Giant looks to organic, natural foods

by Kevin J. Shay

Staff Writer

Oct. 15, 2004

Landover grocer Giant Food LLC is plunging deeper into the fast-growing natural and organic foods market.

Giant, which already sells a variety of such items from companies such as Lancaster Foods of Jessup, earlier this month unveiled its own natural and organic line, called Nature's Promise.

The 25 products, which include organic and soy milk, eggs, cookies, juices and chips, are in all 200 Giant and Super G stores. They are also in the more than 300 Stop & Shop Supermarkets, Giant's Quincy, Mass., sister chain.

The company plans to unveil 90 products by early next year, with items such as produce, said Paulette Thompson, nutrition and food manager for Giant and Stop & Shop.

"The natural and organic market has been expanding," Thompson said. "By investing in a private label, we can offer our customers these products at a better value."

U.S. retail sales of natural and organic foods totaled $20.5 billion last year, more than double the 2000 total, according to the Natural Marketing Institute, a Harleysville, Pa., natural products industry organization.

The bulk of that -- 54 percent -- was in natural foods, which are free of artificial additives but are largely not subject to governmental regulations. Organic foods must be certified, under a tougher federal program that took effect two years ago, that they were not grown using synthetic pesticides and certain other chemicals, and that the producers recycle resources.

The U.S. organic market alone is expected to grow by 60 percent between 2003 and 2007 to $15 billion, the Natural Marketing Institute projected. A similar growth rate for natural foods is expected, according to other industry reports.

Giant joins other grocers that have their own organic lines. Safeway of Pleasanton, Calif., which has more than 75 stores in Maryland, carries about 60 products, including organically grown coffee. Safeway is also in the process of unveiling newly designed stores in Maryland that feature more natural items.

Wegmans Food Markets, a Rochester, N.Y., company that plans to open its first Maryland store in Hunt Valley, has a 34-product line. Kroger Co. of Cincinnati, which does not operate any stores in Maryland, provides 140 natural items.

Food Lion, a Salisbury, N.C., grocer that has more than 70 Maryland stores and plans to open two more in Westminster and Columbia next month, does not have any current plans to add a natural and organic segment to its own line, said company spokesman Jeff Lowrance.

But Food Lion is adding more of other companies' natural and organic products, particularly in many remodeled stores in North Carolina, he said. Older Maryland stores could be remodeled with the expanded organic section in the near future, Lowrance said.

Then there are grocers that focus mostly on natural and organic products, such as Whole Foods Market of Austin, Texas, and Trader Joe's, which has its East Coast headquarters in Needham Heights, Mass. Both also sell some conventional products.

Whole Foods has seven stores in Maryland, with its next one not scheduled to open until at least 2007 in Chevy Chase, said Sarah Kenney, director of marketing for the company's mid-Atlantic region. Trader Joe's, with five Maryland stores, is in the process of opening another in Silver Spring next year, spokeswoman Diane O'Connor said.

The market has been good to Whole Foods' bottom line during recent relatively slow times for supermarkets. Last year's sales at Whole Foods were up 17 percent to $3.15 billion, while net earnings rose 23 percent to $104 million, according to Hoover's Online, a business information company in Austin.

Whole Foods continues to benefit from the "increasing acceptance of natural and organic foods among the general public," New York food retail publication Supermarket News reported, noting scares from mad cow disease that drove demand for organic beef. In a Supermarket News survey of 10 national grocers in the first six months of 2004, Whole Foods was one of only two to record a double-digit percentage growth rate in sales.

While O'Connor said the private Trader Joe's does not release financial data, Hoover's estimated that the company owned by German billionaires Karl and Theo Albrecht also saw a hefty revenue increase last year: up 13.6 percent to $2.5 billion.

Giant, like many grocers, has seen slower sales growth than Whole Foods and Trader Joe's. Revenue at Giant -- which will open its 201st store on Kingfisher Drive in Frederick on Thursday -- increased 1 percent last year to $5.9 billion. Revenue at Ahold USA, Giant's parent company, declined 10 percent in 2003 to $26.9 billion.

