about how she looked on the first day of school.

After hearing that story from her mother, Ms. Hopkins decided to gather a bunch of friends and help some school children who needed clothing for school, but who's parents couldn't afford to buy it for them. She named the organization My New Red Shoes. Ironically, she later learned for the first time from her mother that she dressed Heather in a brand new pair of red shoes for her first day of Kindergarten.

In its very first year, My New Red Shoes provided brand new clothes, shoes and school supplies for 354 kids. Last year they clothed 600 kids for the new school year. And in 2008, Ms. Hopkins says the organization's goal is to provide new clothes, shoes and related supplies for 1,500 children, who otherwise would not be able to wear new clothes they can feel proud in to school.

The children's self-esteem--and quality of schoolwork--has soared. For the first time ever for many of them they are able to wear something brand new to school. Ms. Hopkins, the children's parents and teachers, and others, have all noticed a marked improvement in the kids' self-esteem and social interaction at school.

You can help My New Red Shoes provide those 1,500 kids with new clothes--and be a part of their soaring self-esteem--by making a donation of any size. Additionally, Ms. Hopkins and her friends would love to see individuals who want to make a difference in the lives of children replicate the program in other parts of the U.S.

You can learn all about My New Red Shoes on their website here. You also can make a donation of any size on the website. Lastly, if you want to replicate the program in your area, send Ms. Hopkins an email.

This is a great program, and even though you might not live in the Bay Area region, helping a child anywhere with a small donation will pay dividends for you regardless of where you live.

One Laptop Per Child: Connecting Poor Children to the Wider-World

The One Laptop per Child program, founded by The Media Lab Program at MIT, the famed technology university in Massachusetts, is bringing the world of personal computing and the world-wide web to children in impoverished countries one donation at a time and one laptop computer at a time.

Erik (left) and Fernando use their new laptops to work on a project during a nature class at their primary school in Arhuay, Peru. (Photo: courtesy AP.)
The sleek, innovative laptop computers created by the group, cost just $188 each, but bring millions of dollars worth of life to the kids who receive them. For the first time in their lives these children are able to access the world-wide web, and learn vocabulary, write, draw and more thanks to having a small computer of their own.

And the children who have thus far received the laptops, like those living in a rural village in Peru talked about in this article published today by the Associated Press, are taking to the machines just like kids in the west do--like it's completely natural to them. The parents of these children in Peru make about the same amount per year as the laptops cost, $188. Therefore, they would never in their wildest dreams be able to purchase one for their children. However, the One Laptop per Child program is making that dream possible; but only if the non-profit organization gets donations from you.

Kevin, 11, studies at a table in his family's modest home in Arahuay, a tiny hilltop village in the Andean Mountains. He is one of 50 schoolchildren who recently received free laptop computers from the one Laptop per Child project. (Photo: courtesy AP.)

And right now, until December 31, for every $188 you donate to buy a laptop computer for a child in a third world country, corporate donors to the program will match your donation 100%. This means that for your donation of $188, One Laptop per Child will be able to donate two computers instead of just one. It's a huge by-one-get-one-free (BOGO) opportunity,which is something those of you in the food and grocery industry know much about.

Also, since a donation of $188 can be a bit high for many of us, One Laptop per Child accepts donations of any size from individuals and companies towards the goal of providing one laptop at a time to kids in impoverished countries.

The project also is a great opportunity for businesses and other groups to get involved collectively. For example, a food or grocery company can make a donation, earmarking it to purchase whatever amount of laptops the value of the donation will buy. If you do so before December 31, your corporate donation also will qualify for the BOGO laptop promotion. Imagine this: if your company donates just under $2,000 (value of 10 laptops), with the buy-one-get-one-free promotion, that means the organization can donate 20 computers to 20 children.

The free laptop computer program is not only innovative, it's preventative. Just imagine how many of these children, once they get their own laptop computer, will be able to go on in their lives to productive careers. Not only will they be helping themselves and their families, but global society will gain the benefits as well. After all, the best social program is a good, well paying job, and these laptops could mean the difference between that job and poverty for these kids when they reach adulthood.

You can learn more about the One Laptop per Child program at the group's website here. You also can learn about the BOGO promotion on the website, and make a donation of any size. Also, you can read more about the program and the positive effects the recent donation of laptop computers is having on 50 primary school children in Peru, here. Play the Vocabulary Game and Feed Hungry People

We first wrote about on October 24. (You can read that story here.)
The premise of FreeRice is simple: Go on the website here. Play the vocabulary game, and for every word/answer you get right, FreeRice will donate 20 grains of rice through the United Nations World Food Programme to help end world hunger. It costs you nothing. All the rice is paid for by corporate sponsors, who's small advertisements you see flashing at the bottom of the game screen on the website.
When we wrote about the program and game on October 24, (the vocabulary game/project began on October 7, 2007) a total of 195,074,730 grains of rice had been donated to date. As of today, the total is up to 11,470,275,730 grains of rice that have donated through the United Nations to help end world hunger.

It's easy to push that total up even more. Just go to the website and play the game for a bit. It's simple, and everything you need to know to play the vocabulary game is right on the website. It costs you nothing out of your pocket, just a little time. And that time is well spent, since we can all use some vocabulary improvement.

In addition to playing the vocabulary game and feeding the hungry with free rice, you also can make a donation of any size to the United Nations World Food Programme.

You can learn more about what the UN food program does, and make a donation if you choose on their website. World hunger is something we all have a stake in reducing. Playing the vocabulary game is a simple, free way to help. Making a donation to the UN food program is another way you can do your part.
Happy Boxing Day, and thanks for giving back

Tuesday, December 25, 2007

Christmas Day Memo: What We Do Matters

We hope our readers are, like us, enjoying Christmas Day. For those of you who aren't Christian--be you Jewish, Islamic secular or other--we hope you're enjoying the day off, and celebrating the holiday in whatever way you choose to--or choose not to.

Christmas has become in one way or another a universal, secular holiday, in addition to its religious origins and true meaning. Family gatherings and dinners, gift exchanges; these traditions are celebrated by many non-Christians and non-religious peoples in addition to those of the Christian faith.

To us, the symbols of Christmas are what's most important, regardless of your religion or lack thereof. And chief among the symbols and spiritual elements of Christmas are: Hope, Kindness Sharing, Giving and Renewal.

In this spirit of Christmas then, we want to share with you two essays we read very early this morning over coffee. It was so early that everybody was sleeping. In fact, it was so early we even think we might have heard the scratching of sled tracks on the rooftop as we were brewing our coffee, signaling the departure of a certain mystical fellow who visits just once a year, on Christmas morning.

Both of these essays speak to the concepts of hope, kindness, sharing, giving, love and doing good deeds and more, each in their own unique ways.

What we do matters: A Progressive Proposal---Hope

The first essay is from Washington Post syndicated columnist E.J Dion Jr. "Hope is an overused word and an underrated virtue," Dione writes in his column this morning.

