Harris Teeter: Food for Thought
1st Half
Profile Introduction:
Harris Teeter operates about 175 supermarkets, mostly in North Carolina, but also in about a half dozen other southeastern states and the District of Columbia. Most of the regional chain’s grocery stores feature niceties such as sushi bars, gourmet delis, cafes, and wine departments. About two-thirds of the stores house pharmacies. Harris Teeter is accelerating its growth particularly in upscale neighborhoods in Maryland, northern Virginia, and Washington, D.C.
Organics Overview:
The organic foods market is growing considerably and the sales of organic food products have increased. In 2006, organic sales of food products through supermarkets, mass merchandisers and natural supermarkets was estimated at $3.6 billion in the U.S., double the amount in 2000. It was estimated in 2006 by The Organic Trade Association that the total sales of organic food and beverage were $13.8 billion. From 2004 through 2006, sales of organic food through supermarkets, drug stores and mass merchandisers (such as Wal-Mart) increased by 38.4 percent. Furthermore, it is estimated that sales of organic foods will increase by 71 percent from 2006 through 2011. Clearly, organic food has become mainstream. For example, out of 125 research and development professionals in the food and beverage industries 61.4 percent desired increased natural or organic ingredient innovations.
Consumer interest in organic foods has been buoyant. This interest is being driven by a number of factors. Customers are becoming more health conscientious and organic foods have been as a more “healthy” alternative to conventionally manufactured foods. Organic foods are viewed as fresher and more nutritious because they require less processing. Customers are also careful with what chemicals they might ingest from produce. Organic farming does not use pesticides to protect crops against molds, insects, and diseases, therefore there is no residue left on produce and can limit their exposure to the residues. Many customers prefer organic food because they taste better than conventional foods. Although taste is a subjective the mentality that organic food is fresher and is produced closer to home it has the feeling of tasting better. Conventional methods to produce foods account for 19% of the fossil fuel usage in the United States. The modern industrialized agriculture use of chemical fertilizers, pesticides, and farming machinery, as well as clearing land to till contribute up to 37% of the greenhouse gases to the atmosphere. [4] Organic farming uses minimal fossil fuels to produce its crops as well as no petrochemicals for fertilizers or pesticides. Organic farming is a more sustainable method of food production and if gasoline prices continue the upward trend it will become the norm.
Also, many supermarket chains such as Kroger and Safeway, are offering private label organic products. Food manufacturers are also increasingly using organic foods as product extensions of their own lines of branded food products. It expected that these trends would continue in the future. Traditional supermarkets and mass merchandisers now account for 58 percent of organic sales. These trends will speed up the supply chain adjustments in the organic foods industry, further reinforcing the convergence of the organic and conventionally produced food markets. This trend has carried over to the restaurant industry. The number of organic claims in restaurant menus is increasing and apparently shows no signs of slowing down.
The alternative to organics is Genetically Modified Organisms (GMO), also known as the conventional foods to the average consumer. The term GM foods or GMOs (genetically-modified organisms) is most commonly used to refer to plants created for human or animal consumption using the latest molecular biology techniques. These plants have been modified in the laboratory to bring about desired traits. GM foods offer a variety of potential benefits and risks. GM foods promise to meet this need by production of plants that are less vulnerable to drought, frost, insects, and viruses and by enabling plants to compete more effectively against weeds for soil nutrients. In a few cases, it has also improved the quality and nutrition of foods by altering their composition. Although GM foods have offered a variety of benefits, it has also raised concerns about its possible risks to the environment and people. The most concerns regarding GM foods fall into three categories: environmental risks, human health risks, and economic concerns.The Coordinated Framework for Regulation of Biotechnology Biotechnology that was published in 1986 was among the first regulation for GM plants and foods in United States. This framework outlined the regulatory approach for reviewing GM plants, including laws, regulations, definitions and labeling.
Harris Teeter Organics Analysis:
Harris Teeter prides itself on being more than just a grocery store. Its wellness center, also known as YourWellness, is posted on a section of its website as one of many tools Harris Teeter is providing you free to its customers looking to healthy eating and diet as a lifestyle. It brings together all the health information customers need and puts it in one easy-to-access place. Whatever a customer’s health concern, they will find information and answers online at the Harris Teeter’s YourWellness center.
