Saturday, January 31, 2009

Store Brands - Private Label Memo: Smart & Final-Owned Henry's Farmers Market Preparing to Debut New Natural & Organic 'Sun Harvest' Store Brand

Breaking News & Analysis: Retail Store Brand Development

Los Angeles, California-based food and grocery retailing chain Smart & Final LLC, which acquired the Henry's Farmers Market and Sun Harvest natural grocery chain (38 stores; 30 Henry's Farmers Market and Henry's Marketplace stores in Southern California; 8 Sun Harvest natural markets in Texas) from Whole Foods Market, Inc. in the summer of 2007, shortly after the Whole Foods-Wild Oats merger, is preparing to rollout a new natural and organic products store brand, multi-category line under the "Sun Harvest Natural" and "Sun Harvest Organic" labels.

The new "Sun Harvest" store brand will replace the retailer's existing "Henry's" and "Wild Oats" store brands, which it has been merchandising since acquiring the Henry's Farmers Market chain from Whole Foods in 2007. Henry's and Sun Harvest were two natural foods retail banners operated by Wild Oats Market, Inc., in addition to its flagship Wild Oats store banner.

Some products in a couple store categories, such as fresh meat, bulk foods and perhaps one or two others, will remain under the Henry's store brand. But the Henry's and Wild Oats' store brand items in all other categories will be changed to the new Sun Harvest store brand. New items also will be developed under the Sun Harvest store brand.

Their will be two "Sun Harvest" store brand labels -- "Sun Harvest Natural," for natural products items, and "Sun Harvest Organic," for organic products.

The two "Sun Harvest" brand labels -- natural and organic -- have two different looks but work cohesively with each other, suppliers who've seen the labels tell Natural~Specialty Foods Memo (NSFM).

The "Sun Harvest Natural" label is brown with warm tones and the "Sun Harvest Organic" label is green, which has become sort of a universal color for all things organic. Additionally, there are slight differences as to how the graphic image of a given product is depicted on the "natural" and "organic" item labels. For example, a label for "Sun Harvest Natural" cooked beans features cooked beans in a bowl on it. In contrast, the label for a similar "Sun Harvest Organic" item depicts the beans not in a bowl (a serving suggestion), but rather shows the beans out of a bowl in their pure form, without a serving suggestion.

Additionally, some of the "Sun Harvest" store brand natural and organic labels in certain categories such as ice cream have more of a whimsical-looking label to them and are designed to look less serious and more fun. The goal behind this design thinking is to put a smile on the face of shoppers when they see the items in-store -- to make natural and organic fun in a sense, as well as to sell product.

Smart & Final's plans for the new "Sun Harvest" private label store brand were announced to a select group of the retailer's suppliers, called the "Smart Alliance," at a company seminar in November, 2008. At one breakout session during the seminar, Smart & Final's director of corporate branding, Todd Fryer, gave a presentation on the new store brand line, along with presenting new labels for the retailer's conventional grocery "First Street" store brand, which it merchandises in its 282 non-membership warehouse-type stores and its new Smart & Final Extra format stores.

During that session Fryer also introduced the retailer's then new director of natural and organic products, Michelle Weisberg, who he said is in charge of converting over 500 food, grocery, perishable, vitamin-supplement and non-foods "Henry's" and "Wild Oats" brands across all store product categories into the new "Sun Harvest" store brand, along with creating and developing new store branded items category-wide.

Suppliers working with Ms. Weisberg, who is an industry veteran in creating natural, organic and specialty private label products for retail chains and is known for her product development innovation and creativity, tell Natural~Specialty Foods Memo (NSFM) she is developing what will be some extremely value-priced natural and organic items under the Sun Harvest brand, as well as developing some extremely creative specialty and premium-oriented natural and organic food, grocery and non-foods products under the new private label brand.

Smart & Final plans to begin phasing the new "Sun Harvest" store brand natural and organic products into the stores soon, replacing the "Henry's" and "Wild Oats" branded products gradually throughout this year. The existing store brands will be replaced with the new "Sun Harvest" items in a gradual manner, as those products sell down and new "Sun Harvest" store brand products are developed.

It's a huge project, which includes about 500 skus throughout most product categories in the Henry's Farmers Market , Henry's Marketplace and Sun Harvest banner stores, ranging from dry grocery, perishable (dairy-deli) frozen, bakery (such as breads), to vitamins-supplements, body care, and non-foods. The majority of the new store brand skus will be in the consumables categories.