"We 'hope' for all kinds of things, from the trivial to the profound," Dion writes. "But hope is both a habit and a discipline. It is an orientation toward the future based on the conviction that we live in an ultimately trustworthy universe. Hope is the virtue on which faith and love depend."

Dion goes on to discuss how the idea of Christmas is in many ways a "radical" and "progressive" one in that it celebrates new life and birth; a theme that crosses cultures and traditions. "This sense of Christmas has a beauty all it own and embodies a nearly universal quest for renewal," Dion writes.

And its hope, Dion suggests, that in the final analysis is the individual and social precondition for for acts of trust, which in turn is the precondition for reform, renewal and spiritual redemption.

The thrust of Dion's essay is that "What we do matters," personally and socially. And, "without hope, non of is even worth trying," he says. (Read Dion's full essay here.) His piece is a Christmas story for sure--but even more importantly it's an object lesson for living the other 364 days of the year.

What we do matters: Peach on Earth, as it is in heaven?

The second essay is by Howard Smith, a senior astrophysicist at the Harvard-Smithsonian's National Air and Space Museum in Washington D.C. In the essay, published in this morning's San Francisco Chronicle and other papers, Smith also talks about hope and the concept of "peace on earth" which is embodied in Christmas.

He asks the question, "What does peace in heaven mean"? As an astrophysicist as well as a scholar who's work focuses on blending modern cosmology and religion, specifically the Jewish Kabbalah tradition, Smith discusses how the universe is a dynamic and ever changing place. That, like in human life, their is constant renewal, birth (new stars constantly being born) and chaos in the cosmos.

He explores the thought of what peace in heaven could mean on this Christmas Day by looking nor only to the skies but to religion as well. He sights as an example, the Jewish mystical school of Kabbalah, which has a theological tradition that the universe was created in an explosive burst. In this view, the universe was dynamic. "There is birth and death, harmony and discord, conflict and confusion, beauty, and even destruction," Smith writes. (Sounds much like human life and societies, doesn't it?)

In this view of the world (socio-culturally as well as cosmologically), people and what they do can make a difference, Smith says. "In a world that was created but evolves we can make a difference," he writes. Smith sights the saying of the Kabbalists--Tikum olam, repairing the world, as the task for all of us in our daily lives. To use love, good deeds and righteousness to make the world a better place is the recipe Smith offers in his essay.

"I suggest that when we pray for peace as it is in heaven this season, we neither rely on supernatural intervention nor hope to replicate the fictitious vision of a sterile cosmos, but rather kindle a mindfulness that 'what we do matters,'" Smith concludes. (Read Smith's full essay here.)

Merry Christmas.

Monday, December 24, 2007

Christmas Eve Memo: A Visit From St. Nicholas

"Twas the night before Christmas, when all through the house, Not a creature was stirring, not even a mouse;

The stockings were hung by the chimney with care, In hopes that St. Nicholas soon would be there;

The Children were nestled all snug in their beds, While visions of sugar-plums danced in their heads;

And mama in her kerchief, and I in my cap, Had just settled our brains for a long winter's nap,

When out on the lawn there arose such a clatter, I sprang from my bed to see what was the matter.

Away to the window I flew like a flash, Tore open the shutters and threw up the sash.

The moon on the breast of the new fallen snow Gave a luster of midday to objects below;

When, what to my wondering eyes should appear, But a miniature sleigh and eight tiny reindeer,

With a little old driver, so lively and quick I knew in a moment it must be St. Nick.

More rapid than eagles his coursers they came, and he whistled and shouted, and called them by name;

'Now, Dasher! now, Dancer! now, Prancer! and Vixen! On Comet! on, Cupid! on, Donder! and Blitzen!

'To the top of the porch, to the top of the wall! Now dash away, dash away, dash away all!'

As dry leaves that before the wild hurricane fly, When they meet with an obstacle, mount to the sky,

So up to the house-top the coursers they flew, With the sleigh full of toys, and St. Nicholas too.

And then in a twinkling I heard on the roof The prancing and pawing of each little hoof.

As I drew in my head and was turning around, Down the chimney St. Nicholas came with a bound.

He was dressed all in fur from his head to his foot, And his clothes were all tarnished with ashes and soot;

A bundle of toys he had flung on his back, And he looked like a peddler just opening his pack.

His eyes how they twinkled! his dimples how merry! His cheeks were like roses, his nose like a cherry;

His droll little mouth was drawn up like a bow, And the beard on his chin was as white as the snow.

The stump of a pipe he held tight in his teeth, And the smoke it encircled his head like a wreath.

He had a broad face and a little round belly That shook, when he laughed, like a bowl full of jelly.

He was chubby and plump, a right jolly old elf, And I laughed, when I saw him, in spite of myself.

A wink of his eye and a twist of his head Soon gave me to know I had nothing to dread.

He spoke not a word, but went straight to his work And filled all the stockings; then turned with a jerk.

And laying his finger aside of his nose, And giving a nod, up the chimney he rose.

He sprang to his sleigh, to his team gave a whistle, And away they all flew like the down of thistle.

But I heard him exclaim, ere he drove out of sight, 'Happy Christmas to all, and to all a good night!'"

-By: Clement C. Moore

St. Nicholas drawing: courtesy Peoria Chronicle

Sunday, December 23, 2007

Safeway's O' Organics Brand: Part Duex

Safeway's O' Organics in Asia: More on the brand's being on sale at Carrefour-Taiwan. The brand also is being sold by Jason's Marketplace on the Island of Taipei in Taiwan. From Taiwan its on to Japan--and elsewhere in the Asia-Pacific region--for the organic foods brand. Finally, closer to home, Central America, where Carrefour just happens to have 366 food stores, is up next for O' Organics' brand marketing travels.

On Friday, we reported that Safeway Stores, Inc. is currently selling a number of items in its popular O' Organics organic grocery products line at a Carrefour Hypermarket in Taiwan. As we wrote Friday, the international business and grocery trade press had reported last week that Safeway "plans" on selling items from the line in Asia and South America beginning next year. (read our Friday story here.) We're the only publication to date to report that O' Organics brand items are already being sold in Asia.

We've learned a few more facts: First, the Carrefour store (pictured at left) where the O' Organics items are being sold is on the island of Taipei, in Taiwan. It's a huge Hypermarket.

Additionally, Rachel Lanning who lives and works on Taipei, told us the Carrefour store is adding new O' Organics brand items regularly. "Just yesterday, I spotted O' Organics macaroni and cheese," she told us. A clerk at the store told us via telephone that the items are doing well thus far, and that the store is indeed adding new skus on a regular basis as shelf-space is made available.

All Taiwan-region Carrefour stores to sell O' Organics brand

Carrefour has about 48 stores in and around Tawian. We've learned that all of these stores are either currently selling--or will be doing so shortly--O' Organics brand grocery products. The stores' are adding additional skus as space (and merchandising plans) permit.

