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, well...like 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.

Retail Memo: Holland & Barrett May Be the UK's Top Vitamin and Nutritional Supplements Retailer But Little has Been known About it... Until Now

Holland & Barrett is one of the United Kingdom's (UK) largest retail chains -- and yet relatively little is known about it. It has 1,000 stores, about as many as the nation's number two and three-largest supermarket chain's, Wal-Mart stores-owned Asda and Sainsbury's. Tesco is the number one retailer in the UK with about 1,700 stores of various formats in the country.

Unlike Asda, Sainsbury's and Tesco though, Holland & Barrett isn't a supermarket or combination food and general merchandise format chain. It does sell some foods though (health and natural foods), along with being the UK's top-seller of vitamins and nutritional supplements, which is its major product category.

Holland & Barrett (H&B), which just happens to be owned by an American company, NBTY Inc., a US-based manufacturer that distributes and retails vitamins and nutritional supplements and is listed on the New York Stock Exchange, is described by its new CEO Peter Aldis, a former Asda executive who joined H&B in October, as being "regarded as a bit beans and sandals."

U.S-based NBTY is one of the top marketers and sellers of vitamins and nutritional supplements in the world with sales of $2 billion annually. The corporation bought Holland & Barrett in 1997 from Lloyds Pharmacy.

Among the popular vitamin and nutritional supplement brands NBTY produces and distributes include: Rexall, Sundown, Solgar, met-Rx and others. It produces the Holland & Barrett store brand of vitamins and supplements for sale in the UK stores, as well as the GNC brand for the UK GNC banner stores.

NBTY also produces store brand or private label vitamins and supplements for numerous retailers and wholesalers, including Wal-Mart Stores, Inc.

Of Holland & Barrett's 1,000 stores, around 600 are branded Holland & Barrett and 31 are GNC, a chain, like the one in the U.S., which sells sports nutrition goods, vitamins and supplements. Earlier this year the retailer bought the 335-store Julian Graves chain from Baugur, the Icelandic investor, giving it the 1,000 stores in the UK.

About a quarter of Holland & Barrett's sales come from vitamins, minerals and supplements 'VMS'). A fifth come from herbal remedies, and the rest from fresh & dried fruits, nuts, seeds and snacks. Other product categories include sports nutrition supplements, coffees, teas and beverages, and natural health and body care items, along with some natural and organic packaged food items. H&B is in the processes of launching a new store brand of organic household, health and body care items called called Dr. Organics, which CEO Aldis says will debut in the stores in February, 2009.

Holland & Barrett also offers online shopping in the UK, along with publishing and distributing for free a paper catalogue for consumers to use for mail order shopping the old fashion way.

The UK Telegraph.co.uk recently profiled Holland & Barrett's new CEO, Peter Aldis. He has big plans for the giant natural products chain. Read what some of those plans are here.

Retail Memo: Raley's Attempts to Come 'Full-Circle' With New Private-Label Natural and Organic Products' Brand

Sacramento, California-based regional supermarket chain Raley's is rolling out its own quasi-store brand of organic and natural grocery, fresh foods and household cleaning products today in its 120 Raley's, Bel-Air Markets and Nob Hill Foods banner stores located in Northern California, Central California and Nevada.

The line of organic and natural products is branded under the Full Circle label, a completely new private-label brand for the family-owned supermarket chain. The Full Circle brand, which contains about 120 items to start at Raley's (there are about 500 items in the brand) with more skus coming soon, will be represented througout the store. product categories include grocery, produce, fresh meat, seafood, household cleaning products, and vitamins and dietary supplements, says Raley's spokesperson Amy Johnson.

Full Circle is what we define as a turnkey or quasi store-brand for mid-sized, regional supermarket chains such as Raley's. The brand was created and is marketed by the product developer and cooperative wholesaler Topco Associates and is designed to serve as a grocer's regionally-proprietary natural and organic products' store-brand.

Only one regional chain in a market area is licensed to sell the brand. For example, Raley's will be the only grocery chain in Northern and Central California to merchandise Full Circle products in its stores.

