Healthy, Wealthy and Wise

Retailers, suppliers cast a wider net to cash in on healthful foods.

By  Samantha Oller, Senior Editor/Special Projects Coordinator

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Joe Hamza and the rest of the team from Tedeschi Food Shops were recently at a natural-foods trade show, scoping out new better-for-you products. As they walked the aisles, introducing themselves, they heard a common refrain:

“Wait, you’re a c-store? We don’t see c-stores here.”

“That’s disheartening and speaks volumes to how much work we need to do to develop this,” says Hamza, vice president of sales and marketing for the Rockland, Mass., chain of 190 stores.

Tedeschi is among a growing number of retail brands trying to expand its healthful-food portfolio. Pressure from the White House and first lady Michelle Obama’s fight to end food deserts has brought some momentum to the conversation. (See sidebar on p. 108 and the CSP June 2011 cover story for more on the food-desert crisis.)

But the real impetus is a little simpler: expanding a store’s customer base beyond the stereotypes of Bubba. For this reason, it’s the retailer who’s actually driving demand for a healthier portfolio, not consumers, nor suppliers. Meanwhile, the consumer is changing the way he or she defines “healthful” food, widening the net to include characteristics beyond low fat or reduced sodium. Appealing to the healthy set is not without a heavy learning curve for retailers, distributors, manufacturers and even customers, who are still unaccustomed to going to a c-store for a healthful snack or meal.

It may be a steep grade, but the consensus seems to say it’s a worthy hill to scale.

“We’re actually seeing Mrs. Bubba now,” says Hamza. “Not to say that only women want to eat healthier, but if they didn’t have any reason before to shop us, now they at least have one, and that’s the beauty of what we’re doing.”

Defining the Demand

Part of why the scales are tipping toward more healthy consumption can be attributed to a growing definition of just what healthy is.

Research consultancy The NPD Group, Port Washington, N.Y., recently asked consumers looking for healthy foods in c-stores to rank the items’ most important health attributes. Topping the list were “quality” traits such as fresh ingredients, natural and nutritious. The second most important attribute was “balanced food groups,” followed by salads and better portion sizes.

Traits traditionally seen as “healthy”— low fat, lower calorie, reduced sodium— fell to the bottom of the list.

Lisa Costigan, business unit manager, convenience, for Kellogg Food Away From Home, Battle Creek, Mich., cites a survey by the Snack Food Association of America showing that more than 80% of consumers actively look for the best value when buying snacks. “In addition, consumers are increasingly looking for positive nutrition as opposed to what a product doesn’t have,” she says via e-mail. “They are looking for foods with fiber, whole grains and protein.” This swings the product-mix possibilities for retailers wide open, in both the packaged-snacks and foodservice categories. Tedeschi stores are stocking upwards of 60 items the retailer categorizes as “healthy,” from vegetarian items such as hummus and tabouli to protein-heavy products for customers on a workout regimen.

“Most consumers are extremely open to the options out there, so they haven’t developed a certain taste or loyalty to any given brand because new things are continually coming into the market,” Hamza says.

Sometimes even a retailer may be surprised by the healthful items already in the store. About four years ago, Kwik Trip Inc., LaCrosse, Wis., was approached by a local hospital network, Gunderson Lutheran, about participating in its 500 Club healthy-eating program. The hospital offered to analyze the nutritional content of Kwik Trip’s foodservice offerings to find those that registered 500 calories or less. The big surprise: One-quarter of the chains’ food items made the cut.

“We were actually surprised at the variety of things we had that qualified,” says John McHugh, corporate communications director. “That traditional image of the c-store is there isn’t always good stuff for you.” Today, 40 items, such as yogurt parfaits, breakfast sandwiches and roller-grill items, have earned a 500 Club label within the store. Kwik Trip has expanded the program to 23 communities in Wisconsin, northeast Iowa and Southeast Minnesota.

So who is the healthful-food consumer? In Kwik Trip’s case, it was its current customer base. While the chain has not analyzed who is buying 500 Club items or teased out the program’s effect on foodservice sales, it has heard plenty of positive feedback. In fact, a local trucking company that gives its drivers Kwik Trip gift cards to buy food asked the retailer to highlight these items in stores to help promote its internal healthy-living program.

The customer base may also include some new faces. “There’s a conversion going on here,” says Christopher Hobson, corporate vice president of marketing for distributor Core-Mark, South San Francisco, Calif. “It’s not Bubba anymore. Bubba is still around, but there are different people.”

Core-Mark has seen a staggering increase in the amount of healthful foods—both fresh and packaged—that it carries. In 2008 the company had about 60 items categorized as “fresh”: dairy, salads, sandwiches. Today that bucket has reached 1,500. And the increase has come from retailer demand. “We are only able to sell what people are asking to buy,” Hobson says.

Meanwhile, the “healthy alternative snacks” subcategory, which includes trail mixes and nutritional bars, experienced a 20% increase last year and another 12% so far this year. Hobson also sees the “healthy” net widening. He refers to the term “clean,” which many use to determine the wholesomeness of a product. The cleaner—or smaller—the ingredient list, the more healthful the product is considered.

Temple, Texas-based McLane Co. Inc. has seen similar growth in its better-foryou product assortment, triggered again by retailer demand.

“Overall consumer knowledge of where to locate the fresh and healthierfor- you items is probably fairly low at this point,” says Greg Tradup, category manager of perishable, supplies and foodservice. “It’s more the retailers trying to push the items.”

