The Growing Green MovementConcern about the environment is at an all-time high and becoming a mainstream issue. One of the biggest contributors has been the success of Al Gore’s documentary about climate change, An Inconvenient Truth, which led to the former U.S. Vice President winning both an Academy Award and the Nobel Peace Prize. Attention from Hollywood and the popular media have made “green” both chic and fashionable. America's favorite television show host, Oprah Winfrey, devoted an entire show on April 20, 2007 to the environment. The show was titled “Going Green 101: What Your Family Can Do Today!” The government is getting involved, as well, with San Francisco banning plastic shopping bags (in supermarkets and drugstores) in March 2007, and the city of Chicago considering a $0.10 per bottle tax on bottled water.
Some consumers are increasingly worried about “food miles” (the distance food travels from the time of its production until it reaches the consumer). “Locavores” is a new term coined to describe individuals who seek a diet consisting of food grown locally, often within a 100-mile radius.
Wal-Mart is also pushing sustainability. In September 2006, the company unveiled an initiative to reduce overall packaging by 5% by 2013, encouraging its 60,000 worldwide suppliers to cut usage and conserve natural resources. The retailer released the packaging scorecard in February 2007, giving its suppliers one year to input, store and track data on their packaging. Wal-Mart announced in September 2007 that it will only sell concentrated laundry detergent in its U.S. Wal-Mart stores and Sam's Clubs by May 2008. Also in September, the retailer announced that it will start asking suppliers to measure their carbon footprint (a measure of the impact human activities have on the environment in terms of the amount of greenhouse gases produced).
Growing Green's Current ImpactWhile most U.S. consumers are only now thinking about the issue of sustainability when it comes to packaged foods, a few companies have been pioneers in addressing environmental impact.
Stonyfield Farm (owned by Danone) prides itself on being environmentally friendly, donating 10% of its profits to environmental causes through its “Profits for the Planet” program. To reduce landfill waste, the company replaced its small-cup plastic lid and plastic inner seal with a new foil seal in January 2003. The company’s CE-Yo Gary Hirschberg (who is on the board of Danone) was able to convince the board to remove the outer lids from Dannon yogurts in the U.S. Stonyfield Farm was the first U.S. manufacturer to offset 100% of its CO2 emissions from facility energy use and has installed the largest solar energy installation in the state of New Hampshire. The company's latest environmental initiative is the sponsorship of the Creating a Climate for Change Tour with NOLS (National Outdoor Leadership School) in 2006 and 2007.
Snack bar maker Clif Bar has been offsetting offices’ and bakeries’ energy use with wind energy, by purchasing green tags through Native Energy. The company switched to 100% (50% post-consumer) recycled paperboard for its caddies (the cartons that hold its bars) in 2003.
More companies are getting involved in the green movement. PepsiCo’s Frito-Lay subsidiary is now focused on environmental sustainability. In September 2007, Frito-Lay announced the “Green-e” designation for its SunChips multigrain snacks. New packaging will feature the “Green-e” logo, a designation from the Center for Resource Solutions used with certified renewable energy certificates. Marketing for SunChips’ new “Live Brightly” campaign to inspire personal well-being will focus on the company’s purchase of renewable energy certificates, which match 100% of the electricity needed to produce SunChips. The company began installing solar concentrators in its Modesto, Calif., manufacturing facility (one of the facilities that make SunChips) in 2007.
Growing Green OutlookConsumer and business interest in the “green” movement is expected to grow during the next few years. On the consumer side, media attention on environmental issues is expected to continue strongly. On the corporate side, attention to “green” issues should remain strong, as companies attempt to use a “green” positioning to gain consumer loyalty and increase their sales. Any supplier to Wal-Mart will obviously be putting together initiatives to reduce packaging and their carbon footprint. Many companies now also realize that affluent consumers are willing to pay more for items from Whole Foods Market or Patagonia, if they know that the items have been sustainably produced. Companies will also find financiers willing to invest in “green” enterprises. Citigroup, the world’s largest financial services company, announced in May 2007 that it would commit $50 billion to address both the risk and rewards of climate change. Bank of America committed $20 billion toward “green” investments in March 2007.