A large component of the YourWellness initiative includes the growing number of healthy options presented on store shelves. Wellness keys found on Harris Teeter brand products and shelf tags located in all stores are intended to make it easier for shoppers to discover the health benefits of certain foods. The wellness keys represent a variety of attributes including sugar free, fat free, vegan, heart healthy and can be found on select packages of Harris Teeter brand and HT Natural products. YourWellness e-letters are also a component of the program. Customers can sign up to be an e-letter member at no cost and they will receive a bi-monthly newsletter covering dietary recommendations, recipes, fitness strategies and stress management techniques. The YourWellness for families plan is the final component of the program. The plan is about making lifestyle changes that can lead families to a healthier life for decades to come. The YourWellness for families outlines a 15-week action plan to guide both adults and children toward a healthy lifestyle. It is a life enhancement program, not simply a weight management plan, though aspects of it can be used to help everyone to achieve and maintain a healthy body weight.
Issue:
Harris Teeter introduced its HT Natural products in April 2002, with 26 products. Now, HT Natural has around 200 items, with more items such as organic frozen waffles and salad dressings under development. While HT continues to enhance its market strategy in this growing industry, there is a critical need to complement this with an more robust non-market strategy. As the nation’s third healthiest supermarket, HT needs to assess the non-market environment related to organics now or it risks losing overall market share from the higher income bracket to Whole Foods (or other retailers), and then having to compete more directly with discount food retailers for lower income bracket consumers. This would be exacerbated by their strategic locations in affluent areas.
Major Stakeholders:
To decide what course of action to pursue Harris Teeter must analyze the key stakeholders that will be effected by its non market strategy.
Stakeholder 1 – Supply chain:
Supply chain farmers and producers in the supply chain are directly affected by any changes in Harris Teeter’s food policy. Since the industry boom, the market structure has shifted from supply to demand-driven whereby organic farmers struggle to yield a sufficient supply. Nationwide, this factor has led to almost a quadruple increase in the quantity and number of farms under organic management between 1997 and 2005, primarily comprising conversions from conventional to organic farmlands. In addition to higher profit potential, farmers’ motivations for switching include a desire to avoid chemical use for family, farm-workers and environmental health, as well as an empowered sense of stewardship over their land. However, high transition costs constitute a strong deterrent to such conversions. The United States Department of Agriculture’s National Organic Standards require 3 years of organic farming before farmland’s production can be officially certified as organic. Therefore, the associated financial risks are that farmers are initially only able to sell their organic products without certification at conventional prices while incurring the higher costs of production. Furthermore, lower and lengthier yield periods further restrict farmers conversion capabilities.
Stakeholder 2 – Consumers
Consumers view organic food as a component of “whole health solutions”, diets that promote health and wellbeing,
prevent disease, help cure illnesses and protect the environment. [http://www.fmi.org/media/bg/natural_organic_foods.pdf]
Consumers perceive organic foods as tasting better than conventional foods and cite freshness all as reasons for purchasing organic foods.
Most organic food costs more than conventional food products with the higher prices due to tighter government regulations and lower crop yields. Also organic farmers do not use herbicides or pesticides so farming is more labor intensive and more costly. With the assistance of locally grown producers, Harris Teeter has managed to put some organic produce on the market that costs the same as conventional produce. Harris Teeter decision will benefit consumers by providing a better price for products consumers perceive as being healthier.
Stakeholder 3 – Organic Trade Association:
Organics Trade Association (OTA), a membership-based business association for the organic industry in North America, seeks to promote and protect organic trade to benefit the environment, farmers, the public, and the economy. As a lobbying group on behalf of organic suppliers and handlers, OTA aims to have organic products become a significant part of everyday life, enhancing people’s lives and the environment. OTA represents businesses across the organic supply chain and addresses all things organic, including food, fiber/textiles, personal care products, and new sectors as they develop. Over sixty percent of OTA trade members are small businesses.
Competitors:
1. Whole food
Whole Foods Market (WFM) has 275 stores in the US, Canada, and the UK with sales revenues of over $8 billion in 2008. Throughout its growth the WFM objective has remained clear: to provide customers with high quality foods and other items that are free of preservatives, pesticides, genetic modification, artificial additives and inhumane treatment of animals. Whole Foods is known for its successful non-market strategies that align its product base with a number of food-related social, labor and environmental issues in the US and around the world. This paradigm engenders brand loyalty in a customer base that is willing to spend extra in exchange for an item whose high quality is derived from socially acceptable business practices. However, a study conducted by the Center for the Study of Services in the Greater Washington DC area revealed that Whole Foods prices were between 23% and 25% higher than Harris Teeter. [1]
In July 2009 Whole Foods Quality Standards team collaborated with seed-breeders, processors, manufacturers, distributors and consumers to found a non-profit organization, the Non-GMO Project, to verify and label store brand food products using a consistent methodology. This gave rise to the Product Verification Program that combines on-site facility audits, documentation review and DNA testing at all supply chain levels to verify GMO avoidance. This self-regulation exceeds compliance with the USDA National Organic Standards and raises the bar for its competitors when vying for a consumer based concerned with standards and quality.
