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Organic produce merchandising: Segregate or integrate?

MONTEREY, CA — There is no doubt that organic produce has moved into the mainstream realm as virtually every retailer of any significant size throughout the United States carries dozens of SKUs in this sector. As such, these retailers are faced with a decision of whether to “integrate” organic products into their departments or “segregate” those items.

This was one of the major themes explored by a panel of retailers at the recent Organic Produce Summit, held here July 10-13.  

Neil Cullen, senior manager of quality control at Sprouts Markets, said that that 240-store chain takes a segregated approach. Mark Carroll, senior director of produce and floral for the 25-store Southern California-based Gelson’s Markets, said his firm has a hybrid merchandising scheme utilizing both theories. Jonathan Steffy, director of sales and retail services for Four Seasons Produce Inc., based in Ephrata, PA, which serves hundreds of retailers, said either method can work, but added that the integrated approach is trickier.

Cullen agreed, noting that Sprouts uses the segregation concept primarily to eliminate issues. The chain has stores in multiple states covering many different demographics. Some stores sell a lot of organic produce and others do not. For consistency and ease of operations, Sprouts segregates organic produce, merchandising the items together within the produce department to create an “organic destination” for its shoppers. This is a very clear way to familiarize shoppers with that option, utilize large signage, cross merchandise with like items and allow the shopper looking for that choice to easily identify the assortment of items available.

Cullen said Sprouts is growing its organic produce section with about one-third of the department’s SKUs identified as organic. He said the firm uses the same techniques and concepts to merchandise both conventional and organic produce. There is a value component to the merchandising scheme and in-store promotions are heavily relied upon.

Carrol said quality and freshness drive Gelson’s organic offerings whether the produce is organic or conventional. But he acknowledged that the upscale retailer has a significant percentage of shoppers who skew toward organic produce with the price differential inconsequential. As such, Gelson’s uses a variety of merchandising techniques to sell its organic produce offerings. He said segregation works well, but it is what most retailers do.

Gelson’s uses its hybrid approach as a point of differentiation from its competitors. It has found that for high-velocity items, such as avocados and strawberries, it works best to merchandise the organic and conventional SKUs in the same location. That concept, he said, “generates the most dollars and generates the most movement.”

The retailer also groups like items. For example, it typically will have an eight-foot section of conventional wet vegetable items right next to an eight-food section of organic wet vegetables. Of course, he said, Gelson’s is mindful of rules against co-mingling conventional and organic product and guards against that.  

The company also uses both the “twin line” and “single line” philosophy depending upon the item and the quality available. He explained that twin line is carrying both an organic and conventional SKU of the same item, such as a 48-count Hass avocado. Because it is a high-velocity item — in fact, it is the No. 1 dollar sales produce item on an annual basis for the retailer — twin lining makes great sense.

Gelson’s typically single lines a slower-moving specialty item. In these instances, Carroll allows the quality of the product to determine whether it is a conventional or organic SKU.  

Steffy of Four Seasons, noting the co-mingling rules associated with organic produce merchandising, said it can be effective to merchandise organic produce on a top shelf of a refrigerated rack with the conventional items of the same ilk on the bottom and middle shelves.  He said that if a retailer wants to dip its toes in the integration arena, berries and tomatoes have proven to do very well with this concept, and would make a good first step.

But Steffy took more of an overview approach to organic produce merchandising, noting that utilizing a one-size-fits-all concept is a pitfall. Each retailer is different, and he said to be successful selling organic produce, it needs to be approached in the same manner as selling conventional produce, with complete buy-in by the produce department manager and clerks. Lack of variety and poor signage are typical pitfalls.

“You are going to fail with poor signage or no signage,” he said. “You have to tell your customers where it is.”

He added that the “set-it-and-forget-it” approach is also lacking, observing that some retailers get an organic produce delivery maybe twice a week and those are the only two days that staff pays attention to those displays. “That won’t work,” he said.

Carroll agreed, as Gelson’s does not treat organic produce as a separate category but rather each item falls into its produce category. For example, organic and conventional apples make up the apple category. When it comes to a measurement such as shrink, Gelson’s measures it against sales without differentiating the growing technique. Carroll believes this creates a better situation for organic produce to succeed.

The panelists agreed that one of the biggest issues with organic produce is making sure it is rung up properly at the register. For the most part, organic produce pricing is higher than the conventional product and it’s a problem if it isn’t being rung up as an organic item.  Exacerbating this issue is the general perception that the consumer buying organics tends to want less packaging and no stickers, which are common ways to assure the proper ring at the register.

The retailers indicated there are several ways to guard against this. At Sprouts, checkers are required to walk the produce department prior to their shift to familiarize themselves with the offerings of that day.

It was also suggested that produce department personnel engage organic shoppers, explaining to them the need for PLU stickers and packaging, with the proper ring up at the register being very important to helping retailers increase their organic produce items.