Market Information
United States

The Natural Products Market in the
Tri-State Area

April 2002

Prepared by
The Canadian Consulate General in New York

Department of Foreign Affairs and International Trade
The Natural Products Market in the Tri-State Area

Report prepared by the Canadian Consulate General in New York

1251 Avenue of the Americas
New York, NY 10020-1175
Fax: 212-596-1790
Web site: http://www.canapple.org

The Government of Canada used primary and secondary sources of information to prepare this report. Consequently, the Government of Canada in no way guarantees the accuracy of the information contained herein, nor does it support the organizations listed. It is therefore up to readers to verify the accuracy and reliability of the information contained in this report.

A Brief History
Health/Natural Food Category

Organics
Health Benefit Based on Specific Need
Healthy Lifestyle
Natural Foods

Specialty Foods
Food Distribution in the Tri-State Area

The food Chain for Natural Foods
Retailers
Distribution Networks
Brokers

Key Trade Events
Key Industry Web Sites

A Brief History

The natural food industry has existed for many years. However, it is only over the past two decades with the consolidation of many of its key members, and an overwhelming consumer acceptance, has it emerged as a vital growth segment of the United States food industry. Over the years the industry has been referred to, sometimes derisively, as the Health Food Industry. In recent years, perhaps trying to shed that image, it has increasingly referred to itself as the Natural Foods or Natural Products industry.

Health/Natural Food Category

The natural food industry in the United States is valued at between $20 billion and $30 billion. Some estimates indicate that sales in 2002 will reach as high as $40 billion. Since the industry tends to be supplied on a regional basis, it is difficult to discern the exact volume in the tri-state area. However, using the generally consistent sales percentage of the region, and factoring in that the demographics for the area are right for category sales, it is reasonable to conclude that retail sales in 2002 will be in excess of $3.5 billion.

The four major categories for natural food products are 1) organics, 2) products with a health benefit fulfilling a specific need or general physical improvement, 3) products that fit a "healthy" lifestyle, and 4) health foods which are perceived to be healthier than their mass manufactured counter parts. For a product to be considered within the health/natural food category, it requires at least one of these attributes, while not violating the standards generally acceptable for natural foods. However, the lack of definition for what is acceptable tends to create a spectrum of products, with various things acceptable to some users, but not to others. Product attributes not only determine what consumers are willing to purchase, but also what products retailers and distributors are willing to stock, and even on what products producers will bring to market. Illustrative of this is an excerpt from the web site of Eden Foods, a major manufacturer of products widely distributed in the natural food industry:

We have seen the definition of 'natural food' weaken over the years, as companies seek 'crossover customers' and higher profit margins. Refined sugar, refined flour, refined salt, and refined oil have become acceptable ingredients to many in the natural food industry. Products with excessive fat, excessive sugar, excessive salt, and excessive packaging, have appeared in the category. Organic raw goods and ingredients are now largely acquired by other companies through commodity brokers and distributors. Some companies sell food as 'certified organic' when it is not authentically organic food. Others buy soy and rice in cheap, powdered, dehydrated form, mix it with water, and sell it as "whole" soy milk and rice milk.

In most cases the industry is self-regulated with regard to product acceptability. The Food and Drug Administration (FDA) and United States Department of Agriculture (USDA) regulate all food and drug products sold in the United States and limit some of the ingredients allowable. However, nearly any of the ingredients that are government restricted would be unacceptable in the natural food industry at any rate. There are some areas where conflict does exist, especially in the area of homeopathy or natural remedies, when regulatory agencies believe that a specific natural product may have toxic properties and could be harmful, while some within the natural food industry find them acceptable and perhaps even beneficial. This is similar to the criticism regarding some pharmaceuticals that are prohibited for sale in the United States even though there are adherents who believe that that can be effective in many cases.

Organics

This is the fastest growing segment of the natural food industry. This segment is currently enjoying 20% annual growth, and some estimates expect that by 2010 it will be larger than the entire natural food industry was in 2000.

