Safeway to Roll Out House Brands to Grocery Stores Nationwide

Launch of O Organics, Eating Right Follows Success in Own Aisles

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CHICAGO (AdAge.com) -- Following a big success in its own aisles, Safeway is rolling its organic house brand, O Organics, and better-for-you brand, Eating Right, into competitive grocery-chains nationwide this fall.
Safeway's O Organics line consists of about 300 items in more than 30 categories.
Safeway's O Organics line consists of about 300 items in more than 30 categories.

James White, president of Safeway's Lucerne Foods, said the house brand is "democratizing" the organics market by "making organics available for everyone." He said both lines represent a "great-tasting, highest-quality, more-affordable option [than established organic brands], which allows for the mainstreaming of market." He declined to say how far his products will undercut established organic players on price.

Mr. White is a 20-year marketing veteran who has worked with a variety of iconic brands including Gillette, Nestle, Purina and Coca-Cola. He also serves as Safeway's senior VP-consumer brands.

Strong early sales
Early sales have been exceptionally strong. O Organics rung up an impressive $150 million in first-year receipts in 2005, well past the critical $100 million benchmark for new products. The product line, which consists of about 300 items in more than 30 categories, is expected to surpass $400 million in sales this year at Safeway's 1,700* locations alone. Eating Right products, engineered to provide specific health benefits, such as high fiber content, is expected to bring in about $200 million in Safeway sales this year.

Mr. White maintains that the economy isn't affecting the organic segment's pricing power. "There is a significant consumer market for organics, and I don't think that will slow down," he said.
Eating Right products, engineered to provide specific health benefits, such as high fiber content, is expected to bring in about $200 million in Safeway sales this year.
Eating Right products, engineered to provide specific health benefits, such as high fiber content, is expected to bring in about $200 million in Safeway sales this year.

According to market research firm Mintel, organic food sales at retail channels excluding Wal-Mart will reach $4.8 billion this year and $6.8 billion by 2012. But Lynn Dornblaser, director-consumer package-goods trend insight, cautioned that the market is likely to hit a wall in the short term. After all, less than 1% of U.S. cropland is certified organic by the USDA, and it's one of the world's largest organic producers. She added that Whole Foods' most recent earnings, down 31%, point to a deeper problem in the organic market: Consumers will trade down when they're short on cash.

"I would guess we'll see organic sales drop off strictly because of price," Ms. Dornblaser said, adding that consumers can choose to buy a value-priced product or a regular-priced item before stepping up to store-brand organics. But since store brands present an alternative to Whole Foods, she said the group is "very clever to do this."

Mr. White said the brands will benefit from "fully integrated" marketing support, but said it was premature to say whether that would include any broadcast TV work. Both lines will be positioned as lifestyle brands. Lucerne's measured-media spending is currently too small to register on TNS Media Intelligence.

Target: new mothers
O Organics specifically targets new mothers looking for cleaner, healthier food. Because convenience is also at a premium, the ability to shop across categories is another benefit. The O line includes a wide variety of products across many segments, currently varying by location, according to the Safeway website. There are a number of staples, such as milk, butter and coffee; heat-and-serve frozen dinners; snacks like popcorn or chips and salsa; condiments; and even ice cream bars.

Once shoppers have a good experience with the brand in the dairy aisle, Mr. White said, they'll have "permission" to look for it in the center of the store. This may be particularly helpful to health-conscious shoppers confused by the plethora of organic, natural and "healthy" labeling system currently in use.

Manufacturing and sourcing of the products is divided by Lucerne Foods, Schreiber Foods, Ready Pac Produce, Overhill Farms and branded O Organics. The food companies are part of by a group called the Better Living Brands Alliance. Other members include Crossmark and Neighbor Agency, which is handling advertising and all aspects of integrated marketing. Mr. White leads the alliance.

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CORRECTION: An earlier version of this story incorrectly stated Safeway had 17,000 stores.
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