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Why Some Health-Focused Retailers Are Struggling

BY CSA STAFF

By Jeff Weidauer, VP of marketing and strategy, Vestcom International

Healthy is hip. That’s the message coming from most media outlets, as well as consumers in general. Overall interest among Americans in healthful meal options is at an all-time high. Yet, at the same time, some healthy-focused retailers are struggling. Whole Foods Market has seen its growth slowing and has issued lower target guidance to shareholders. Smaller companies like Fresh Market are even resorting to closing stores. What’s going on?

What’s going on is what always happens in a free market when one segment has success — competition. The major food retailers have jumped into the healthy food market and captured significant share. Kroger and Safeway specifically have made significant investments and are grabbing sizable share, currently more than a billion dollars annually and growing. Walmart has even entered the fray with organic products.

While all indicators point to continued strong growth for this segment of the market, it’s clear that anyone looking to be a part of that growth will need to have a solid game plan and a strong value proposition. In addition to the pressure exerted by the industry giants, the opposite end is being served quite well by local farmer’s markets. This is a segment that barely existed 15 years ago, but now most communities have several that span the spectrum from impromptu to immense.

The good news is that price is rarely the driving factor for purchases in this category. This doesn’t mean that price is no object. Whole Foods gained the moniker “Whole Paycheck” by pricing to the upper segment. Increased competition breeds lower pricing, to the point that even Whole Foods has had to adjust. But there is a bottom level to pricing here; quality is a concern for health-focused shoppers, and a too-low price doesn’t carry a quality message.

A major challenge is that shoppers bring an expectation that anyone connected with the sales of healthier food will be knowledgeable — even passionate — about the products available. For retailers, addressing this expectation with shoppers is an about-face from the standard of hiring the cheapest labor possible. Knowledge and passion don’t come cheap, so the standard labor model no longer applies.

What this boils down to for a typical food retailer is opportunity, but as is always the case, a clear strategy must be defined before making massive changes in direction. Success breeds competition, and competition brings lower prices, but the market for healthy alternatives will continue to grow. The movement is already crossing cultural and economic barriers, slowly to be sure, but there is change and it will only accelerate.

Perhaps the only real surprise in the world of healthy food is that it’s taken this long for competitors to jump in where Whole Foods has been for years. The current growth has been evident for at least the past five years, and while it slowed somewhat during the great recession, it did grow. Today this segment presents a critical, and possibly quite lucrative, opportunity.

Retailers looking to enter the space would do well to move quickly but with clear direction, and be willing to adapt based on results and feedback. The growing interest in healthy alternatives is a sign of changing habits, and there is no better time to offer something new than when consumers are already on the move. And new habits will quickly develop; those without a piece on the game board will be removed from consideration — maybe for good.

Jeff Weidauer is VP of marketing and strategy for Vestcom International Inc., a Little Rock, Ark.-based provider of integrated shopper marketing solutions. He can be reached at [email protected], or visit Vestcom.com.


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Staples’ Quill div. introduces digital suggestion box

BY CSA STAFF

Quill Ideas is the name of a new crowdsourcing platform the online division of Staples launched for customers and employees to share ideas in new and interesting ways.

Quill.com, acquired by Staples in 1998, is calling Quill Ideas an online-innovation community that is designed to solicit and implement ideas, review and rank them based on various protocols and then implement those that score the highest. A soft launch that began two weeks ago has already garnered more than 13,000 interactions made up of ideas, votes and comments, according to the company.

“The result, we hope, will be a sustainable flow of ideas, as well as a closer relationship with customers who will have a greater say in how we serve them,” said Quill.com president Sergio Pereira. “We’ve always been fortunate to enjoy a rare level of trust, but we believe including our customers in the process of innovation will further deepen our connection with them, and drive more meaningful new ideas to market.”

Available through a dedicated landing page at ideas.quill.com or in the header on the Quill.com homepage, Quill Ideas will let customers and employees submit and evaluate new ideas. Those that gain traction within the community will be systematically brought to the relevant executives within the company and evaluated regularly by a dedicated innovation team.

Additionally, engagement will be incentivized by applying principles of gamification that will reward regular engagement in a fashion similar to the way badges work on social channels such as Foursquare, while also providing regular evidence that Quill.com is listening, and what they are hearing is making a difference.

Quill.com is headquartered in Lincolnshire, Illinois, and operates 12 distribution centers nationwide.

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Groceries from strangers: Instacart poised for expansion

BY CSA STAFF

Crowdsourced grocery delivery provider Instacart is expanding its same day and one-hour service to new markets after receiving $44 million in funding from some big name Silicon Valley investors.

Instacart employs a crowdsourced model of “Personal Shoppers” who provide their own transportation and smartphones to shop and deliver groceries to customers. The company said it would use the additional $44 million to fund geographic growth beyond its 10 existing markets, improve the customer experience, experiment with new delivery models and improve the proprietary Instacart technology. The company currently operates in San Francisco, Austin, Boston, Chicago, Los Angeles, New York City, Philadelphia, San Jose, Seattle and Washington, DC. It expects to be in 17 markets by year end.

"We’ve proven out our model in 10 cities across the U.S., and it works," said Instacart founder Apoorva Mehta. "Instacart’s customer base in every city is growing by double digits monthly, and we’ve developed a great playbook for geographic expansions. This funding will enable us to expand even more quickly and establish a wide, national footprint over the next 18 months."

The $44 million in Series B financing was led by the firm of Andreesen Horowitz. Existing investors Sequoia Capital, Khosla Ventures and Canaan Partners also participated in the round along with Aaron Levie, CEO of Box, and Sam Altman, President of Y Combinator, who made personal investments, according to the company.

"As we think about the future of e-commerce, groceries are among the last huge untapped opportunities. While many have tried to crack the code, few have met with success," said Jeff Jordan, a partner at Andreessen Horowitz. "However, mobile is enabling a new way to tackle digital grocery distribution through an execution that I refer to as ‘People Marketplaces.’ This is Instacart’s approach, and we’re betting it will be the winning play. We are excited to partner with Apoorva and team as they seek to have software eat grocery delivery."

The company said its infrastructure-free, crowdsourced model enables it to expand into a new city in just two to three weeks, versus six to nine months for competitors who rely on traditional warehouses, company-owned trucks and full-time drivers. After opening an account at www.Instacart.com, customer receive free delivery on their first order of $35 or more. The company also offers an Amazon Prime like service called Instacart Express where for an annual fee of $99 there is no delivery charge for orders above $35.

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