Sun Harvest brand and multi retail-format synergies

Smart & Final's Todd Fryer also said at the fall, 2008 seminar for select Smart & Final partners that the retailer plans to merchandise some of the "Sun Harvest" store brand natural and organic products in its 282 Smart & Final non-membership warehouse stores and its new "Extra" format stores, as appropriate. Doing this not only leverages the Sun Harvest brand across many more than the 38 Henry's and Sun Harvest banner stores, it offers the added benefit of allowing Smart & Final to obtain a lower cost of goods from its private label suppliers because the added Smart & Final and "Extra" banner stores allow for considerably more sales volume for the new natural and organic products' store brand line.

Smart & Final also is putting a particular emphasis on making sure the new Sun Harvest natural and organic store brand food and grocery items are competitively priced, particularly in price-sensitive categories like bottled juices, basic grocery items and others. Doing this is even more important because of the current recession, and it appears to us Smart & Final-Henry's is well aware of that, based on conversations we've had with supplier representatives who are working on the development of the new store brand with the retailer, along with our own research, analysis and reporting on the new store brand development.

Smart & 'Naturally' (and organic) serious

As we've previously reported on and written about, Smart & Final LLC has taken its entry into the natural and organic grocery retailing sector very seriously since its 2007 purchase of the Henry's Farmers Market chain from Whole Foods Market, Inc. The company operates the chain independently, using the existing Henry's corporate office in Southern California it acquired as part of the purchase of the chain. But the retailer also has and is integrating aspects of the natural grocery chain's buying, merchandising and operations with its Smart & Final corporate operations where it makes sense, and where it offers synergies, like in certain aspects of the new "Sun Harvest" store brand development program.

Since acquiring Henry's Farmers Market from Whole Foods, Smart & Final has cleaned up most of the Henry's and Sun Harvest banner stores, which were looking rather poor under Wild Oats' ownership, has significantly improved the quality and pricing in the fresh produce and fresh meat categories and departments, improved everyday prices across all categories (lower and better than before) and increased the chain's promotional activity. For example, among numerous other promotions, Henry's is currently running a 25% off full line item sale on all of the vitamins and nutritional supplements it sells in its stores, along with featuring a host of Super Bowl Sunday-related natural-organic food and drink items in its advertising flyer and in-store at special sale prices.

Smart & Final-Henry's Farmers Market also recently replaced one of the existing Henry's banner stores in the city of Santee in Southern California with a brand new natural and organic foods market, which is just down the street from the older store which it closed, and soon will open three new Henry's banner stores in Southern California, one in Carlsbad (near San Diego ) in late April, another in Monrovia, also set to open in late April, and a third in Woodland Hills, which is scheduled to open in early May. [Read our November 6, 2008 piece here: Retail Memo: Henry's Farmers Market to Open New Store in Santee, CA On November 12; More New Store's and Remodels On the Way.] [We also suggest reading this June 2, 2008 related story we wrote and published in the Blog: "Retail Memo: Analysis: Free of Wild Oats Markets, Inc.'s Ownership, Henry's Farmers Markets Seems to Be Starting to Get its Groove On."]

Based on our observation and analysis, sales seems to have improved across the board at all the Henry's and Sun Harvest stores since Smart & Final acquired the small chain from Whole Foods in 2007. Whole Foods essentially sold the stores to Smart & Final right after the Wild oats merger. Therefore other than care taking for the Henry's and Sun Harvest stores for a short time, Whole Foods Market didn't really operate them in any significant way and therefore isn't responsible for the shoddy look of many of the stores when they were sold to Smart & Final.

On the road to becoming major regional, multi-format player

In addition to taking a serious and well-focused to date operations and development approach with the Henry's-Sun Harvest chain, Smart & Final is moving strongly into a more overall consumer-focused food and grocery retailing approach with the development and growth of its Smart & Final Extra format stores. [See our story on Smart & Final's "Extra" format from yesterday at this link: Retail Memo: Los Angeles, CA-Based Smart & Final to Significantly Grow its New 'Extra' Food and Grocery Retailing Format This Year in the Western U.S.

Historically, Smart & Final has put more of a retailing focus on the institutional customer -- small grocery store, convenience store and restaurant buyers, for example, than on individual customers -- with its non-membership flagship stores. The stores sell to the public as well as institutions. But because of the focus on large and multi-pack items tend to cater more to the institutional customer more than to individual shoppers. All of the Smart & Final's stores are in the Western U.S. and Mexico.