For all intents and purposes then it serves as a store brand in the retailer's market region. It's sort of a cross between an actual retailer-created brand and a national brand in that it is proprietary yet has some brand equity by virtue of the fact that it's sold by other chains outside the retailer's market area. In the natural and organic grocery categories its a way for a medium-sized grocery chain to acquire a multi-sku and multi-departmental store-brand without having to create one from scratch, which isn't feasible in most cases.

Other regional chain's merchandising the Full Circle natural and organic products' brand include: Arizona-based Basha's; Stater Bros. in Southern California; Giant Eagle Foods, which has stores in Ohio, West Virginia, Maryland and Pennsylvania; and Bi-Lo Supermarkets, which operates in the Carolinas, Georgia and Tenessee.

About the brand

Full Circle brand organic products are U.S. Department of Agriculture certified organic, produced using sustainable farming methods, pesticide and synthetic fertilizer-free, and grown without the use of any artificial antibiotics or growth hormones (the fresh meats and produce). Additionally, none of the organic food items come from genetically modified seeds or have been exposed to irradiation, according to Johnson.

The Full Circle natural products' items adhere to the following criteria: They are as close to a "natural" state as possible; are free of artificial ingredients, colors, preservatives and other chemicals; have minimal if any refined ingredients, and are packaged in recyclable packaging. All of the Full Circle organic items have the same product attributes as the natural products, in addition to the organic criteria listed above, Johnson added.

Further, the fresh seafood items carrying the brand are wild-caught and feature the Marine Stewardship Council logo on each package. The council is a third-party environmental group that certifies high-environmental sustainability standards for fisheries. The houshold cleaning products contain no toxins, and the vitamins and dietary supplements are free of chemical solvents or stimulants.

Raleys a pioneer in natural and organic products categories

Raley's is a pioneer in the natural and organic products' categories in the U.S. The retailer created store-within-a-store-style natural foods departments featuring natural and organic grocery products, beverages, vitamins, dietary supplements and non-foods products over 30 years ago in the 1970's. It was one of the first chains in the U.S. to make this level of commitment to the categories. In its new stores, these departments can be as big as 10,000 square feet. The Full Circle brand items will be integrated throughout the stores however, rather than placed in the natural foods departments, with some exceptions.

The Sacramento-based grocer also was one of the first chains in the U.S. to sell organic produce and to have all of its fresh produce certified as having "no detectable" levels of pesticide residue by a third-party private lab. The retailer continues third-party testing this policy today and has expanded it from a portion of its produce items to all those it sells.

Raley's, which does about $3 billion a year in gross sales in its 120 stores, has an extensive store brand program across all store departments which includes a value line, a mid-range line, a premium line and an artisan, specialty foods brand called Nob Hill Foods, which also is one of its four store banners.

[Raley's four retail store banners are: Raley's, 60,000 -to- 80,000 square foot superstores with an upscale flair; Bel-Air, 30,000 -to- 55,000 square foot supermarkets with slightly more upscale positioning than the Raley's banner; Nob Hill Foods,which vary in size from about 30,000 square feet (older stores and those in smaller communities) to about 65,000 square feet (newer stores), and with the exception of a few older stores are the grocer's premium, upscale store format; and Food Source, which is a price-impact warehouse store format.]

Three of the four banners--Raley's, Bel-Air Markets and Nob Hill Foods--all feature extensive selections of natural, organic, specialty, ethnic and gourmet grocery and fresh foods products, along with non-foods items in all five categories.

All three formats are positioned as primary grocery shopping venues but with "More"--which are the upscale elements and product selections listed above. Even its Food Source warehouse stores carry far more natural and organic products than the typical warehouse format stores do. The grocery chain's positioning statement is: Celebrate Food. Celebrate Life. Many observers refer to Raley's as the "West-Coast version of Wegmans," the innovative and popular upscale supermarket chain based in the eastern U.S. Of course, in Northern California they call Wegmans the "East- Coast version of Raley's."

Even though Raley's is a national pioneer in natural, organic and specialty products sales, and has long had an extensive range of store brands, it has come rather late to the game (especially for its positioning) to the merchandising of "its own" natural and organic products brand--Full Circle. Even though not quite all its own in terms of the brand's creation, its pretty close. (Perhaps Full Circle is a metaphor of sorts for Raley's, as well as a brand, in that the chain is coming back full circle to its roots as a natural products' category retail leader of sorts?)