Carrefour Asia is a great international brand launching pad for O' Organics

Carrefour, Europe's largest retailer, and the second largest retailer in the world after Wal-Mart, currently has about 223 Hypermarkets (huge stores that sell food along with hard and soft goods) in Asia. The French retailer has 100 stores in China, 48 in Taiwan, 30 in Indonesia, 25 in Thailand, 11 in Malaysia, 7 in Japan, and 2 in Singapore. Asia is a fast-track grow region for Carrefour as well.

This base of 223 Hypermarts in Asia provides the O' Organics brand with a huge Asian launching pad. Include Japan, and eventually China, the worlds most populated nation, and fasting growing economically, and it's apparent the Asian continent offers great opportunities internationally to grow brand sales.

Wellcome's Jason's Marketplace on Taipei also selling O' Organics brand items

Ms. Lanning also told us Jason's Marketplace, which is an upscale format from Hong Kong-based Wellcome, is currently selling O' Organics brand grocery products in it's Taipei store. We verified this, and the store is merchandising a number of items from the organic brand. Among the items in the O' Organics line Jason's Marketplace is selling include cereals, juices, peanut butter, noodles and other packaged goods.

Wellcome is Hong Kong's largest and oldest supermarket and hard goods chain. The chain currently has 235 stores in the island region. Jason's Marketplace is the grocer's newest format, and is designed to appeal to the specialty and natural foods consumer in the region. As in the West, natural, organic and specialty foods are chief among the many food product demands for a increasing number of consumers in Asia, especially in developed and generally prosperous countries like Taiwan, as well as in Hong Kong, Japan, South Korea and increasingly in China.

Japan next on-tap for O' Organics brand

We've also learned from a source, an international grocery products trader, that the O' Organics brand will be introduced in retail foods stores in Japan soon. American grocery product brands do well in Japan, and the country has a huge network of supermarkets and convenience stores like 7-Eleven Japan and Lawson.

In fact, Lawson, which is the second largest Japanese convenience chain after 7-Eleven-Japan, has a format called Natural Lawson, which features an extensive selection of natural and organic foods and grocery products. (Think of it as a mini Whole Foods.) Natural Lawson is positioning itself to the growing number of Japanese consumers who want natural and organic foods. (Read our recent piece about Natural Lawson here.) The upscale, convenience-oriented chain currently has about 20 stores--and is growing. It would be a "natural" retail outlet for the O' Organics brand. In addition to the 20 Natural Lawson stores, Lawson operates 8,400 traditional-style cobini (convenience stores) in Japan.

Carrefour and the Central American leg for the O' Organics brand

In it's announcement last week about taking the O' Organics brand international, and selling the line to other retailers, Safeway CEO Steve Burd mentioned two regions: Asia and Central America. Carrefour just happens to operate about 366 stores that sell food and grocery products in Central and Latin America. The retailer has 237 Hypermarkets and 129 supermarkets in the region. All but 36 of these stores are in Brazil and Argentina, countries with enough consumers with good incomes to provide a nice market for the brand. The remaining 36 stores are in Columbia (35) the Dominican Republic (1 store.)

Obviously, with a deal done with Carrefour in Asia, it's a logical conclusion there just might be a similar deal for Central and Latin America with the mega-French retailer.

Smart marketing to take O' Organics to Asia and Central America first

Lastly, we believe it's extremely smart marketing to introduce the O' Organics brand internationally first in Asia and Central America. Most organic product's brand marketers looking internationally for sales, tend to usually look--and go--first to Europe because of the region's strong base of natural and organic foods consumers. However, European food retailers are expert at creating store brand natural, organic and specialty foods brands, and going head-to-head against their brands makes little sense for O' Organics at this point in time, if ever.

Rather, Asia and Central America offer a market where their aren't many full-line organic grocery brands. Although it's nothing like Europe in terms of overall sales potential, it's an emerging and growing organic foods market--and those who get their first will have an advantage.

Saturday, December 22, 2007

Food & Society Memo: Fear and Loathing in South Carolina

A true tale featuring PETA, an Abbey of Roman Catholic Trappist Monks, their egg farming operation, and an 'ending' that didn't have to be

A monastery in South Carolina has decided to close its egg farming business after a 10-month campaign by the animal activist group PETA (People For the Ethical Treatment of Animals), which claimed it had video-taped evidence that the Trappist monks of Mepkin Abbey were mistreating the egg laying hens.

Father Stan Gumula of Mepkin Abbey said in a statement last Wednesday that pressure from PETA had made it difficult for the monks to live a quiet life of prayer, work and sacred reading. He further said in the statement the monks were sad to give up "a hard and honorable work (the egg farming) of which they are proud."

The monks of Mepkin Abbey, located in Monks Corner, South Carolina, belong to the worldwide Order of Cistercians of Strict Observance. In the U.S. and other western nations they are commonly called Trappists.
Mepkin Abbey was founded in 1949 in what is described as the "low country" of South Carolina. The Abbey's grounds have sacred and historic significance. Native Americans once used the property the Abbey now sits on as hunting grounds. It's also thought that some Native Americans may have been buried on the grounds. (You can read more about Mepkin Abbey here, and learn more about their Trappist order.)

In announcing their decision to get out of the egg farming and marketing business, the monks admitted no wrong doing in their statement. The egg farming operation will be phased out over the next 18 months, Father Gumula said.

The egg farming business is a substantial one for the Abbey. It produces about 9 million eggs a year, which are all sold to local area food retailers. The money from the sales of the eggs is used to help support the Abbey and its works, along with funds raised from other Abbey businesses, which include a specialty products and specialty foods store. The specialty store sells works of art, books, music on compact disks, and videos produced by Trappist monks at Mepkin Abbey and at other Abbey's throughout the world.

The Mepkin Monks also operate a specialty foods store. The store features numerous specialty foods items produced at Mepkin, and at other monasteries in their order. Items sold in the store, and produced by Trappist monks, include: confections and cakes, coffees, cookies, fruitcakes, creamed honey, herbed oils and vinegars and Trappist Preserves, a line of over 25 varieties of specialty preserves produced by Trappist Monks from the St. Joseph Abbey in Spencer, Mass. (You can read more about the specialty store, see pictures, and view a selection of specialty foods sold at the store here.)

PETA began its criticism of the Mepkin Abbey's egg farming practices in February of this year, saying it had under-cover videos of thousands of hens crammed into small cages. The group also said it had evidence the Abbey's hen suppliers cut off the animals' beeks and killed off the males, which PETA says are cruel practices.

