Monday, December 29, 2008

Independent Grocer Memo: Natural-Organic, Local, Fresh and Premium Keys to Pacific Northwest USA's Haggen Foods; Now Adding Value

Independent Food & Grocery Retailing USA - Pacific Northwest

Although it's stores are experiencing a recession-influenced drop in category sales like retailers throughout the U.S. are, Pacific Northwest USA-based family-owned supermarket chain Haggen, Inc. says natural-organic food and grocery products, along with locally-produced specialty-oriented and fresh, prepared foods, continue to be three of the fastest-growing category segments for the 33-store Western Washington state-headquartered supermarket chain, which operates stores in Washington and Oregon under the Haggen Food & Pharmacy and TOP Food & Drug banners, according to company CEO Dale Henley

"Organic products continue to be one of our fastest-growing segments. The next is local products, which I think will surpass organic soon. There are a lot of great local products in Western Washington, and I think more will come because of customer demand," the CEO of the privately-held independent supermarket chain said in a recent profile piece in the Bellingham Herald, a local newspaper that serves the Western Washington state region.

Haggen, which was founded by the family of the same name in 1933, this year is celebrating its 75th year of owning and operating supermarkets in Washington and Oregon.

Haggen, Inc.'s 33 stores grossed a whopping $870 million in its fiscal year 2008, and the chain is headed towards sales of $1 billion annually, perhaps as early as by the end of 2009, as it remodels and expands a few existing stores and plans to open one or two new stores next year, along with taking over and remodeling a former upscale Larry's Market supermarket in Oregon in 2009. Nearly $1 billion in sales is excellent by industry standards for operating 33 (or 40 for that matter) supermarkets.

The company's 33 supermarkets are divided about in half, with 16 stores currently under the Haggen banner and 17 currently under the TOP banner and format.

The Haggen Food & Drug stores are large supermarkets with an upscale-oriented format. The stores merchandise a full selection of conventional food, grocery and non-foods products (they aren't specialty supermarkets) but put a major emphasis on natural, organic, locally-produced, specialty and ethnic food and grocery items, in-store premium, fresh prepared foods, quality fresh-baked goods, wines, cheeses and other upscale natural and premium food offerings, along with fresh meats and fresh produce, including numerous organic and locally-grown varieties.

The TOPS format is similar to the Haggen banner format stores except it puts an emphasis on discount pricing and value via offering lower everyday prices and deeper promotions, especially on conventional food and grocery items. Both formats though put a focus on natural, premium and fresh foods.

Among the recent additions to the Haggen banner stores include expanded gourmet and artisan cheese departments. The retailer is rolling out new cheese departments in some of its stores that feature about 300 varieties of cheeses, including many produced locally in the Pacific Northwest region.

"Americans are much more interested in cheese. I think it's an industry that's in a position where wine was 10 years ago," CEO Henley said in the recent Bellingham Herald Review profile piece.

Haggen also is putting a major focus on its own store brand food and grocery items, which range from value brands to its premium "Premiere" store brand. In addition to "Premiere," the grocer offers over 100 skus in its "World Classics Trading Company" store brand, which are specialty and artisan-produced food products. The grocer says it now offers about 900 items total under its various store or private label brands.

Haggen also offers the "Full Circle" proprietary brand of natural and organic food and grocery products. "Full Circle" is a control brand which is offered exclusively to only one or two supermarket chains in a given geographical market region. The brand offers natural and organic products to the retailers across all categories, even in the fresh meat category. [You can read more about Haggen's store brands here.

The Haggen Food & Drug banner stores have long been considered the "go to" market for premium and specialty foods in the parts of Washington and Oregon where the stores are located. Additionally, in recent years the family-owned chain has been gaining that same reputation for natural, organic and locally-produced food and grocery products. That's a strong achievement because Washington and Oregon are packed with retailers that not only sell but specialize in those respective categories.

