Retail Memo - Foodservice: First 100% Certified Organic Bar in the U.S. (Maybe the World) Opens Just in Time For The Holidays

Inside (above) New York City's GustOrganic 100% certified organic bar. [Photo credit: Keetsa.]

From the Natural~Specialty Foods Memo Editor's Desk: The first certified organic bar in the United States (and perhaps the world) has opened in New York City's Greenwich Village just in time for the rapidly approaching Christmas and New Years holidays.

The bar, GustOrganic, is located inside the popular New York City organic restaurant of the same name.

Now with both a certified organic restaurant and bar in the same building, dedicated organic food eaters and beverage drinkers won't have to step outside of their organic lifestyles at GustOrganic in order to have a before, during and after dinner cocktail with their 100% organic meals.

The 100% certified organic bar also will likely be the destination for pure organic lifestyle folks this New Year's Eve. Now they can get an all-organic New Years Eve buzz on without having to ingest pesticides and other chemicals used in the grains that makes the various spirits which are used to make their favorite holiday cocktails. We suspect there will be organic champagne available on New Years Eve to toast in 2009 as well.

Writer Brain Merchant attended the opening night of GustOrganic, which for sure is the first 100%certified organic bar in America and just might be the first of its kind in the world. He published a report on the organic bar recently in the online environmental publication Treehugger.com. We bring you his piece below:

World’s First 100 % USDA Certified Organic Bar Celebrates Opening Night
by Brian Merchant, Brooklyn, New York
Treehugger.com

GustOrganic, an all-organic restaurant in New York is now also home to the world’s first all-organic bar. Using entirely organic spirits—beers, cocktails, wine, and liquor, GustOrganic is the first bar to be certified organic by the USDA. I was on hand for the celebratory opening night to find out what 100 percent organic martinis, mojitos, and margaritas taste like—and eventually, to investigate the first 100 percent organic hangover.

Since GustOrganic is a restaurant by day, it was pretty impressive how suitable the atmosphere was for an eco-chic bar. Dim lighting, stark décor, and an expansive layout made the whole place seem more like a SoHo nightclub than a Greenwich Village organic restaurant. And it all helped bring the focus towards the newly christened, pleasantly crowded bar.

Introducing the All-Organic Bar

The bar is stocked with certified organic rum, vodka, whiskey, tequila, organic wine, Peak Organic beers, and plenty of fresh fruit for the creation of all-organic cocktails. This means, according to GustOrganic, “All the drinks are free of chemicals, artificial substances, hormones and pesticides.” In addition to the environmental benefits, this theoretically means headaches should be easier in the morning, too (more on that later).

I tried golden standards like the martini and the mojito, both of which more than passed muster—the mojito was perhaps the freshest I’ve ever had. But the real stars were the creative cocktails made with fresh fruit: the Fresquito, made with mangos, orange juice and vodka, and the strawberry filled Rojito were standouts. They all made for quite a (blurrily) memorable night. As for the morning—well, let’s just say ‘organic drinks’ does not equal ‘hangover-proof.’ But it certainly could mean fewer headaches for someone who isn’t bent on trying every drink on the menu. Perhaps a follow up is in order.

GustOrganic Lives Up to Its Name

As a restaurant, GustOrganic already boasts a strong dedication to organics and sustainability. Owner Alberto Gonzalez has covered as many eco-friendly bases as he can, with gusto: there’s a wind turbine on the roof, the menus are made from 100 percent recycled paper and printed with soy ink, and every single ingredient he uses is certified organic. Just to name a few.

Gonzalez plans on keeping the bar open late every Saturday night to serve up his impressive organic cocktails, but it’s open during normal restaurant hours too. If you’re in New York, it’s well worth a visit to the world’s first organic bar.

Supply-Side Memo: Food Industry Giant Campbell's is Making a Big 'Locally-Grown' Push as Part of a Tomato Processing Plant Expansion in California

Natural~Specialty Foods Memo learned at the recently concluded FMI (Food Marketing Institute) annual convention in Las Vegas, Nevada, that food industry giant Campbell Co., marketers of both conventional and organic food brands like Campbell's Soup, Prego pasta sauce (both conventional and organic), V-8 vegetable juice and V-8 juice drinks (conventional and organic), Pace Salsa (also conventional and organic) and numerous other brands, plans to increase its use of locally-grown California produce as part of a $23 million expansion and upgrading to its tomato processing plant in Dixon, California USA, near Sacramento.

The company's Dixon, California tomato processing plant is located in an agricultural and tomato processing-rich valley about 15 miles from Sacramento and about 50 miles from the San Francisco Bay Area.