The criticism and campaign against Mepkin Abbey's eg farming operation has gone on since February, with apparently no changes made in the egg farming practices by the Mempkin Monks. On Wednesday, PETA ratcheted up its campaign, and announced it planned to urge local area shoppers to boycott buying Mepkin-produced eggs in the local stores. Among PETA's plans was to hand out leaflets with the headline "Cruelty to Animals is Un-christian" at food stores in Charleston and Columbia, South Carolina that sell the Mepkin Monks' eggs.

It was this planned action which lead the monastery to decide to exit the egg farming business, and make their announcement on Wednesday.

In a statement in response to the Mepkin Monk's announcement, PETA vice president Bruce Friedrich said, "We're delighted to learn that Mepkin is getting out of the cruelty business, and we hope that we can work with then to remove the hens from these cages. No matter what the abuser's religion, it's wrong to abuse one animal, let alone 20,000 of them. The monks have about 20,000 egg laying hens in their egg farming operation.

Our View: What should have happened

The resolution of this issue--the Mepkin Monks closing down their egg farming and marketing operation, and PETA proclaiming a victory--frankly lives us feeling hollow. Nobody won.

And we wonder why the Mepkin Monks didn't decide to do something positive during the ten-plus months PETA campaigned against the monastery's egg farming practices. Could they not have gotten bigger cages for the hens, which even numerous for-profit egg farming operations have done and are doing? What about transitioning into "cruelty free" and "cage free" egg farming, which is a popular trend? "Cruelty free" and "cage free" eggs also command a higher price premium, and generally higher profits, at retail as well.

As for PETA, instead of merely campaigning against the monastery in the same way they do against a "faceless," for-profit corporation, why didn't the group try to work with the monastery to transition the egg farming operation into a model of "cruelty free" egg production? PETA could have offered to work with the monks, even provide some funding from the group's numerous wealthy donors, towards the goal of creating a model, non-profit egg farming and marketing operation. But no, PETA's only objective seems to have been to get the monastery to STOP. And now they claim victory over the fact the Trappist Monks have announced they will be closing the egg farming operation completely in 18 months.

Memo to PETA: You didn't win a thing. In fact, you lost. Had you done everything you could to work with the monastery to convert the egg farming operation to a model, "cruelty free" facility, you could have used that fact to garner tons of positive publicity--and used it as a model to show others they can change their practices and still make money. But, perhaps you want an end to all egg production, period? If so, that explains your actions regarding the thrust of your campaign against the Mepkin Monastery's egg farming business.

As we all know, the stores who were buying the eggs from Mepkin, and selling them to local shoppers, will merely replace the egg brand with those from another producer. That producer may even produce eggs in a manner in which you (PETA) deem more cruel than Mepkin's.
Local consumers also lose. Instead of being able to buy a locally-produced product (the Mepkin eggs) and support the monastery, they will now be buying eggs that could likely be produced hundreds of miles away. PETA, you didn't win a thing in this "battle."

Memo to the Mepkin Monks: Being men of God, we wonder why you didn't "see the light"-- even if PETA is extreme, or you didn't feel your egg farming operation was cruel to the hens--and make some changes? Bigger cages would be an easy first step. Moving to a "cruelty free" or "cage free" operation would have been a perfect second step.

Chickens, like all animals, are creatures of God. We're puzzled you didn't grasp that right away and change your egg farming operation. You could have become role models for others. Instead, you just quit. maybe you're just tired of the egg farming business anyway. That's your right. However, since you said in your statement how sorry the Abbey is to leave the business, we doubt if just wanting to "get out" is the reason for closing down the operation.

As you can see from what we wrote to PETA above, we believe they should have extended a hand to you rather than threatening a boycott. It seems that's all the group knows how to do.--boycott. But, did you, the good fathers of the Abbey, extend a similar hand to PETA? Ask them for help? Perhaps they would have helped you transition to a "cruelty free" egg farming operation?

But, we will never know, will we? The Mepkin Monks are phasing out the egg farming business over the next 18 months. Calling it quits. PETA has moved on. After all, the group has too many "battles" to fight to give too much thought to how they handled this one.

The Ending: Meanwhile, in the low-country of South Carolina, there's a little more fear about what a "big city" activist group can do to a farmer who's farming practices they believe are cruel. Local grocers also have a new fear, and will likely double-check farmer's they buy local products from.

There's also many questions left unanswered. Chief among these questions is why a God-loving, devoted group of Trappist monks wouldn't change their egg farming ways and create a model for God and man on how to humanely raise eggs and care for hens? There will be lots of loathing for some time over how this story was played out, and how it ultimately ended.

Had PETA and the Mepkin Monks talked, contemplated the greater meaning of things, and reached a compromise, this could have been a merry Christmas tale. Instead, it's merely a tale of fear and loathing.

Friday, December 21, 2007

Friday Fishwrap: Safeway's O' Organics Brand

Safeway Stores, Inc. is already selling its O' Organics store brand in Asia: At Carrefour in the Republic of Taiwan

The international business press and numerous grocery industry trade publications reported last week on a major announcement from Pleasanton, California-based Safeway Stores, Inc. CEO Steve Burd that the grocer would begin selling some items from its hugely popular O' Organics organic grocery products line to food retailers in Asia and South America next year.

This is an innovative move for a U.S. supermarket company, as historically it's difficult to find a retailer that has broken "out of the box" and offered a store brand to other retailers to sell, either overseas or domestically. It's brand marketing thinking by a retailer rather than the industry norm of merely merchandising and selling store brands in just a retailer's own stores. Food retailers all to often forget they're marketers as well as sellers--and Safeway is acting more and more like a brand marketer in all respects these days.

But, Memo to the Press: Safeway already is selling its O' Organics brand in Asia. In fact, a number of the organic brand's items are currently being sold by Carrefour supermarkets in Taiwan. Carrefour, the worlds second largest retailer after Wal-Mart, and Europe's largest, is selling O' Organics' brand peanut butter (creamy and crunchy styles), pastas and noodles, popcorn, salad dressings and a few other items in the 300-item organic grocery products line in at least one of its supermarkets, and maybe more, in Taiwan.

The jar of Safeway's O' Organics crunchy peanut better pictured above was bought by our primary source at a Carrefour supermarket in Taiwan. As you can see, it's sitting on the shelf in her home refrigerator.

The O' Organics items are doing rather well at the Taiwan Carrefour store, according to our sources. Shoppers especially seem to like the peanut butter, which contains only organic peanuts and salt, and has no hydrogenated oils.

One shopper at a Carrefour in Taiwan told us the O' Organics peanut butter is far cheaper--and tastes much better--than the organic brands she previously bought at two supermarkets there, Jason's and Wellman's, both which offer decent organic foods selections, she said.

The major Safeway brand initiative was announced by CEO Steve Burd on December 13 at the company's annual investors day conference for stock analysts and institutional investors at the company's corporate headquarters in Pleasanton. The conference also was broadcast live over the web.

At the conference, Burd announced the O' Organics marketing initiative to food retailers in Asia and South America, but didn't name retailer names--and made no mention of any current deal with Carrefour, nor that some of the brand's items were being sold in Taiwan. But the O' Organics items are in the Taiwan stores. Our sources have purchased them there.