Below are a few other in-store features of the Haggen banner supermarkets:

>In-store bakeries offering specialty desserts, pastries and artisan baked goods made fresh daily.
>Wine Specialists available for recommendations, case orders and special requests.
>In-store Pharmacies with licensed professionals specializing in community healthcare.
>Floral departments offering fresh cut flowers, design, delivery and FTD Service.
>Market Street Caf├ęs with dining area offering specialty wraps and panini sandwiches, authentic oriental cuisine and more.
>Just for Kids child care center offering a fun, safe and professionally staffed facility as a free service to our guests available in some stores.


Natural, organic and specialty foods suppliers and distributors have long used Haggen as their retail point-of-entry in the Pacific Northwest market for new product and item introductions since it is a retailer that for decades has been on the cutting edge in terms of introducing new items in the categories.

In the current economic downturn CEO Henley says Haggen is upping its value proposition, including in the natural-organic, specialty and fresh, prepared foods categories.

He offers some analysis in that regard in this quote from the Bellingham Herald Review profile piece:

"Our meals-to-go segment is still growing, particularly the simpler items, such as soups. But we also see some moving away from that segment and buying more of the basics, like sugar and flour to make food at home. What we think is happening is the new food-service customers are people who used to regularly eat at restaurants and are now doing that less. Then some of our regular food-service customers are moving into the basics in order to save money. Time is still an issue for many families, though, so meals-to-go is growing overall."

The Haggen banner stores in particular have somewhat of a high-price profile among Pacific Northwest consumers because of their upscale, premium and specialty-oriented focus. The company is trying to counter that perception in these down economic times, which have consumers searching for value, by increasing its value proposition, including in the natural, specialty and prepared foods categories, according to the supermarket chain's CEO.

This new focus includes offering stronger price promotions in-store and in its weekly advertising flyer, on both conventional food and grocery products and on premium, natural-organic and specialty products. It's all about adapting to the current bad times, as we say often in Natural~Specialty Foods Memo.

As we write often, regardless of format or key customer base, all food and grocery retailers, from the most discount-oriented to the most upscale and natural-organic-focused, need to create their own unique value proposition during this severe global recession, which in the case of the U.S. is shaping up to be the worse sustained economic downturn since the great depression of the 1930's. Warning: We, along with many independent economists, see the recession lasting all of 2009.

Haggen, Inc. though appears to be not only surviving in the economic downturn in its Pacific Northwest market, it also continues to thrive, albeit with a good amount of struggling like nearly all food and grocery retailers are doing, by focusing on what it does best -- doing basic food and grocery retailing with a special focus on premium, specialty, natural and fresh foods merchandising -- while adapting to the current economic climate by upping its value proposition.

Haggen also focuses on the local communities where it has its stores. And as a locally-based, family-owned company, which is among the largest employers in Western Washington and a significant one in Oregon, it touts its local impact, as well as participates in numerous community and neighborhood-based non-profit and charity programs. It's positioning -- and it walks that walk -- is as the local food and grocery retailer supporting local jobs and residents.

This local emphasis also is taking the form of an expanded effort and program by the supermarket chain to buy and merchandise more locally-produced food and beverage items in its stores -- ranging from wines and cheeses to organic and specialty food and grocery products -- and much more, including even non-foods products made by local companies and entrepreneurs.

We believe local-product buying and selling by food and grocery retailers is only going to get more popular (and stronger among local consumers) in 2009 because of the recession. The concept of buying and shopping local will grow because it's a way to encourage keeping money and tax revenue locally, creating jobs in cities and states, as well as providing increased revenues for cash-strapped local governments.

This trend fits well with Haggen, Inc's location in the Pacific Northwest. Oregon and Washington state offer a bounty of wines, specialty, natural and organic food and grocery products, many produced by small, artisan operations, that can be offered for sale and touted in the locally-based supermarket chain's stores.

It appears the family-owned grocery chain, who's matriarch Dorothy Haggen recently passed away (the chain is owned by her sons Don and Rick Haggen), has figured this out, and is moving even stronger in the "local" direction in everything it does.

Focusing locally in everything they do -- from merchandising and marketing to community involvement -- is one of the key reasons the independently-owned supermarket sector, whether its a 33-store operator like Haggen, Inc. or a single-store independent grocer, is so vibrant in the U.S. -- and will continue to be despite the strong competitive pressure from the mega-chains.

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