The organic segment is probably the most regulated area of natural foods. As part of industry self-regulation practices, certification of products as organic are recognized by certifying agencies. The most widely recognized certifying agency is CCOF (California Certified Organic Farmers). Founded in 1973, this association has been inspecting and certifying that food growers use acceptable criteria for food production. In 1990 Congress passed the Organic Foods Production Act, which relied heavily on standards which were in effect in California. Today numerous certifying agencies exist throughout the world.

Over the past several years the USDA has sought to establish standards by which products can claim to be "organic." With the issuance of the USDA Final Rule in December 2000, the process is now in a transition period. Full implementation of the rule is expected by the end of 2002. Specifically, an organic farming system requires adherence to sound ecological practices which allows only biological pest management and composting, and the elimination of all synthetic chemicals, antibiotics, hormones, and genetically modified organisms. The criteria for a claim of "organic" is precise in definition. Information specific to the rule can be found on the USDA web site at http://www.ams.usda.gov/nop. Included in the USDA Final Rule is provision for continuation and extension of certifying agents in the program. As of February 20, 2002, 97 agencies had applied for inclusion. Five of these applications have been from Canadian agencies. A complete list of currently approved agencies can be found on the above web site.

To the consumer, the growth in organics is fueled by a general sense that foods produced within the guidelines of organic certification are healthier, safer, more nutritious, and better for the environment. Some major areas of concern to consumers are the use of food irradiation, use of Bovine Growth Hormone (BGH), and pesticide and fertilizer residues in foods. Consumption of organically produced foods is assumed to reduce these risk factors.

Another major concern has been in the area of genetic engineering. All organic products would be required to be GMO (genetically modified organism) free. However, the issue as to whether products can be labeled "GMO free" or conversely whether foods that have been modified must be labeled as such, still rages.

Also significant in the growth of the organic segment, is that standardization as handed down by the USDA, hopefully has added to the assurance that organic claims are viable and meaningful. A third key aspect to the increased sale of organic products is their wider availability at retail outlets. Many supermarkets have devoted areas within the produce section of their stores for fresh organic products.

Worldwide, the outbreaks of Foot and Mouth Disease and Mad Cow have been significant factors in increasing consumer demand for organics. This has not been a major factor in the United States, but should incidents increase, especially domestically, it would most likely have an effect. Products that meet the criteria for organic certification generally are not as price sensitive as products that do not. Consumers are willing to pay a premium for the perceived benefits and assumed increased production cost of organic products. In general, the acceptable premium is approximately 20%-25%, although it varies by product category. It is important to realize that while there is price elasticity, it is not boundless.

Health Benefit Based on Specific Need

Products sold in the natural food industry often do not fit neatly into a limited category. While nearly all products are sold based on some component of healthiness, some are targeted to alleviate an existing condition, while others operate more as a general preventative, and most fall somewhere in between. People on restricted diets, such as diabetics, people needing to restrict sodium intake, and persons with food allergies, are primary consumers at venues featuring natural foods. As outlets feature a variety of products that may be low fat, low cholesterol, low carbohydrate, high protein, or have some other specific quality to promote, those who see these qualities as essential for their diet are drawn to them. Supplements sold in natural food venues are also important to many who see them as treatments and/or preventatives for various ailments. Frequently medical research and theories surface as to the best treatment of ailments and to the best maintenance of general health. Quite often the earliest users and proponents of the products generated by these ideas are introduced in the natural food industry. Over the past several years these aspects have been illustrated by the increased use of soy products and the growing body of evidence that there may be significant medical advantages to the intake of soy. The almost instantaneous establishment of soymilk as a mainstream item that is found in every grocery store is a testament to the power of the natural food industry to shape behavior. The use of supplements such as Echinacea, St. John's Wort and Ginkgo Biloba has skyrocketed over the past several years. Each is purported to have medicinal value, and each is firmly rooted in the natural product environment.