Longer Term ImpactIn order to meet Wal-Mart’s desire for less packaging and consumers’ growing environmental awareness, manufacturers will reduce the amount of packaging they use. Canada’s Nature’s Path Organic Foods converted over 50 of its boxed cereals to an EnviroBox format by June 2007. The natural and organic cereal company claims that the EnviroBox offers the same net weight of breakfast cereal, but with 10% less packaging. This has the advantage of not only reducing raw material and energy use, but allowing more packages to be put on shelves, resulting in fewer “stock-outs.”
Companies are also likely to switch to biodegradable resins and fibers, in addition to using more recycled materials in their packaging. Wal-Mart currently uses plastic containers made from Cargill NatureWorks PLA (a polylactic acid made through a corn fermentation process) for its fresh produce. Bio-plastics are gaining attention, because they are made from an annually renewable resource, instead of petroleum, and are compostable (in industrial composting facilities). NatureWorks claims that its PLA uses 62-68% fewer fossil fuel resources than traditional plastics and emits fewer greenhouse gases in its manufacturing.
Frito-Lay’s inclusion of carbon-friendly logos on packaging, or any other label showing energy saving costs, is a trend that will likely be followed not only by other snack manufacturers, but also by companies active in other food sectors. Global packaged food producer Campbell Soup Co., for instance, recently announced the introduction of similar measures to cut down on carbon emissions in the near future.
With mainstream players struggling to increase differentiation from private label through the inclusion of value-added properties, the inclusion of carbon-friendly logos is especially relevant. Consumers in developed markets are increasingly aware of environmental issues and may be willing to pay a slight premium for products manufactured according to eco-friendly standards. Furthermore, Euromonitor International's research emphasizes that the introduction of carbon-friendly food lines provides a unique opportunity to develop “super-premium eco-lines.” Manufacturers in areas like dairy and chocolate confectionery, for example, might go a step further and combine organic, fair trade and low-carbon in a single product--creating an entirely new, high added-value category in the food market, targeting particularly ethically-minded consumers.
To meet growing eco-consumers’ demands for local foods, retailers will seek to add more locally produced foods, highlighting them on shelves. To appease critics concerned about “food miles” and carbon footprints, Whole Foods Market, in March 2007, announced a low-interest rate loan program to aid small farmers. This will present a challenge to packaged food companies that manufacture their products in a few locations before sending them out nationwide.
That said, it will be a challenge for packaged food manufacturers to achieve the right balance. Consumers want convenience, low prices and food safety--which often require a lot of packaging. If convenience and food safety were not issues, sales of bulk foods would be more popular in the U.S. Some also say they want to be environmentally conscious. In addition, due to the long distances that packaged foods are shipped, the packaging must be durable enough to last thousands of miles.
Private Label Expands Its AppealAmericans are increasingly opting for more private label products, as retailers introduce higher-quality private label goods. Sales of private label products have grown in recent years. Food, drugstore, mass merchandiser and warehouse club chains have given more marketing support in terms of shelf space, money back guarantees and advertising of their store brands. Private label products appeal to value-conscious consumers through price savings of about 20%, relative to the comparable national brands.
Consolidation in the retail industry has prompted more retailers to expand and improve their private label offerings. The increase in the number and size of stores, and the accompanying increase in volume sales, allows retailers to add more private label products and spread the cost over several geographical areas. European retailers, such as Royal Ahold N.V., Delhaize Group, J. Sainsbury Plc. and Aldi Group, which are used to a highly developed private label sector in their local markets, have brought the same level of commitment to private label to the U.S. Along with supermarket loyalty discount cards, food retailers are using private label products to try to distinguish themselves from other retailers. Supermarket retailers also like the higher margins they earn on private label products. At the warehouse club level, all three of the leading chains--Sam’s Club (owned by Wal-Mart Stores), Costco and B.J.’s--have expanded their private label offerings.
