Posted by: Mahdi Ebrahimi | February 12, 2008

Raley’s to Launch Own Line of Organic Products

With its private-label products filling more of its shelves, Raley’s is betting big that it can take the strategy into one of the fastest-growing segments of the grocery industry: organic products.

Today the company unveils its Full Circle label of organic and natural goods. The line includes about 120 items — from lentil beans to laundry detergent — that meet government organic criteria or what the company calls its “natural” standard.

West Sacramento-based Raley’s believes it can tie its brand more closely to healthy eating options, fend off old competitors and cut off emerging rivals exploiting the demand for organic goods. It also underscores how organic products have gone from a boutique business that often offered unpalatable high-priced items to a mainstream industry that mass-produces attractive goods for less.

Raley’s strategy mirrors what Safeway Inc. did two years ago with its O Organics line. The products marry the strengths of private labeling — higher profits on exclusively branded products that cost less for a store to acquire than national brands — with the health and social appeal of organic goods.

Bill Coyne, Raley’s chief executive, said his company isn’t engaging in “me too” marketing.

“We don’t consider this new territory,” Coyne said, noting that Raley’s has sold organic goods since the 1970s. “We’re responding to what consumers want, not to any competition.”

But Robert Reynolds, a supermarket consultant based in Moraga, said the Full Circle line is “playing catch-up” with Safeway and others with private label organic offerings.

“Unless you’re an innovator in this business, you’re almost always following somebody’s lead,” Reynolds said. “To remain competitive, especially in a tough market like Sacramento, Raley’s would be fools not to do this.”

Raley’s, which controls more than one-third of the Sacramento grocery market, figures Full Circle will get the attention of health-conscious shoppers like Leah Knight, who loaded her basket the other day with a $5.99 gallon of organic milk at Safeway’s Natomas store.

Knight, a mother of three teens, said she’s buying more organic products than a year ago because she wants her family to eat more healthy food.

“It’s not that much more expensive,” she said. “It’s worth it just for the peace of mind, knowing that you’re eating right.”

Such sentiments have made organic food one of the fastest-growing segments in the $600 billion U.S. grocery industry. According to the Organic Trade Association based in Greenfield, Mass., organic-product sales doubled to $16.7 billion in a five-year period ending in 2006, the last year for which figures are available.

The trend is a boost for grocery stores searching for ways to differentiate themselves in a crowded and competitive field.

The grocery business in Northern California, where Raley’s pulls most of its $3 billion in annual sales, is particularly bruising, experts say. The area is saturated with major chains jockeying for consumer attention while aggressive new players elbow into the market:

–Wal-Mart Stores Inc. has opened nine discount Supercenters in the Sacramento area that sell groceries, including organic goods, in tandem with general merchandise.

–Modesto-based Save Mart Supermarkets, once roughly the same size as Raley’s, doubled the number of stores last year and boosted its annual revenues to $5 billion when it bought 132 Northern California Albertsons locations. Many of the rebranded stores are challenging Raley’s in its Sacramento-area stronghold.

–Safeway invested in new stores, remodeled older ones and successfully touted its private label. The company has grown its O brand to 300, with sales nearly doubling last year to $300 million.

–Woodland-based Nugget Markets opened new stores in Roseville and El Dorado Hills with expanded fresh food and prepared food sections. The family-run chain plans a May debut in Elk Grove and has its eye on the Bay Area.

–Fresh & Easy Neighborhood Markets, an arm of British-based retail giant Tesco PLC, plans to open dozens of Northern California stores this year. The stores emphasize organic products, fresh foods, take-home meals and private-label goods. “Sacramento is a tough market,” said Reynolds, the supermarket consultant. “It always has been.”

Raley’s Coyne said the shifts in the region’s grocery scene don’t faze his company and that it doesn’t made decisions based on industry trends.

“Competition is good,” Coyne said during an interview at Raley’s headquarters. “It makes us better.”

Raley’s Full Circle line comes after many months spent sourcing products, checking quality and negotiating prices. Topco Associates LLC, a grocery products cooperative based near Chicago, helped Raley’s research goods and arrange terms with vendors and manufacturers.

For decades, organic foods were the province of small operators who offered products that often failed to meet the standards and prices supermarkets wanted.

“The stuff didn’t look the same,” said Dewey Maroney, Raley’s vice president in charge of the company’s perishables. “And oh, by the way, it’ll cost you a lot more.”

Another challenge: finding enough supply.

“You’d have to go to a dozen people to get enough carrots or apples,” Maroney said.

The price difference made many organic products prohibitively expensive. But now major manufacturers and vendors, convinced that organic goods aren’t just a fad, are getting into the business.

“As the bigger companies get in, the price is coming down,” Maroney said. “It really took the large producers time to come up with the supply and quality.”

Still, it took Raley’s more than two years to find suppliers for Full Circle beef, lamb and bacon. Maroney said Raley’s cost for natural meats fell enough that customers won’t get “product shock” when they see the price.

A check of meat prices at Raley’s Freeport Boulevard store in Sacramento indicated the price difference between Full Circle’s Angus beef and regular Angus beef varies widely.

For example, Full Circle boneless rib eye steak cost $11.99 per pound, compared with $7.99 per pound for regular Angus rib eye. The label’s Angus cube steak sold for $4.99 per pound. USDA Choice cube steak retailed for $3.99 per pound.

According to a price comparison chart provided by Raley’s, a 16-ounce jar of Full Circle organic peanut butter sells for $3.98, compared with $4.78 for 16 ounces of Adam’s organic peanut butter and $2.98 for the same size jar of Skippy. A 17-ounce bottle of Star extra virgin olive oil costs $7.98, the same as Full Circle’s organic oil. Paul Newman’s brand, Newman’s Own, costs $9.29.

The Full Circle blue, green and orange label includes 78 items certified organic by the U.S. Department of Agriculture. The products meet federal organic standards for packaging, production and ingredients.

Raley’s considers another 44 products “natural” Full Circle items for which the government has no standard. Raley’s said the items come as “close to a natural state as possible,” and are made without artificial ingredients, have limited refined ingredients and are “responsibly produced and managed.”



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