In recent years Smart & Final has added more single-pack items in those non-membership warehouse-style stores. And because they are non-membership, unlike Costco or Sam's Club which require shoppers to pay an annual membership fee, the stores also make it easier for non-institutional consumers to shop them, which many individual customers do. The non-membership Smart & Final stores began as sort of a cash & carry operation for institutional customers primarily. They've evolved though over the years to targeting both institutional and individual consumers.

With the opening of its first Smart & Final "Extra" banner and format store in August, 2008, the retailer signaled it was going after individual shoppers in a big way with the about 35,000 square foot hybrid supermarket-warehouse format stores.

Smart & Final plans to use numerous skus from the new Sun Harvest natural and organic store brand line, which will include at least 500 skus, in its "Extra" format food and grocery stores. For example, at the November, 2008 seminar, the retailer said it plans to merchandise numerous Sun Harvest store brand items in its "Extra" stores, one of the first of which will be Sun Harvest Natural California Style Pizza, which is a frozen, all natural upscale style pizza in various varieties. Think California Pizza Kitchen brand or Wolfgang Puck brand pizzas.

Doing this -- merchandising numerous skus of the "Sun Harvest" store brand natural and organic products in the "Extra" stores, which sell fresh, perishable and shelf-stable food and grocery products -- will allow Smart & Final to further the hybrid (in a natural and organic direction) nature of the stores, growing the specialty and natural merchandising and product offerings in the "Extra" stores, while still maintaining the format's conventional grocery and fresh foods focus.

Timing good for new Sun Harvest store brand

We think the timing for Smart & Final-Henry's Farmers Market of its new "Sun Harvest" natural and organic store brand is good because consumers are shifting to store brands across all categories in order to save money in the current recession. This is equally, and probably even more true among natural and organic food and grocery shoppers, who are being forced to trade-down in whatever ways they can in order to still be able to afford natural and organic food and grocery items over conventional products. Many are trading-down from natural-organic to conventional in fact because they must. Value-priced store brands help such shoppers to continue to buy natural and organic.

We also think integrating the majority of the "Henry's" and all of the "Wild Oats" store brands into a single new store brand -- "Sun Harvest" -- is a good idea because not only does it allow for a clearer shopper focus on a single store brand, but using the Sun Harvest name, say rather than keeping the "Henry's" brand, allows for better brand marketing at the Smart & Final banner stores, since it's less associated with a store name -- Henry's Farmers Market -- than the brand "Sun Harvest" is. Shoppers might look with a crooked eyebrow at a brand called "Henry's" throughout those stores. But brand "Sun Harvest" fits right in.

Additionally, "Sun Harvest" is a far more universally-oriented brand name than "Henry's" is. It's also much more tuned-into natural and organic products in the minds' of consumers we believe. "Sun" and "Harvest," sound fresh, natural, organic. "Henry's" on the other hand being a proper name just sounds, a proper name. The brand name "Sun Harvest" therefore resonates much better in consumers minds with "natural and organic" than does the brand name Henry's does, in our analysis.

And of course the "Wild Oats" store brand is merely a relic of past ownership, a name Smart & Final has to get rid of anyway as part of its purchase agreement with Whole Foods Market, Inc.

Rolling on out

The first new "Sun Harvest" natural and organic store brand items should start hitting the Henry's stores in Southern California and the Sun Harvest natural markets in Texas soon in a gradual rollout basis

Then later, selected "Sun Harvest" store brand items, such as the Natural California Style Pizza to start, will begin appearing in the Smart & Final "Extra" stores. Selected "Sun Harvest" store brand items, such as natural and organic apple juice and some others, also will be selectively introduced in a more limited manner into the 282 (and growing) Smart & Final non-membership warehouse stores later this year.


Anonymous said...

I was at the presentation and thought the Sun Harvest private label product labels looked good. Not sure if they should do completely away with the Henry's brand though. Think it has some equity. Do think Henry's needs to sharpen its overall pricing a bit, particualrly on popular natural and organic brands. A little too high for the current economic times.

Josh said...

You were dead on about the Sun harvest brand. Recently saw lots of items under the brand in a Henry's store. They look great. Nice scoop.

Anonymous said...

I wish these stores stocked more raw foods and raw nut and seed butters.