The plant processes tomatoes and vegetables for Campbell's flagship soups, its sauces, salsa varieties and V-8 vegetable juice, V-8 V-Fusion and V-8 Splash vegetable drinks.

The $23 million expansion and remodeling of the plant will increase its size, add new, state of the art equipment, and boost overall plant production by about 15%.

The Dixon plant in Solano County in California's Sacramento Valley agricultural region is Campbell's largest tomato processing plant in the U.S. The plant was built in 1975, according to the company, and currently employees close to 200 people.

Campbell's has become an increasingly bigger player in the organic foods sector, with introductions of its organic versions of its Campbell's tomato juice, V-8 vegetable juice, Prego pasta sauce and Pace salsa, along with a few other brands and products.

As part of the plant's expansion, Campbell's Anthony Sanzio says the company will be buying more organic vegetables to process at the facility for these organic food and beverage product brands and lines.

Campbell's has plans to line-extend its current organic product offerings and to create new products, according to Sanzio.

The locally-grown angle

Because the Dixon plant is located in a tomato and vegetable-growing region, as well as being very close to the heartland of California agriculture in the San Joaquin Valley, along with near the central coastal region where numerous vegetables also are grown, Campbell's sees an opportunity to add the "local" angle in a big way to both the conventional and organic produce it buys to process at the facility for its soup, juice, beverage, pasta sauce and salsa brands and products.

The food company correctly sees numerous similarities between the organic foods and local foods consumer, and wants to play that fact up at least in California by increasing the capacity of the Dixon plant so that it can process, and thus allow Campbell's to buy, more locally-grown conventional and organic produce. IT also says it wants to further support local farmers.

As part of its plant expansion plan and locally-grown foods procurement emphasis, Campbell's Sazio says the company will increase agricultural production with farmers it contracts with in Solano County, as well as in neighboring Yolo and Sacramento counties, along with those in nearby Colusa, San Joaquin, Contra Costa, Sutter and Monterey counties.

This expansion of vegetable production includes organic as well as conventionally-grown produce.

Local agricultural industry officials and observers say the Campbell's Dixon plant expansion will be good for both local conventional and organic farmers.

For example, even though Solano County has urbanized considerably over the last two decades, agriculture, including tomato growing and processing, remains a significant industry in the area. Last year's tomato crop value in the county for example was about $23 million. Other double digit (in millions) crops in the county include walnuts and almonds and alfalfa, along with a few others. Numerous other fruit and vegetable crops are grown throughout the region as well, including an increasing amount and variety of organic crops.

Michael Amman, who heads up the Solano County Economic Development Corp., a nonprofit entity, says Campbell's Dixon plant expansion will be a big boost for local agricultural, locally-grown foods and local farmers, many of whom are smaller family farmers.

He says a major benefit will be that the local farmers will be able to get longer-term contracts with Campbell's because of the plant's increased capacity and emphasis on organic and locally-produced produce. In other words, Campbell's will put its emphasis on vegetables grown by local farmers even if they can buy produce for less money from farther away. As a result, the food company will need to sign longer contracts with the local farmers so it can ensure enough supply of the local produce to meet its needs. This is particularly true in the case of organic produce.

Campbell's says it may flag (on the labels) some of its conventional and organic food products produced at the Dixon plant with all locally-grown produce as "local" or "Made with California Produce," or something similar. However, the food giant isn't sure of that since what's local in California isn't local in Chicago or New York. In order to flag the products as local on the labels, the plant would have to produce certain runs just for California, after all.

However, Campbell's marketing and sales teams will be able to conduct "local foods" promotions with supermarkets in the region, including the Bay Area, with those products produced at the Dixon plant. (Shelf talkers identifying the "locally-grown" aspect of the products would be a simple and cheap way to promote the local angle of the products in-store.)

The important local foods aspect of Campbell's Dixon, California plant expansion and emphasis on using produce produced by local farmers though is the huge boost it could give to the region specifically and to local foods procurement in general. After all, many food processing plants, even in California, truck-in produce from a long way away rather than use that produced locally because they can obtain it for a cheaper cost.

As we've suggested numerous times on Natural~Specialty Foods Memo, we see the "local foods" movement growing in size and popularity to equal that of the organic foods movement.

Local is a bit harder to define than organic? Is it the strict locavore definition of food from no farther than 100 miles from where a person lives.? If so, why not 200 miles? That's still local to many, and it makes a bit difference in terms of increasing the variety and amount of "local foods." "Local" does have some wiggle room, in other words.

