Wednesday, August 8, 2007

Wednesday Feature: The natural~specialty convergence-some history and analysis

Beginning in the early 1990's the specialty and natural foods industries started to converge. At retail,conventional supermarket operators were increasingly discovering natural food products, including all-natural, gluten-free, organic and other natural specialties. The natural foods super-retailers, most prominant being Whole Foods Markets, Inc.and Wild Oats Markets, Inc., began coming into their own at about this time as well.

These super-natural retailers were being watched closely by the Safeway Stores, Inc.'s and Kroger, Inc.'s of the supermarket industry. The supermarket operators were going to school on the super-natural retailers in terms of learning new merchandising ideas and techniques as they related to the consumer. The traditional supermarket operators wanted some of that action.

As a result traditional supermarket operators--especially the more upscale formats--began significantly increasing the number of natural foods skus they merchandised in their stores. In some cases they created special store- within-a-store natural foods sections--mini natural foods stores within the supermarket. In other cases these retailers integrated natural food items into their mainstream core-of-the-store grocery sections.

In terms of natural foods merchandising it was the beginning of a real revolution in thinking. At the time--just 16 or so years ago--it was considered a bold experiment. Today, as we can observe, it is nearly mainstream. And the revolution in natural foods merchandising continues to grow, change and take on new forms and formats.

The specialty foods industry is much older than the natural segment. It basically originated as a niche business. In the 1950's when mass merchandising began to take off, any product or item that wasn't considered either a mainstream brand or something not regularly used by a large proportion of consumers, was labeled a specialty item.

Additionally, in the 1960's the importation of specialty foods and beverages began to take off in the U.S. In particular were specialty products from Europe. There was a huge demand for such goods in the U.S. by the large european immigrant population that began after World War II.

The exportation of specialty foods from Europe to the U.S. really ignited the specialty foods industry and is what gave it a tighter, more specialized definition. Gourmet foods became a part of the specialty portfolio, as did ethnic foods from places like Asia and Central and Latin America ( in addition to the European products). In fact, the original natural foods products (referred to then as health foods) were also within what commonly was considered the specialty foods category. Only as the natural category began to rapidly grow in the 1980's did most industry people began to seperate out natural as an industry all it's own--but strongly related to specialty.

Today both the specialty and natural foods industries each have unique characteristics which make them individualistic economic entities. They also have numerous similarities and synergies which are making these industries increasingly convergent with one another. For example, mass market retailers like Wal-Mart Stores, Inc. and Target Stores, Inc. today merchandise and sell a large selection of natural foods and are adding even more. Whole Foods Markets, Inc. looks as much like a specialty or gourmet supermarket as it does a natural foods store. This is what I mean by convergence. This is something we will explore further and more in-depth here in the Natural~Specialty Foods Memo.

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