Sales at Royal Ahold NV, Ahold USA's Dutch parent, were up 7 percent to $70.5 billion. The company showed a $1 million loss in 2003, according to Hoover's.

Royal Ahold recently agreed to sell its Spanish business to Permira Advisers Ltd. of London for 685 million euros. The company is also shopping its Bi-Lo and Bruno's chains, both of which operate in the Southeast and saw declining sales last year.

Royal Ahold hopes to complete a sale of Bi-Lo and Bruno's by the end of the year, said Barry F. Scher, a Giant spokesman to whom Royal Ahold referred questions. There is no plan to sell Giant, he said.

Whole Foods says it welcomes competitors

Whole Foods sees itself as doing educational work on issues related to natural and organic foods and the environment, Kenney said. So it's good to see other companies such as Giant "understand the value, even if it's only for the market value," she said.

"It's a smart move to stay competitive and offer other options," Kenney said. Organic products are available in some 73 percent of conventional grocery stores in the nation, according to federal figures.

Whole Foods even recently unveiled gluten-free bakeries in some North Carolina stores and plans to expand them to Maryland stores by the end of the year, Kenney said.

Gluten is a protein in grains such as wheat that damages the small intestine in people with celiac disease, an autoimmune disorder, according to the University of Maryland's Center for Celiac Research in Baltimore. About one in 133 Americans may have the disease, which is more common than cystic fibrosis, according to the center.

Trader Joe's doesn't pay too much attention to what other grocers offer, O'Connor said. "We really focus on what we sell," she said. "We are not just an organic store. We provide organic foods when we can get them at a great price for our customers. But we sell a lot more than just those kinds of foods."

Organic and natural foods tend to be an "educated-oriented" sale, Kenney said. When you have so many such products, it's more difficult to make new brands "jump out to people," she said. "The key to the consumer is if it tastes good."

Giant put easy-to-read icons on its organic and natural foods product line to help customers figure out if it is gluten free and other information, Thompson said. "We want to make it as user-friendly as possible," she said.

Organic and natural foods typically cost more than conventionally grown products, attributed largely to the higher cost of labor needed to replace certain applied chemicals.

At a Giant store in Gaithersburg, a dozen of Nature's Promise natural brown eggs cost $2.79, about twice the $1.39 for Giant's conventional large brown eggs. But Giant's natural brand was lower than other natural brands in the store; a dozen natural eggs from Land O'Lakes of Arden Hills, Minn., cost $3.19.

Critics of organic farming have questioned claims that such foods have higher vitamin content than those grown conventionally and say that organic products are more likely to have safety problems such as bacterial contamination.

The Institute of Food Technologists, a Chicago organization that supports biotechnology techniques such as food irradiation, said in a release that organic foods "are not superior in nutritional quality or safety when compared against conventional foods, yet organics do have the potential for greater pathogen contamination. Thus, purchasing organically grown produce is not necessary for safety or nutritional reasons."

Organic products are as safe as conventional ones, according to the Organic Trade Association of Greenfield, Mass., which cited the strict certification process that includes compliance with all government health standards.

Organic farming is practiced in about 100 countries, with Australia devoting the most acres at 24.6 million, according to the association. North American consumers buy the most organic products in the world among continents, but Mexico, Canada and the United States rank behind the rest of Latin America and Europe for organic farming with about 3.7 million acres

Whole Foods, Giant and others companies that sell organic and natural foods, as well as the U.S. Department of Agriculture, do not make any health claims about the products, officials said. In surveys conducted by groups such as the Food Marketing Institute, consumers gave various reasons for purchasing them, including taste, making them feel better, allergic reactions to some conventional foods and wanting to help the environment.

But some scientific studies confirm certain benefits. A 2002 study by the U.S. National Institute of Environmental Health Sciences in Bethesda found that children who eat organically grown foods were exposed to "significantly lower" levels of pesticides than those consuming conventionally grown foods.

Whatever consumers' reasons for buying these products, demand is increasing. Last year, an estimated 66 percent of U.S. consumers at least occasionally bought organic foods, according to a survey by The Hartman Consulting Group of Bellevue, Wash. That was up from 55 percent in 2000.

"The population is looking to eat a healthy diet," Thompson said.

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