But, when it comes to locally-produced, most of us basically know it when we see it. If you live in Los Angeles, even though the city is about 400 miles from Sacramento, produce or food products bought in LA and produced completely in Sacramento are pretty "local," even though it doesn't meet the 100-mile locavore definition.

In the case of produce used for processing like at the Campbell's plant in Dixon, the important fact is that local farmers, ranging from those just down the street from the facility, to others as far as 150 -to- 200 miles away (Monterey County), are providing the vegetables.

This practice will be using locally-produced crops, which supports local communities, and offers those consumers who live nearby an opportunity to buy packaged food and beverage products at the supermarket which in turn will benefit their local economies if they do so.

Doing so, in a widespread way, is essentially a major aspect of the local foods' movement philosophy, it just pertains to processed food products rather than fresh ones. We think Campbell's is on to something in Dixon.

Wednesday Marketing Memo: Organic Foods

Analysis: New study suggests organic food and beverage products moving into the mainstream in U.S.

For the past three months we've been discussing our analysis here that the organic foods market is in the process of moving from what has been a small niche to the beginnings of widespread, mainstream status in the U.S.

By this, we aren't suggesting organic foods will replace conventional products anytime soon and become the norm for the majority of consumers. Rather, what we mean is we see a clear trend in the organic category from what has thus far been a specialty niche, purchased by a few select groups of consumers, to what is becoming a category sampled and purchased regularly by a wider sector of U.S. shoppers, and offered more and more for sale by mainstream food and other format retailers.

A new study by market research firm Mintel suggests we've been on the right track in our analysis. The just-released Mintel study reports that organic food sales have grown a whopping 132% since 2002. In this same five year period the study says organic beverage sales have grown nearly as much, at 92%. Combined, the organic food and beverage categories today make up a nearly $6 billion a year market in the U.S., according to Mintel.

The organic food and beverage growth trend is clear according to the study. Over half (52%) of American consumers purchased organic foods in the past year, while over a quarter (26%) bought organic beverages. This is a significant increase (and hence the clear trend) over 2002, when just 34% of U.S. consumers purchased organic foods, according to a 2002 Mintel study. Of even greater significance in terms of a clear trend line--and the movement towards mainstream status as we've defined it above--is that 32% of U.S. adults reported they purchase organic foods on a regular basis or as often as possible. That leaves plenty who haven't yet done so, but the growth is very significant.

As we suggested above, organic food and beverage products are being sold by more and more food retailers and even by other retail format operators, including mass merchandisers, drug stores and others. This is do to three primary reasons. First, is the growing demand by consumers for organic products. Second, food and other format retailers have found selling organic products can be good for profits as they have much higher gross margins than conventional grocery items, for example. Lastly, combined with both factors above, food and beverage manufacturers are developing and introducing organic products at the most rapid pace in the history of the category.

For example, the Mintel study says 2006 saw nearly 1,600 new organic food and beverage products launched in the U.S. In contrast, less than half that many (722) were launched in 2002. Additionally, food retailers (Whole Foods, Safeway, Kroger, Publix, Wegmans and many others) have launched multi-item private label organic foods lines and continue to add items to these lines at a rapid rate.

As the organic food and beverage market begins to mature, as it is, the rate of growth will decrease. This is logical, and the Mintel projections for the next five years bare out that fact. Mintel says the organic category will have strong, consistent growth over the next five years. The market researcher estimates organic foods sales to grow by 59%, while the organic beverage market will grow by about 65%, between now and 2012. That's huge growth despite the leveling-off from the current growth rate numbers mentioned above.

"This (the organic market) isn't a niche market full of environmental health nuts and affluent hippies anymore," says Marcia Mogelonsky, a senior research analyst at Mintel. "Organic is now part of the picture for everyone from the Hispanic immigrant mother to the hip suburban teen next door. With health issues and food contamination issues in the news, many people have begun looking for more safer, more natural food and drink," Mogelonsky says in explaining the growing "mainstreaming" of organics.

As we've mentioned often here, price remains a major barrier to even faster adoption or "mainstreaming" of the organics category we believe. The overall retails still remain too high for many people to purchase organics on a regular basis. And often these "too high" retails act as a barrier to entry for consumers who want to try organics but are scared off by the price premium over conventional food and beverage items.

This pricing factor is changing a bit--but not enough we believe. With retailers like Wal-Mart, Target, Costco, Safeway, Kroger and others getting into organics merchandising in a big way, overall retail prices have been driven-down a bit. The market is working in this regard. However, these retailers, along with Whole Foods and others, are still using organics as "margin enhancers" all to often. This isn't wrong. We just believe they should lower the retails a little bit and obtain just slightly less margin enhancement.