Having an international food retailing heavyweight like Carrefour, which has about 12,179 supermarkets, hypermarkets, deep discount format food stores, cash & carry stores, and convenience stores in 40 countries, ranging from Europe to Asia and the Middle East to North Africa, offers a huge opportunity for Safeway to grow O' Organics into a global organic grocery products brand.

Carrefour, through its vast international multi-format retail food store network, could literally provide the brand international distribution in-house, so to speak.

Safeway's O' Organics brand was introduced in 2006. The grocer has said it's been the most successful one-year launch of any of its store brand launches to date historically. Currently, there are 300 items in the line, including packaged grocery goods, milk and other dairy items, beverages, juices and other perishable items, including organic chicken. The largest number of skus are in the dry grocery/packaged goods category. Safeway also has recently branded a few fresh produce items with the O' Organics brand, perhaps signaling a further branding effort in the perishables categories.

Burd said at the December 13 conference, the company expects the organic brand to do gross sales of about $300 million in 2007, up from about $164 million last year. That's huge growth, attributed significantly to a vast expansion of the brand and line in late 2006 and this year, however. These sales numbers still are most impressive because to date Safeway, like other chain grocers, has only sold the O' Organics line in it own stores. Safeway currently has 1,738 stores in the U.S. and Canada.

In another "outside the box" development regarding the organic brand, Safeway has inked a deal with mega-food service distributor Sysco Corp. to distribute selected items from the brand to its vast customer base of food service operators. Sysco has already began distributing some of the items in the line, and plans to expand both the number of O' Organics products it distributes, and the number of operators it's distributing them to, as well as the geographic reach of its distribution of the brand items.

We haven't been able to find out if Carrefour is selling O' Organics brand products in its stores in other parts of the world besides Taiwan. However, we're working on that. Meanwhile, it looks like we broke a story.

Since Asia is one of the two countries CEO Burd mentioned in describing the initiative at last weeks conference, we expect an announcement regarding Carrefour shortly.

The international marketing effort by Safeway for its O' Organics brand will be interesting to watch and analyze. With 300 items under the brand, it's already one of the largest organic foods brands in the U.S.; not just store brands, but overall brands. Safeway also has major plans to continue adding items and categories to the brand, so its sku count growth will be considerable in just the next 12 months.

With double-digit organic products category growth throughout the western world (especially in the U.S., Europe, Canada and Australia), and fast growing organic foods' sales in Asia, South America, Africa and other developed and developing nations, the brand has the potential to be a real, global, billion dollar brand in just a couple years.
Combine these new international developments with Safeway's plans to create numerous more O' Organics branded products, and increased placement in it's existing stores, plus in the 23-25 new Lifestyle stores it will build just next year alone, and pretty soon you've got one hell of a brand.

Thursday, December 20, 2007

Retail Memo: Natural-Born Category Killers

The small store, no-frills, price-impact food retailing format revolution has arrived in the natural and organic foods retailing category, as well as in the conventional food retailing segment. The rapid growth in the natural and organic products categories has created an opening for category-killer formats, and a couple are emerging. Both are small format stores compared to supernatural grocers, and both recently announced major growth initiatives.

Supervalu Inc.'s 15,000 square foot Sunflower Market (pictured above) is one of the two small format, price-impact natural foods stores we believe has the potential to be a real player in the natural and organic foods "category killer" retailing segment. The format is no-frills but extremely attractive in design.

In August and September of this year, when the U.S. Federal Trade Commission (FTC) was vigorously opposing the acquisition of Wild Oats Markets by Whole Foods Market, Inc., we wrote about and offered our analysis on why such opposition by the FTC (and others) made little sense in light of the realities of today's natural and organic foods retailing environment.

The FTC's chief argument in opposing the merger in a federal court was that it would create an anti-competitive situation in the supernatural food retailing category, allowing Whole Foods (combined with Wild Oats) to be able to raise its retail prices whenever the grocer desired.
(Although the U.S. Federal Court in Washington, D.C. denied the FTC's September, 2007 pre-acquisition legal challenge, and denied an appeal a short time after that--which allowed the merger to go forward and for Whole Foods to begin to integrate Wild Oats' operations into the Austin, Texas-based grocer's culture--the agency again filed a post-merger lawsuit last month, asking the same federal court to review the deal. To date, the court has avoided the FTC's request to give it another hearing on the merger.)

We argued then, and still do, that although acquiring Wild Oats and removing it as a competitor would provide Whole Foods with some near-to-medium-term competitive advantages, those advantages would not be all that significant--and would be rather short lived at best.

Boulder, Colorado-based Sunflower Farmers Markets is the other small format, no-frills, price-impact natural foods retailer we believe has the potential to create a serious impact in natural products retailing with its 20,000 to 25,000 square foot stores.

Why? First, huge supermarket chains like Safeway Stores, Inc., Kroger Co., Supervalu, Inc., Publix and others (all four mentioned have annual gross sales at least ten times that of Whole Foods), and smaller but big regional chains and multi-store independents throughout the country, have moved into the natural and organic products' retailing space in a big way--and it's getting even bigger.

For example, Safeway's Lifestyle stores are looking more and more like a hybrid upscale conventional supermarket/Whole Foods-like format these days. The same with many Publix, HEB and Wegmans' stores, to name just a handful rather than taking a couple paragraphs to list the many more doing the same. Further, dozens of large, regional grocers (Raley's in California, Giant Eagle, Rice Epicurean, Bristol Farms; the list goes on and on) are creating new stores that are going head-to-head with Whole Foods' stores in their market areas.

On top of all that, mass merchandisers Wal-Mart, Target, BJ's, and Costco Wholesale are offering more an more natural and organic items in their stores, as well as creating their own store branded organic grocery products.

Next, in terms of the Wild Oats' acquisition allowing Whole Foods to be able to raise its retail prices at will, we argue that is far from the case. First, Wild Oats' wasn't a big enough chain in terms of market share to even make that kind of difference. In other words, swallowing up Wild Oats did not make Whole Foods a monopoly in any real terms, even if John Mackey though it would.

Second, with its "Whole Paycheck" nickname (which company executives detest) firmly established in the food retailing lexicon (as well as in the minds of many consumers) Whole Foods has become hyper-cautious about its retail price structure, and about raising prices.

Lastly, if one really makes a close analysis, they will find Wild Oats Markets' wasn't even Whole Foods' chief competition. Most of their stores were too small, their merchandising practices were outdated in many aspects, and their in-store prepared foods programs were minimal compared to today's industry standards.

Rather, that chief--and growing--competition comes from the types of retail formats the grocers mentioned above, and others, are creating and growing rapidly. It also comes from mass merchandisers like Wal-Mart, Target, and Costco Wholesale, all who have moved aggressively into the natural and organic products retail space and continue to do so. It's a brave new natural and organic products retailing world folks, and with all do respect, Wild Oats was in many ways still living in the old world.

