Source: LOHAS Weekly Newsletter
Published: Thursday, October 01, 1998

The past 12 months have seen a dramatic increase in natural products sales across a range of retail channels. Mainstream retailers, including food stores (supermarkets), drugstores and mass merchandisers, have awakened to the opportunities available through merchandising natural products and have significantly expanded their selection of natural items. Emerging channels such as catalog and internet retailing also have gained momentum. And concurrently with the increasing awareness of natural products among consumers, natural products retailers are growing rapidly by increasing merchandising sophistication and attracting crossover shoppers. The distribution channel for natural products has become a complex and dynamic competitive landscape.

Merchandising Emphasis Changes

Within mainstream food stores, drugstores and mass merchandisers, opportunities in natural products have created significant shifts in merchandising emphasis. Drug and mass retailers still enjoy the bulk of dietary supplements sales among mainstream retailers, but food retailers have shown the most rapid growth in sales in many supplements segments. At the same time, drug and mass retailers have begun to focus on stocking selected natural foods segments.

Food retailers have registered strong sales growth in the medicinal herbs category over the past year. Brain/Circulation Single Herbs such as ginkgo biloba and gotu kola grew 96.7% in mainstream food outlets for the 12 months ending July 1998 vs. the prior year; during this period, sales increased 83.8% in drugstores and 75.8% in mass merchandisers. Calmative Single Herbs such as valerian and kava kava showed a similar sales pattern, with 253.5% sales growth in food stores, vs. 229.5% in drugstores and 156.5% in mass merchandisers. Key herbal segments such as Men’s Single Herbs (e.g., saw palmetto) and Cold & Flu/Immune System Herbal Formulas (echinacea, goldenseal, astragalus) have also grown in sales more rapidly in food stores than in drugstores or mass merchandisers.

Other types of supplements have experienced similar trends. Growth in branded natural vitamin E was more than twice as high in food stores for the 12 months ending July 1998 vs. the prior year as it was in drugstores or mass merchandisers. Polyphenols, a relatively undeveloped segment in mainstream channels, grew 55.6% in food stores vs. 13.4% in drugstores and 38.0% in mass merchandisers.

At the same time, drug and mass retailers have begun emphasizing specific food segments, especially those that are positioned to deliver nutritional benefits. For example, while drugstores and mass merchandisers only account for 16.5% and 13.3% of Energy Bars sales, respectively, within food/drug/mass outlets, this category has seen its most rapid growth within mass merchandisers, followed by drugstores. Medicinal Blend Teas, positioned to deliver a range of nutritional benefits, grew 154.0% in mass merchandisers and 60.8% in drugstores vs. 19.6% in food stores. Finally, Green Teas sales grew twice as rapidly in drugstores as in food stores, and four times as rapidly in mass merchandisers.

Consumer Behavior

Natural products purchasers buy differently in different retail channels, and retailers have responded by tailoring merchandising strategies to consumer shopping behavior. For example, drug and mass merchandisers have relied heavily on aggressive promotions to spur impulse purchases and increase their share of consumer spending within specific categories. Supermarkets have focused on expanded item selection in order to become a routine channel for natural products purchases. Finally, natural products retailers have continued to compete on the basis of broad item selection and “hi-low” pricing that emphasizes selected “hot” price points in order to retain their core shoppers and attract new consumer segments.

Expanded mainstream distribution of natural products offers significant opportunities as well as challenges. For manufacturers, distribution in new outlets offers a means for substantially increased volume. At the same time, competing promotional needs and maintaining price parity across retail channels become critical. For natural products retailers, targeting crossover consumers will be key to reaping the opportunities provided by increased consumer awareness.

Paddy Spence is president of SPINS, a sales-tracking and consumer-information services company. For more information, call 415.284.0546, or e-mail info@spenceinfo.com.