Gross margins of 45-60% aren't unheard of by retailers such as Safeway and Whole foods on organic grocery products. Supermarkets like Safeway make less than half that amount in terms of the gross margins on conventional grocery items. We suggest some margin reduction is in order. A 10% retail margin reduction in the category would go a long way towards making organic food and beverage prices more competitive with conventional goods. This, we believe, would speed the adoption of organics by even more customers--leading to a larger market, which is good for all. And even with a 10% margin reduction, retailers like Safeway, Kroger and others would still be doing very well indeed in the category.

We also argue there remain lots of inefficiencies in the organic foods supply chain. Manufacturers can decrease their cost of goods and production expenses by adopting some of the practices of larger consumer packaged goods companies. There's also savings out there in transportation and warehousing. And much can be done to improve marketing--and thus increase sales volume.

Additionally, most food retailers--large and small--still obtain most of their organic food, grocery and beverage products from third-party distributors. While this practice can actually save money in some cases, it generally doesn't as it's practiced today. For example, many large supermarket chains are on "full service" programs with natural foods distributors. In other words the distributor handles all aspects of the process--from ordering to stocking the products on store shelves.

This semi "hands off" approach by retailers leads to margin creep. Many distributors work on 25-35% gross margins on these full-service programs. They need to in order to make any money. Often the retailer doesn't even know what the distributor's overall margin in the category is. The extra distributor margin goes into the retail price of the organic goods since the retailer isn't about to take it from its margin. This practice, along with other distributor inefficiencies like logistics, buying practices, poor marketing and more, contributes to higher than needed retails on organic food and beverage products.

We believe there's easily another 5-10% margin savings between increasing organic foods' manufacturer efficiencies and improving and streamlining the third-party distribution system. In fact, Safeway, for example, now distributes the majority of the organic grocery products it sells in its stores directly, through its natural and specialty foods buying and distributing division. The retailer only uses a third-party distributor for slower moving items. The problem, however, from a consumer pricing (and category mainstreaming) standpoint is that Safeway hasn't put much if any of this savings into lower organic category retails. Rather, it's gone to margin. The grocer is offering some significantly lower retails on its private label brand O' Organics however, which is Safeway's line of organic, premium quality grocery items.

Perhaps this is where the organic food and beverage market is going? Large, mass market food retailers like Safeway, Kroger, Wal-Mart, Costco and others will continue to lower the retails on their private label organic brands, while holding the line retail pricing-wise on the national and regional branded organic items produced by manufacturing companies. This would allow the retailers to maintain their margins on the private label (with a slight reduction perhaps) while also keeping the higher margins on the manufacturer brands. Private label brands generally have lower costs of goods for these retailers, so they can continue to reduce the retails, while at the same time getting better deals from their vendors, and still ring-up high gross margins on the products.

Mintel's study agrees with our analysis that organic food and beverage product retails remain too high overall. Two thirds of the respondents reported they would buy more organic items if the products cost less. These consumers said current retail prices tend to turn them off on the organic category. This data, according to Mintel, tends to support our argument above that there could very well be a move by consumers to more store label organic products since it seems the trend is for these retailers to offer the brands at lower retail prices than manufacturer branded organic food and beverage items.

A key decision within the industry will be how fast the various players want to see organics become more mainstream. We believe pricing is key to the rapidity of this phenomenon, despite the significant growth projected by Mintel (59% organic foods, 65% organic beverages) for the next five years.

It's clear to us that in the main retailers are now taking charge of the category with there successful and expanding private label organics lines. As such, they'll be the primary players in this growth and mainstreaming process. That's not to say organic food and beverage manufacturers and distributors don't still have a significant role to play--they do. However, like they are in the conventional grocery products category, food retailers are rapidly becoming the key players (along with consumers) in the organic category.

And of course, lets not forget Whole Foods Market, Inc. With the supernatural grocer's acquisition of Wild Oats and its aggressive new store building program, Whole Foods remains in perhaps the number one position in the industry in terms of influencing the speed of organic category mainstreaming by its retail pricing policies.

Does Whole Foods want more consumers to be primary shoppers at its stores? The answer is yes. That's where the new growth comes from. Perhaps lowering its retails on organic food and grocery products say by 10% across all categories would convert numerous secondary shoppers to primary shoppers and lower the price barrier to entry for consumers wanting to try Whole Foods but being put off by the reality or perception that its prices are just too high?