For example, Safeway Stores, a major competitor in Northern and Central California created its popular O' Organics brand of grocery products over a year ago. The line now has over 300 items in it and had first-year sales (2007 was its first full year) of $300 million dollars. Of course, those sales represent the brand's presence in over 1,700 Safeway-owned stores in the U.S., a luxury Raley's doesn't have with 120 stores.

Raley's has historically been far ahead of Safeway--and has generally been the Northern California supermarket leader--in the natural and organic products' category. So the fact the grocer is just coming out with its own brand of natural and organic products now has been a suprise to many industry observers and competitors. Of course, with Safeway's major push into its Lifestyle format its become a category leader in its own right in the last five years.

Raley's coming 'full-circle' with new Full Circle brand

However, the Full Circle brand is here, and Raley's store associates began stocking the shelves and perishables cases with the products in its 120 stores today. The grocer's marketing philosophy behind the merchandising of the brand is that it believes it can use it to further leverage its positioning in the healthy and premium foods segments, compete with rivals like Whole Foods Market, Inc., Safeway and others who are big in the natural and organic products' categories, and add significant store sales due to the fact that the organic category has been growing at over 20% annually for the last five years, and will continue to do so for a number of more years to come.

Store or private-label organic products' brands also generally bring retailers higher gross margins than manufacturer brands due to the following facts: the cost of goods is lower, there is no middle man (a third party distributor who takes a cut), and marketing costs are lower because the retailer can use its existing media and in-store merchandising vehicles to promote the organic brand.

Store-brand organic and natural products' mega-trend

As we've written about here often, there's a mega-trend among national and regional food retailers to create and market store or private-label organic products' brands. In addition to Safeway Stores, Inc.'s O' Organics brand, which the chain is growing far-beyond its current 300 items, Kroger Co. also has an extensive organic grocery products' store branded line, in addition to a growing private-label natural products' brand. Costco Wholesale also is a major player in store brand organic and natural products with its Kirkland brand. Costco even does co-branding with major organic foods manufacturing companies.

Smaller regional chains like Publix and Wegmans also have private-label organic products' brands and are in the process of growing the number and variety of skus they offer under their respective brands. Other food retailers like Trader Joe's and Tesco's new Fresh & Easy Neighborhood Market stores are selling nearly all of the natural and organic grocery products in their stores under their own brands, offering only a limited selection of manufacturer branded items and lines.

For Raley's, the Full Circle brand should help boost the grocer closer to the top-tier of natural and organic products' category retail leaders in its market. The competion in Northern California and Nevada today is much stronger in the categories at retail than it was just ten years ago however.

For example, Whole Foods Market has 25 stores in Northern California and plans to build at least another 20 in the next four years. Additionally, Safeway is becoming a major organics category leader as it continues to develop its Lifestyle format stores in the region, adding more and more O' Organics items across all store categories.

Further, Fresh & Easy Neighborhood Market is coming to the region with 18 stores in late 2008 and 2009. Trader Joe's continues to built new stores throughout Northern California as well. Costco continues to expand its private-label natural and organic products' selection in its local stores as well. Even Long's Drugs, a Northern California-based national drug store chain created an organic and natural products' grocery brand called Walnut Acres last year which it is selling in all of its stores in the region at discount prices.

On top of all this competition there's a myriad of multi and single store independent supermarkets and progressive natural foods stores in the region which offer extensive selections of organic products, some even having their own private labels, or buying a control natural and organic brand from their wholesalers, which is a scheme similar to what Raley's is doing with the Full Circle brand.

Raley's is playing catch-up ball with chains like Whole Foods, Safeway and others in Northern California when it comes to having its own (or quasi-own) organic products brand. However, the grocer also has a strong core of natural and organic products' customers--and as we mentioned earlier has been selling manufacturer branded organic foods and grocery products since the 1970's, long before most other supermarket chains were doing so. As such, while it is a catch-up game to be sure, the Full-Circle line should be a net positive for Raley's, especially in light of its positioning as a leader in specialty and natural foods and upscale merchandising.

There's nothing wrong with a grocery chain trying to come "full-circle," especially when they're on trend.