In addition to an increase in the number of available products, retailers continue to upgrade the quality of their private label offerings. Retailers believe that selling high-quality goods can promote consumer loyalty, as shoppers can only purchase the store brand items at that retailer. One of the first North American retailers to embrace premium private labels was Canada’s George Weston Ltd. (maker of Thomas’ English Muffins and Entenmanns’ sweet goods). Its Loblaw Supermarkets introduced the President’s Choice line in Canada in 1984, and later brought it to the U.S. The President’s Choice line has differentiated itself from other private label ranges by expanding beyond the traditional, private labeling of “commodity” type goods (such as canned tomatoes) to developing items (such as frozen ready-meals) to compete with national brands. In some cases, the items are positioned as being better than national brands. Packaging for their President’s Choice Decadent Chocolate Chip Cookie claims that it is made with “the maximum number of chocolate chips that we could cram in.”
The Safeway supermarket chain has been especially aggressive in promoting its private label products. In December 2005, the company introduced the O Organics line to attract consumers of organic foods. The company says that the O Organics line is helping to attract shoppers from other supermarkets like Whole Foods Market. The O Organics line achieved sales of more than $150 million in its first year through low prices (sometimes lower than the price of national conventional brands), bright packaging, advertising and the remodelling of many of the stores to a more upscale lifestyle format. The success of O Organics prompted the company to announce in December 2006 that it would expand its O Organics line to baby food and food for children. Safeway Inc. also plans to introduce Eating Right, a new brand. The company not only develops products to compete with national brands, but also often creates products (under the premium Safeway Select label) that have no national brand competition. For example, Safeway Select produces gourmet, frozen Asian potstickers, a product previously limited to regional brands.
Private Label ImpactDuring the forecast period, there will be faster growth for private label products. This will be due to consumers shifting towards higher-end products and organic products.
One specialty supermarket chain, Trader Joe’s, distinguishes itself from other supermarket chains by selling primarily premium, private label goods. Unlike typical supermarkets, where private labels account for about 16% of the stock, about 80% of Trader Joe’s stock is private label items. The company, which has the same owner as Germany’s Aldi Group, offers upscale specialty food and wine, such as Trader Joe’s Mango Chili Vinegar and Trader Joe’s Shaved Parmigiano Reggiano. Trader Joe’s has had much success creating stories around its private label products to create a mystique, telling readers about buying trips to Paris and how its soups are slow-simmered in its Fearless Flyer circular. Loyal consumers living far away will drive long distances to Trader Joe’s to get a fix of their favorite Trader Joe’s chocolate-covered pretzels or vodka marinara sauce.
Target, known for its exclusive brands such as Issac Mizrahi (clothing), Michael Graves (housewares) and Sonia Kashuk (color cosmetics), is seeking to expand its presence in packaged foods. The retailer partnered with chef Ming Tsai (who also has a TV show called Simply Ming) to launch the Blue Ginger line of Asian cookware and foods in 2002. In November 2006, the retailer expanded the selection to include frozen appetizers (pork potstickers and cranberry crab Rangoon), snack foods (Thai lime rice corn chips) and sauces (lemongrass ponzu vinaigrette). The company also expanded the assortment of frozen bowls (Chinese spaghetti noodle bowl) and frozen meal kits (Kung Pao chicken stir-fry kit). The Blue Ginger line is available at all SuperTarget stores and selected Target stores. More retailers are expected to borrow this strategy of offering unique products that are not available elsewhere.
Retailers are also expected to introduce more organic, private label products, as they seek to replicate Safeway Inc’s successful launch of O Organics. To appeal to health- and budget-conscious parents, Wal-Mart introduced a private label, organic baby formula under the Parent’s Choice brand in March 2006. Whole Foods Market, a leading organic and natural foods supermarket chain, expects that private label will grow to a higher percentage of its sales in the future, up from 8% in 2006. The growth of private label organics will aid retailers who can present an appealing, high-quality, well-priced line to consumers. Retailers who do not introduce private label, organic products may lose out on sales--if they do not price national branded products competitively.