[1] 2003 Center for the Studies and Services. “Quality and Prices at Supermarkets” Washington Consumers’ CHECKBOOK Volume 12. No.4
Institutions:
There are four main institutions involved in the labeling, regulatory programs and information component of organics: the Agricultural Marketing Service of the U.S. Department of Agriculture (USDA), U.S Food and Drug Administration, the Congressional Caucus on Organic Agriculture, and the U.S. Federal Trade Commission (FTC). The Organic Foods Production Act (OFPA) of 1990 required the USDA to develop national standards for organically produced agricultural products to assure consumers that agricultural products marketed as organic meet consistent, uniform standards. The OFPA and the National Organic Program regulations require that agricultural products labeled as organic originate from farms or handling operations certified by a State or private entity that has been accredited by USDA. The FTC is the only federal agency involved with protecting consumers and competition jurisdiction in broad sectors of the economy. With these institutions heavily involved in the regulation of organic and GMO foods the issue is in the enforcement stage of the nonmarket life cycle.
(Halfway point – 2500 words)
2nd Half – More or less as planned with slight modifications if our research points us in a different direction.
Alternatives & Recommendation
Going forward Harris Teeter has three alternatives:
Alternative 1:
Harris Teeter could seek to remove itself from the organic food market and focus on providing high quality conventional GM products and provide superior nutritional information to consumers. This option would enable Harris Teeter to carve a niche in the grocery market as not only a supplier of quality products but as a champion of healthy lifestyles. Under this campaign, Harris Teeter would focus on promoting the choice of food versus the method of food production so that it will not have to compete with Whole Foods in the organic arena and provide products that are more cost effective.
This alternative would focus solely on the providing conventional foods to consumers. Harris Teeter could continue to use YourWellness as a marketing tool for healthy eating. The FDA has yet to ascertain that organic foods are any more nutritious or tastier or even safer than conventionally produced foods.http://usda-fda.com/Articles/Organic.htm The benefit of this option is that Harris Teeter would continue focusing on providing high quality foods to its consumers while advocating a healthier lifestyle.
Furthermore, Harris Teeter will not have to bear the high costs of developing organic supply chains. Essentially, Harris Teeter will treat organic foods as a specialty item and allow stores such as Whole Foods that already have a competitive advantage in that market to provide consumers with organic products. However, given that the one consistent factor that influences the consumer purchases of organic foods is education Dimitri, Corlyn and Lydia Oberholtzer. Marketing U.S. Organic Foods: Recent Trends From Farms to Consumers. Economic Information Bulletin No.58. U.S. Dept. of Agriculture, Economic Research Service, September 2009. , this option may not be the most beneficial to Harris Teeter. Harris Teeter has established itself in very upscale areas and it must cater to their growing appetite for organic foods or risk encroachment on these markets by competitors. Additonally, organic foods are more expensive compared to conventional foods so Harris Teeter is in a good position to offer pricier foods to consumers with greater amounts of disposable income.
Alternative 2:
Under the second alternative, Harris Teeter could rapidly expand the organic food section and attempt to compete with Whole Foods directly. Harris Teeter can focus on expanding the choice of organic items that are locally produced for the high-end consumer. It can carve out a competitive advantage in overall quality against Whole Foods by offering a wider variety of products. This alternative would have Harris Teeter aggressively vying for market share in the organic food market including an immediate expansion of the organic products offered. Organic foods are the fastest growing US food segment with increasing sales across the market. The YourWellness campaign can be expanded to include more than healthy nutritious food choices but inform consumers about issues within the sustainability and local environment issues that organic farming and foods can help alleviate. There is also an abundant amount of local producers near the areas Harris Teeter is located. Harris Teeter can make the connection that organic foods provide for a better lifestyle not only in diet but also in increasing the sustainability of the community. This strategy will put Harris Teeter in direct competition with the better established Whole Foods in the organic foods market. In direct competition, Whole Foods does have an advantage and it will take a substantial effort to establish supply chains and _include Whole Foods advantages___
Alternative 3:
Gradual expansion of the YourWellness campaign and include an expanded organic and conventional GM food stock to offer to customers. Continue to focus on nutritional value and healthy lifestyles. Also can promote benefits of organic foods over GM methods steer customers towards the more beneficial choices.
Include how Harris Teeter can expand its supply chain for increasing supply and undercutting price
Lobby to OTA and independent lobby groups
-Govermental (Green) Subsides
The Food, Conservation, and Energy Act of 2008 (2008 Farm Act) includes a five-fold increase in mandatory funding for organic programs over funds mandated in the previous legislation, and authorizes additional funding for many new and existing programs. Most of the mandatory funds go to two existing organic programs�the organic research program and cost-share assistance program to help growers and handlers with organic certification costs. The legislation includes new organic provisions on credit, trade, and crop insurance.