Part of this new natural and organic products retailing world (NOPR 2.0 we call it) is the successful creation, selling and growth of store brand organic grocery lines from the likes of Safeway, Kroger, Target and many others.
The store brand organics are proving wildly successful. For example, Safeway recently said its O' Organics store brand has been the most successful private label brand launch in the chain's history of developing store brands. In fact, Safeway plans to begin selling the O' Organics line to food retailers in other countries beginning early next year. Additionally, Giant foodservice distributor Sysco has started distributing a number of O' Organics items to some of it's customers, and plans to do so nationally.

Kroger's store brand organics line (as well as its all-natural brand) has been such a huge success that the chain is currently expanding it into more categories and adding scores of additional skus. Kroger's CEO has said his plan it to be the chain that sells organic groceries to the "masses' in the U.S.

The hundreds of millions of dollars in brand new sales from these store brand natural and organic grocery products has had to come from somewhere. It's not just from shoppers who have traded up from conventional groceries to organics. Rather, the new sales are coming from a variety of places: replacing and reducing sales of some manufacturer brands to be sure, some consumer trade up from conventional grocery items of course; but more significantly its also coming in large part from natural products retailers, especially Whole Foods. The supermarket store brands are taking share away from Whole Foods and other natural foods retailers in the grocery products segment.

Shoppers who shopped a supermarket and also Whole Foods, and bought all of their natural and organics at Whole Foods, are now finding they can get a large share of those same items at the supermarket, and generally at better prices. As such, Whole Food's "share of the stomach" in the natural and organic grocery category is getting eroded by these store brand Organic lines.

Whole Foods knows this, that's why the grocer keeps innovating, putting new types of restaurants in their stores, becoming a prepared foods guru, adding wine cellars, mini day spa's and other cutting-edge features in-store. The retailer's executives knows what's happening in terms of the natural and organic grocery sales environment, and they plan to be ahead of the retail curve in terms of not finding themselves overdependent on natural and organic grocery sales in the future.

Lastly, we argued this phenomenon--the growing number of big food retailers going after the natural products consumer--would also be met with a new one.

That new phenomenon is the emergence of a handful of food retailers (and formats) that have determined the natural and organic categories are ripe enough--and growing fast enough--to "pick off" by the creation of category killer formats designed to undercut Whole Foods (and others) significantly on price. That category growth is without a doubt here, with much more to come. Organic foods' category growth has been 25 to 30% per year in the last five years. Further, projected growth for the next five years is about 20 to 25% annually.

These retailers have realized the market is there to create a natural foods store format with the following characteristics: small format (or footprint), no frills design inside and out, limited category assortment and--the major positioning point-- everyday low-price, price-impact across all product categories and sectors. These stores offer more than just bare bones departments and selections, but do so in a no-frills but attractive, small format box.

These elements not only tap into the desire by a growing number of consumers to be able to buy natural and organic products for less, it also opens the category to new shoppers. It's an expansionistic format all around. Further, the format taps into the growing desire by many shoppers to be able to buy groceries in a more convenient way. Rather than spending lots of time in a huge store, they want to get in and get out--but still be able to get the natural and specialty products they want. Convenient, in-and-out shopping, a good product selection, and low prices--does anybody really believe the natural products consumer isn't ready for that combination?

Natural-Born category killers: Sunflower Farmers Market and Sunflower Market

In previous pieces on this topic (but in less detail) we identified two natural foods retailers--Boulder, Colorado-based Sunflower Farmers Market and Supervalu, Inc.'s Sunflower Market--as the most likely candidates to create a category killer application (format) in the natural and organic foods retailing space in the U.S. Further, we suggest these two retailers are the two best candidates to provide a retail one-two punch to Whole Foods in terms of taking market share from the supernatural grocer. (By the way, don't be confused by both having Sunflower as the major part of there names. It happens to many. In fact, it happens so often that Supervalu has a link on its Sunflower Market website that says, "Looking for the other Sunflower Market? Click here.)

Based on a couple of recent developments, one just this week, it looks like we might have been right four months ago. First, Supervalu recently announced that their Sunflower Market stores, a format which is only a little over a year old, have exceeded the company's expectations. And as a result of that, the grocer said its going to aggressively increase its new store opening time- table for the stores, building 50-60 new Sunflower markets in the next 4-5 years.

As part of this growth plan, Supervalu also said it plans to open stores in states it currently isn't in with the stores. Sunflower Market stores (five so far) are currently located in Illinois, Ohio and Indiana. Plans include expanding eastward. The small format stores are only 15,000 square feet and offer a limited assortment of natural and organic foods, non-foods, fresh produce, meats, fish/seafoods and perishables. They also have a fresh-baked bakery/cafe in-store, a health and wellness department and full wine and craft beer departments. (read more about the format here.)

The small format stores are no-frills but also offer a slightly upscale look to them in both design and style, do to the in-store bakery/cafe and attractive health and wellness departments. (It's important to note the assortment is limited relative to Whole Foods and other large supermarkets. However, it isn't limited in terms of the industry standard, in which most independent natural foods stores still aren't any bigger than 15,000 square feet.) Numerous market basket price checks have shown Sunflower Markets' overall everyday prices on natural and organic products to be 10-20% cheaper than the everyday prices on like items at Whole Foods' stores.

The other Sunflower, Arizona-based Sunflower Farmers Market, also is a small format, no-frills, price-impact, natural and organic category killer format like Supervalu's Sunflower Market. Sunflower Farmers Market also has something else in common with it's namesake natural foods retailer--its expanding dramatically as well.

Earlier this week, the small format, price-impact natural products' grocer announced it has received a $30 million investment from California-based PCB Capital Partners to build new stores and expand into other states. The company currently has 13 stores in Arizona, Nevada, Colorado and New Mexico. With the $30 million in hand, Sunflower Farmers Market plans to have a total of 50 stores in the Western U.S. in five years, including expansion into Utah and Texas, which is where Whole Foods Market, Inc.'s corporate headquarters is located. The retailer will open about 13 new stores next year.

Sunflower Farmers Market was founded in 2002 by Mike Gilliland, who also is the founder of Wild Oats Markets. He left Wild Oats a number of years ago. This time around Gilliland and company are taking a price-impact, value approach to natural and organic foods retailing. In fact, the grocer's motto is: "Serious Food at Silly Prices." That should tell you much about its positioning.

The stores, similar to Supervalu's Sunflower Market, are fairly no-frills. They also offer a limited assortment of natural and organic products across all categories. The selection is ample though, and looks far from bare bones. The centerpiece of the stores, which are about 20,000 to 25,000 square feet, are its produce departments, the one place the natural grocer departs from its limited assortment merchandising philosophy and offers an extensive selection, including lots of organic produce items. The farmers' market-style produce departments, which are placed in the center of the stores, represent about a third of total store sales, according to Gilliland.