U.S. Grocery Retailing to Target Hispanic ConsumersThe battle for the Hispanic market continues, as retailers in the U.S. cash in on the fastest-growing and increasingly affluent ethnic group.
The Hispanic population currently accounts for 42 million people, and, according to forecasts, this figure is likely to reach 60 million by 2020--or almost 18% of the total U.S. population. As a result of cultural characteristics--a tendency towards large families that more often eat at home--Hispanics spend a larger proportion of their income on groceries than the average U.S. consumer. This, combined with the rising economic affluence of Hispanic households, makes them an increasingly attractive target for grocery retailers in the U.S.
Publix Sabor--The First Hispanic SupermarketWith food being a particularly important part of Hispanic culture, grocery retailers are racing to take a larger share of this market. Publix was the first traditional supermarket chain to roll out a Hispano-centric format under the Sabor brand. The two Sabor supermarkets launched in 2005 have already outperformed the standard Publix stores that previously occupied the sites, and this encouraged the company to open two more outlets in 2007. The product assortment covers a wide variety of Caribbean, Central and South American products. The shopping environment features bilingual signage, Spanish-speaking staff and popular Latino music in the background.
Following the success of Publix Sabor, similar ideas were picked up by other retailers, including the leading supermarket chain Kroger, which opened its Hispanic-oriented pilot Fry's Mercado store in Phoenix, and H. E. Butt Grocery Co's opening its first MiTienda outlet. Other Hispano-centric grocery stores include Carnival, Bravo Supermarkets, Fiesta Mart and Sedanos Supermarkets.
Wal-Mart Tags AlongMost of the national grocery chains, however, are targeting the Hispanic population by expanding the assortment of their traditional stores, rather than introducing new store brands. Wal-Mart--the undisputable leader in Mexican grocery retailing with almost a 12% market share in 2006--until recently, had not developed a specific strategy to cater to the Hispanic community in the U.S., with the company’s pricing policy being the key factor behind attracting price-sensitive Hispanic shoppers.
However, in 2006, Wal-Mart announced that it had at least 1,300 outlets with a strong Hispanic customer base and pledged to increase its efforts to cater to their specific needs by supplementing its Hispanic food assortment with products from other categories--such as greeting cards, music and home videos, and health and beauty items. The company’s efforts also encompass in-store events, such as a celebrity hairdresser tour, in order to promote Activate Beauty, a hair-care brand designed specifically for Hispanic women.
Ways to ImproveRecent years have brought significant improvements in retailers' attempts to cater to the Hispanic community, but there is still a lot more to be done. In cities with the largest Hispanic populations--Los Angeles (8.4 million), New York (4.4 million) and Chicago (1.9 million)--Hispanic-oriented retailing is still an extremely fragmented niche. The expanding population is pushing Hispanic communities beyond the already established markets of the Southwestern states (Texas, Arizona) into new regions, such as central and western Florida, Atlanta, Las Vegas, Washington, D.C. and Philadelphia, and this is creating further opportunities for retailers.
Apart from bilingual signage and staff and a specifically tailored product range, retailers should also work on the pricing and promotion of Hispanic products. Pricing policies should encourage bulk and multi-unit purchases of key stock Hispanic items, like canned food, and also ensure competitive pricing of non-staples, such as desserts and confectionery, to encourage consumers to visit the outlet more frequently. In order to reach the Hispanic community directly, promotions should focus on local media and public transport.
Euromonitor International offers global market intelligence on industries, countries and consumers. It has more than 35 years of experience publishing market reports, business reference books, online information systems and custom consulting projects. For more information on Euromonitor International’s research and reports, visit www.euromonitor.com.