Still, the ramp-up is tangible. McLane has experienced double-digit growth year over year for its Fresh on the Go program, which merchandises grab-and-go foods such as sandwiches and fresh-cut produce in an open-air cooler for retailers.

Similarly, more healthful packaged snacks are trending upwards. “It’s not replacing sales,” says Holly Veale, category manager of snacks for McLane. “I think it’s providing incremental sales from a consumer who wouldn’t have purchased a snack before.”

Clearing Hurdles

Of course, without consumers knocking down your door for more healthful items, success will not come easily. “It’s a mindset,” says Hamza of Tedeschi. “Traditionally in c-stores, category management on the retail, wholesale and manufacturer sides, healthy wasn’t part of their forte. Now we’re having to learn it, all of us, because there is obviously demand for it, and it hasn’t been easy.”

For Tedeschi, a major challenge has come with sourcing items from distributors, particularly on the packaged side. For a while, category managers were bringing in the product and handdelivering it to stores themselves.

“We are willing to do just about whatever it takes to get it done,” Hamza says. Progress also slows on the production side. Many better-for-you products start first in the grocery channel. Entering the c-store market means ensuring the company it’s a worthwhile channel to invest in, and then re-engineering plants to make smaller products.

Hobson witnessed such an experience with the popular gourmet-chip brand Kettle Chips from Kettle Foods, which eventually sensed enough interest from the industry to create a 2-ounce bag.

“[Manufacturers are] going to get a higher margin percent, even though the velocity is going to be much less. They have to get used to that,” says Hobson.

Building a Base

Because customers aren’t yet demanding these items from c-stores, how can you expect to move product? Perhaps this question is no different than the foundation behind supply-side economics or tech companies such as Apple that forge a new market and then create demand for it. Tedeschi has an idea: Treat it like an impulse item. The chain has created a “healthy endcap” and is marketing it as such.

Costigan of Kellogg recommends wholesome sets organized by day-part, with cereal bars and toaster pastries on top, followed by granola/treat bars on the second shelf and nutritional/energy bars on lower shelves, taking into account the nature of purchase for each segment. “Typically, the customers that seek nutritional/ energy bars are not impulse shoppers, and know what they are looking for when they enter a c-store,” she says. “Because of this, these items can be easily merchandised on the bottom shelves but still produce high sales volume.”

Kelly Fulford, category development manager for General Mills Convenience, Minneapolis, says that an “on-the-go” breakfast set designed to capture incremental sales and maximize the morning day-part is a good approach.

“These consumers are hungry, in a hurry and trying to eat right,” says Fulford via e-mail. “They are looking for a smart breakfast options at the c-store that allows them to avoid making another stop toward their destination.”

“People want to eat healthy, but they want to eat on the go, and putting those two things together sometimes isn’t always synonymous,” says McHugh of Kwik Trip.

Veale of McLane agrees with the special- section approach. “Stores that like to dabble tend to put the items in line with the rest of the set, which causes the items to be lost,” she says.

But being truly, notably successful at selling better-for-you items requires a higher dedication to the total operation, especially if you’re trying to lure Mrs. Bubba.

Mike Murnane, director of c-store and growth channels for Kraft Foods, Northfield, Ill., concurs, emphasizing the importance of clean stores, strong design and an inviting layout to broadening your customer base. “I always thought healthy food would do better when the total program is doing better,” he says.

The healthful-foods category is not a low-hanging fruit for the c-store industry. But it is a ripe one. “It has been extremely challenging,” says Hamza. “We’re learning a lot from the process, but I can tell you that we see tremendous, tremendous opportunity in healthy food options.” 


Update: The Food Desert Debate

Earlier this year, first lady Michelle Obama charged c-stores, among others, with contributing to the food-desert crisis in the United States. Food deserts are areas both urban and rural that lack access to fresh, healthy food. It’s considered one of the causes of the country’s high childhood obesity rate.

This summer, with the government facing a fiscal crisis and dollars pledged to the Departments of Agriculture, Health and Human Services and Treasury yet to surface, what began as a policy-driven project became largely a private one.

In July, the first lady took the stage with Walgreens, Walmart and Supervalu to announce pledges from these retailers and others to eliminate food deserts.

The government is acting as “a catalyst, not a funder of first resort,” said Bryan Silbermann, president and CEO of Produce Marketing Association (PMA), who was in attendance at the meeting.

“The fact that they shared the stage with corporations was very significant,” he said in a press conference call following the event. As an example, he pointed to another major announcement made during the meeting: The California Endowment has secured $200 million to finance healthy-food projects through the new FreshWorks Fund. Among the funders: health-care provider Kaiser Permanente, JPMorgan Chase and savings bank NCB.

Back on the stage, Supervalu, Walgreens and Walmart, as well as regional retailers, announced a commitment to open or expand more than 1,500 stores in food deserts. The initiative is estimated to serve approximately 9.5 million people and create tens of thousands of jobs.

The announcement did not include any commitments from c-store retailers, although some regional grocery chains pledged to open more sites in food deserts.

Among the commitments from national retailers announced at the meeting: Supervalu committed to opening 250 Save-A-Lot stores over the next five years; Walmart plans to open or expand up to 300 stores by 2016; and Walgreens will expand its food offering to include whole fruits and vegetables and other healthy options in at least 1,000 stores.

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