In fact, he says when fresh meat is added to produce in terms of sales, both represent about 50% ot total store sales. Groceries, health and body care, nonfoods and vitamins/supplements comprise the other 50% of total store sales.
Gilliland says he's set Sunflower Farmers Market's pricing structure so that shoppers will pay 20% to 30% less on natural and organic groceries, perishables and the other items featured in the stores than they would pay at Whole Foods and other natural foods stores. Produce prices are particulary hot, do in large part to the fact that the grocer self-distributes all of its own produce, cutting out the middle man and distributors.

With 50 stores in the Western U.S. in five years, the natural products category killer should be a major force in natural foods retailing, and its pricing structure, which is considerably lower than Whole Foods across the board, could position it well to take market share from Whole Foods and others in its market regions.

As a category grows, its logical that competition will follow, and formats will morph

We aren't suggesting Whole Foods Market, Inc. is in any imminent--or even long-term for that matter--danger of failure. What we are suggesting is that we're seeing the beginnings of a small format, price-impact movement in the natural and organic food retailing niche similar to what is happening in conventional food retailing. The scale is much smaller, the players fewer and they're not nearly as large in size and scope overall. However, we believe the natural and organic foods category killer concept and format is real. And, with 100-plus stores combined between the two "Sunflower" chains in as little as five years, they're going to take a nice chunk of category market share.

The prime drivers of this phenomenon are the super growth of the natural and organic categories, a lack of price reductions by existing retailers to reflect that growth, and a desire on the part of many consumers for faster, more convenient stores to shop in. If you combine these key trends, a small format, no frills, price-impact store focusing on the natural and organic categories makes much sense--and has huge growth potential.

Obviously, Supervalu's Sunflower Market and Sunflower Farmers Market are both betting on that concept. Along side them are numerous conventional supermarket operators like those we mentioned in this piece and many others who are betting on the categories growth to drive their sales and profits. That's why they're investing in upscale, "Whole Foods-style" stores, creating and marketing extensive store brand natural and organic grocery lines, and positioning their stores more and more towards the natural products consumer.

Taken along with what's occurring in the small format revolution being led on the high-low end by Tesco--with it's Fresh & Easy Neighborhood Markets chain which has already opened about 30 stores in one month, with 200 to be opened by the end of next year--and German food retailer ALDI--which is opening up 100 of its small format, no-frills, price-impact stores a year for the next few years (on top of the 850 small format stores it already operates in the U.S.)--what Supervalu and Sunflower Farmers Markets are doing with small format store rapid growth plans further solidifies the reality of the small format food retailing revolution across all product retailing categories and types of positioning.

In fact, Whole Foods itself is getting into the small format food retailing game. Early next year it will open a prototype Whole Foods Express store in an old Wild Oats store building in Boulder, Colorado. The store will be about 15,000 to 20,000 square feet, and is said to offer a mix of grab-and-go prepared foods, a limited assortment of natural and organic groceries and perishables, and other convenient offerings.

By the way, we don't believe the Whole Foods Express format will be a natural/organic category killer, but stranger things can happen. And, if the grocer's new Whole Foods Express format did turn out to be a natural and organic foods category killer, that would make things really interesting.

Wednesday, December 19, 2007

Retail Memo: The Small Format Revolution Continues to Heat Up

German food retailer ALDI is planning a major expansion of its small format, no-frills, price-impact supermarket chain in the U.S. The small format food retailing revolution in the USA is growing fast at both ends (low and high) of the food retailing spectrum, as well as in the middle. Where is it going? How fast will it get there?
ALDI USA's small format, limited assortment supermarkets (above) have about 15,000 square feet of retail selling space. The small format grocery stores are attractive but basic in design.
As our regular readers are aware, we've been writing about what we believe is nothing short of a small format food retailing revolution taking place in the U.S. It's not that small, neighborhood-style grocery stores haven't existed in the U.S. forever--they have. Rather, the reason we're calling it a small-format food retailing revolution is do to the scale of what's occurring, how fast it's happening, and the involvement of two large international retailers--Tesco and ALDI--who are leading the charge.

The catalyst for this so called small-format food retailing revolution is British grocer Tesco, which launched it's first Fresh & Easy Neighborhood Markets stores in Southern California and Las Vegas, Nevada in mid-November, and in Arizona three weeks ago. Tesco has opened nearly 30 of the small format grocery markets in just a little over a month. The retailer plans to have 200 of the stores open by the end of 2008, and up to 500 stores in the U.S. in five years.

In addition to Southern California, Nevada and Arizona, Tesco will begin opening Fresh & Easy grocery markets in Northern California next year. Further, as we've reported and written about here, the grocer is looking for store sights in New York, Florida and Chicago, along with land to built a distribution center on near Chicago.

Fresh & Easy grocery markets average about 10,000 to 13,000 square feet. They're a hybrid basic neighborhood grocery store and semi-upscale prepared, fresh food retailer. We describe the store format as low-price leader, limited format grocery store meets Trader Joe's.
Price-point is a big focus on the basic grocery side of the operation. The stores' thus far opened have lower retails on national brand (a limited selection though) grocery items than traditional supermarkets like Ralph's, Von's, Stater Bros. and others in their trading regions. In fact, the prices are more in-line with the deep-discount limited assortment and warehouse format stores in Fresh & Easy's current operating areas.

On the fresh, prepared foods side of the business, Fresh & Easy offers a wide variety of ready-to-eat, ready-to-heat and grab-and-go prepared foods. These range from basics like mac n' cheese and meat loaf, to more high-end offerings like Beef Tips in Burgundy Sauce and upscale, ethnic prepared foods featuring Indian, Asian and other cuisines. The stores' even sell fully-prepared complete meals that come with dessert and a bottle of wine. The prices on the prepared foods, which are all branded under the Fresh & Easy private label, are very reasonable.

In addition to the basic grocery items and prepared foods, the stores' offer fresh produce, fresh meats, other perishables and a selection of specialty and natural grocery items. About 65% of the items in the grocery markets' are private label, including fresh milk and eggs, and about 35% are national brands.