FCEA provides increased support for organic production and processing in several ways, ranging from sharing the cost for organic certification and transitioning to organic farming, to funding research and establishing new organic friendly crop insurance. It also provides financial incentives to reward conservation, energy efficiency and renewable energy efforts. Overall, the bill allocates $112 million in direct, mandatory funding for organic programs, with additional authorization for more than $100 million in discretionary appropriations over the life of the bill. Assistance to organic producers and processors from other programs could add hundreds of millions more. The mixture of direct and indirect assistance available in this Farm Bill for organic production and processing is a historic step forward for organic agriculture and manufacturing
-Loan Assistance for Farmers to convert to organic farms, SME producers
Providing loan assistance to farmers so that they may convert to organic farms may provide many individual and much broader social benefits. The incentive for farmers to convert to organic farming should result in increase in the number of organic farms and increase the amount of organic foods in stores.
-favorable loan rates
In addition to the direct subsidy for organic certification, processors can take advantage of newly authorized local food enterprise guaranteed loans under the Business and Industry Loan Program (Section 6015). Although not specific to organic foods, loans can be used to support and establish enterprises that process, distribute, aggregate, store and market foods produced either in-state or transported less than 400 miles. Existing organic processors looking to enhance their enterprises or new processors looking to specialize in local food processing can benefit from this new provision. Like the National Organic Certification Cost Share Program, the authorization for local food enterprise guaranteed loans not only offers direct support to organic processors, but can help increase the availability of organic ingredients.
In addition to the National Organic Certification Cost Share Program, organic processors can help connect producers with several other support programs that are now available to them as a result of the 2008 Farm Bill. Most noteworthy is the availability of financial and technical assistance to help farmers transition to organic. Processors with long-range plans for developing domestic supplies of organic agricultural ingredients can leverage these programs to assist the growth and conversion of farm and ranch suppliers. This might include assisting growers with the application process, or simply publicizing the opportunity for conversion assistance to potential agricultural suppliers.
Another big win for organic farmers is an increase in incentives for conservation efforts. Successful organic production relies on the complex interaction of a number of conservation practices and in the past organic producers have received little assistance from the federal conservation programs in implementing these practices. Now, the 2008 Farm Bill rewards these practices, paving the way for access to the two largest working land conservation programs.
-Change current transition period for farms
II
Change Diversity of products
-HT better diversity of product base than whole foods.
– continue US organic stuyin saying diversity leads to more sales
The third alternative would have Harris Teeter gradually expand its selection of organic foods while keeping the conventionally GM produced foods. Based upon the drastic changes Harris Teeter must go through to implement the previous two alternatives, having a gradual change in the type of food offered is the most prudent course of action. The YourWellness campaign can be expanded to consumer to provide them with greater amounts of information on
products where organic may be the best option or where it would not matter if the choice is between a GM or organic. Harris Teeter can expand its portfolio of organic foods and still be a champion on consumer choice and offer consumer options that they will decide individually is the best value.
Stakeholders Promotion of sustainable lifestyle
Opponents – not completely giving into one market or another will benefit by having all options
By expanding consumer choice Harris Teeter will also be able to gain marrket share from Whole Foods. According to a study performed by the Center of Service, Harris Teeter and Whole Foods have almost identical consumer overall quality ratings. The study showed that Harris Teeter was behind Whole Foods in the area of variety of fresh produce. While Harris Teeter had the advantage in the variety of other products. By gradually expanding the amount of organic food Harris Teeter will carry they will be able to close the gap on Whole Foods advantage in variety of fresh produce and overtake Whole Foods in overall consumer ratings. (Center for the Study of Services, “Quality and Prices at Supermarkets” ,Washington Consumers’ CHECKBOOK, Volume, 12, No. 4)
Although gradually expanding the offering of organic foods may be the best option there are unintended consequences. If the organic food offerings is expanded as well as the YourWellness campaign that focuses on the most beneficial options in organics, this may convert buyers of conventional GM foods to organic which may also convert consumers to stores that specialize in organic foods. Additionally consumers who take pride in buying organic and supporting the sustainability of their surroundings may be more inclined to shop at farmers markets as well as consumers who are looking for better deals and convience is less a factor. Another unintended consequence is that by offering a greater variety there are physical space limitations on the amount of products a single Harris Teeter store can hold. Stakeholders and opponents may be appeased that their products are offered but Harris Teeter may have to make difficult choices on which product to carry if there is a limited amount of shelf space. Proactively, Harris Teeter must decide what will be the optimal balance and focus of the grocery store and how the YouWellness campaign will be used to direct the stores position in the future.