Aldi to expand its small format, no frills, limited assortment supermarkets

German food retailer ALDI was operating in the U.S. long before Tesco even thought about and created its Fresh & Easy Neighborhood Markets concept and venture. Unlike the big splash--and rapid store opening strategy--Tesco made in the U.S. with Fresh & Easy, ALDI USA's venture has followed a low-key, low-publicity, gradual-growth model.
The international food retailer first entered the U.S. market in 1976 with a handful of stores in southeastern Iowa. Today, nearly 32 years later, the international grocer with stores in 18 countries, is a major player in U.S. food retailing.
ALDI USA currently operates over 850 stores in 26 states, and is ranked as the country's 24th highest grossing (sales) supermarket chain. The stores' are located from the Midwestern USA (Kansas, Iowa, Illinois) to the Eastern Seaboard. (you can view a map of all 26 states ALDI USA has stores in here. When you get to the linked page, go to "What is ALDI and click where it says "view a map of where we operate and divisional offices."
The German grocer's U.S. supermarkets not only are small format (they average about 15,000 square feet), limited product assortment, and price-impact focused, they're also totally no-frills. The stores' design is attractive but bare bones. If customers want to use a shopping cart they have to pay 25-cents to do so. Aldi USA stores also charge for paper and plastic grocery bags, and encourage shoppers to bring their own reusable grocery carriers. The chain's retail positioning can be summed up as "Less is More."

The small format stores' sell their own branded private label grocery items almost exclusively; with the exception of a handful of national brands, which they primarily offer only on an in-and-out basis. The grocer uses sku rationalization to its fullest, constantly evaluating categories and items and adjusting store category and item assortments. The no-frills markets offer fresh produce, fresh meats, perishables, frozen foods and non-food items, all based on that same limited-assortment merchandising philosophy.

The no-frills markets carry a total of slightly over 1,000 items across all categories. Low-price is the prime category-wide focus of the small format stores. In their trading areas, the stores' generally undercut all food retailing formats on price, including Wal-Mart, warehouse stores, and other deep discounters. ALDI supermarkets have the reputation as being the low-price leader stores in the communities they operate in.

Bring on the revolution: ALDI USA's slow growth model is about to change

With 850 stores in the USA, ALDI is considered a major food retailing player based on any score card one uses. That it is 24th in the U.S. in gross sales is impressive considering its stores are a third or more smaller than today's average American supermarket.

But the small-format, price-impact grocer is about to explode on the American food retailing scene in an even bigger way. ALDI USA just announced it is going to excelerate its new store building program in the U.S. from about 20-30 stores per year, which is it's current rate, to as many as 100 stores a year beginning next year. Additionally, the small-format grocer is going to enter Florida and Rhode Island for the first time next year, and is planning a major new expansion into Texas in 2009.

With stores in Texas and Florida, the grocer will be entering two of the most competitive and lucrative states for food retailing in the U.S., as well as establishing a retail presence in the number two and three largest states in the country respectively.

It might be televised, but the small format revolution is real

ALDI USA's rapid growth plan is predicated on the huge success the grocer has had with its 850-plus store chain. It, along with others like Supervalu Inc.'s Save-A-Lot small format, price-impact chain, have proven not only the viability but success of the format at the lower-end of the food retailing spectrum.

Of course, the international grocer isn't a stranger to high-end, small store format food retailing in the U.S. either. It owns the fabulously successful Trader Joe's specialty grocery chain, which is expanding rapidly into new markets in the U.S. as well.

We don't think it's an accident Tesco positioned it's Fresh & Easy grocery markets as a combination price-impact, specialty and prepared foods hybrid market. They saw the success of no-frills, small format operations like ALDI USA , Save-A-Lot and others--as well as the success of Trader Joe's on the higher, specialty end. In part, this influenced Tesco to craft a format they believe can serve both customer demographics--price-conscious, basic grocery shoppers tired of huge superstores, and time-pressed consumers who are looking for specialty-oriented and convenient prepared foods at not out of this world prices. Like we said earlier, it's low-price, limited assortment grocery market meets Trader Joe's.

Of course the jury is still out on Fresh & Easy. They just opened their first stores last month after all. However, Tesco's plans are to have as many as 500 stores operating in the U.S. in five years. As such, Fresh & Easy isn't an experiment. Rather, it's a full-fledged venture.

Onward small format food retailing revolution

We see what we are calling the small format food retailing revolution going full-steam ahead. As we've reported recently, Safeway Stores, Inc. is currently negotiating with real estate interests in the San Jose, California area of the San Francisco Bay Area for locations to build five stores of a new and yet unnamed small format food retailing venture. The stores will be about 20,000 square feet, and it's believed will offer a wide variety of fresh, prepared foods in addition to groceries and other offerings.

We've also written much about Wal-Mart's research into two small store formats--one a small footprint grocery/food market and the other a small format health and wellness-oriented store, which would include a health clinic in-store. The mega-retailer had a team of executives working on the concepts in the San Francisco Bay Area for a number of months earlier this year. We expect some announcements as to what they might--or might not--do in terms of their small format retailing plans by early next year.

Other retailers like supermarket chain Giant Eagle are testing the small format food retailing waters. The chain, which operates primarily superstores and conventional supermarkets, has opened two Giant Eagle Express stores. The grocery markets are about 15,000 square feet and feature a mix of basic groceries, fresh produce and meats, and upscale offerings, including prepared foods, along with specialty, natural and organic groceries. The express markets also offer some standard convenience store items and have fueling pumps next door.

Further, supernatural grocer Whole Foods Market, Inc. plans to open a small format, convenience-oriented prototype store early next year in a former Wild Oats store in Boulder, Colorado. The grocer is currently remodeling the store into its Whole Foods Express prototype format. The express store will offer lots of prepared foods, especially convenient grab-and-go items. It's also expected to have a limited assortment of natural and organic groceries, fresh produce and meats. An in-store cafe also is likely.

Other food retailers are looking closely at the small format concept and thinking about whether or not it's something they should experiment with. And of course, the original small format food retailer, the neighborhood independent grocer, is smiling and thinking perhaps he was right all along.

We also must mention Pennsylvania-based Wawa Food Markets, which is the prime chain store innovator in the U.S. in terms of mixing convenience store-type retailing and more upscale grocery and specialty store merchandising into a single format.
For decades, Wawa has been successful in building a large chain of such hybrid stores throughout the eastern U.S. The retailer also is one of the early pioneers in offering quality prepared foods offerings in a convenience store setting. Its also one of the first chains to include larger than average grocery and perishables sections in its convenience stores, offering basic groceries at a decent price, compared to the normal convenience store retail prices in the category.

Hold on to your shopping carts folks. We're just seeing the beginnings of a small format food retailing revolution. The format's success on the no-frills, price-impact end is proven--and growing. Success stories like Wawa Food Markets and Trader Joe's--and the initial popularity of Tesco's first Fresh & Easy stores--are beginning to suggest that the small format hybrid food store concept also could become a big success at the middle-to-higher end of the spectrum as well.

Which retailer will be next to test the small format store retail waters; be it low-end, high-end, in the middle, or some combination of all three? We'll let you know. And, if you know of one--do let us know.

[To read numerous stories on the small format food retailing revolution search the blog using key words: Fresh and Easy, Fresh & Easy Neighborhood Markets, Small Marts, The Invasion of the Small Marts, Whole Foods Express, Whole Foods Market, Giant Eagle Express, Wawa Food Markets, Safeway Stores, Inc. and Small Format Food Retailing.]