However, the entire area of supposed health benefits falls in a gray area. Health claims by manufacturers and sellers are frowned upon, and in many cases are illegal, and can often bring down sanctions by government regulators. Word of mouth and third-hand endorsements are often the driving force behind such products.

Healthy Lifestyle

Frequently the consumer of natural products fits a profile that is described by the acronym LOHAS (Lifestyles of Health and Sustainability). The natural food consciousness is only one part of a larger picture. Generally this consumer is more affluent and has more education than the general populace. According to Natural Business Online, The LOHAS market comprises five core market segments-Sustainable Economy, Healthy Lifestyles, Personal Development, Alternative Healthcare and Ecological Lifestyles. The five segments combined represented a $226.8 billion U.S. market and an estimated $546 billion global market in 2000. Within each of these five segments are many specific categories of products and services across a vast array of businesses and industries.

Consistent with, but not exclusive to, Lifestyles of Health and Sustainability is a trend towards vegetarian and vegan food consumption. There are issues of whether applying resources used for raising animals for food is inefficient and is ultimately harmful to the planet. In addition, some people oppose eating meat, and/or animal based products on moral grounds based on cruelty and animal rights. Since many companies that market through natural food channels produce non- animal based products, the consumer looking for such products is drawn to outlets which feature natural food products.

Natural Foods

Simply stated, natural foods are those that have no artificial ingredients, no artificial preservatives, no processed foods, and no unnecessary coloring agents. Yet, even within this definition there are conflicting viewpoints. As we have seen earlier in the statement by Eden Food, consensus as to what is acceptable and what is not is hard to come by.

While natural foods is the broadest based criteria for products in the natural products area, it certainly is not limitless. It would be hard to imagine that should a producer grow organic tobacco, the cigarettes would be readily acceptable in natural food venues. The industry has been consistent in not selling products that are harmful or unhealthy, however, it has at times wrestled with what those products are.

In reality, there is a funnel affect that determines acceptability of products. As products are presented for sale through the distribution chain, the less in conformity with the recognized standards, the less likely the product is to reach the consumer, and to be ultimately purchased by the consumer.

Overall, the natural food industry is evolving, and in many ways is self-defining. Its primary role is to make healthy and socially acceptable products available to the consumer. As mainstream grocery channels have offered only limited product availability with regard to healthy and natural foods, the natural food industry has filled the gap by expanding availability with alternative channels of distribution.

Specialty Foods

Paralleling the natural food industry is the specialty food industry. Whereas the primary criterion for natural foods is its processing and healthfulness, the primary criteria for specialty food is uniqueness, quality, and taste. These attributes are not necessarily mutually exclusive. In fact, the specialty food industry presents numerous opportunities for quality natural foods, especially in the area of organic products. Generally however, the specialty food industry uses different distribution channels than natural foods, and these should be explored separately.

Food Distribution in the Tri-State Area

For most food products, the primary channel of food distribution in the tri-state area of New York, New Jersey and Connecticut, is accomplished by manufacturers selling their products to grocery chain warehouses or to wholesale grocers, who supply supermarkets directly. This system operates best for high-volume, low-margin products that sell widely across the broad spectrum of consumers. The direct wholesaler works on small margins, and thus space, time, and investment dollars are at a premium. In many cases, the direct wholesaler requires substantial advance payments from manufacturers to stock their products, and to help defray the costs of set- up, initial sales, and for the opportunity costs of replacing existing items with new and unproven products. Finally, if products do not sell at sufficient volume, the direct wholesaler is quick to replace them with other, more promising products.

Specialized products, which appeal to a more limited group of consumers, often fall into two (not mutually exclusive) categories: specialty foods and natural foods. For each of these categories there exists an alternative distribution channel which is designed to reach consumers seeking such products, by placing them in an appropriate retail setting.

The Food Chain for Natural Foods

Placing products in retail stores for purchase by consumers generally requires four participants in the process: manufacturer, broker, distributor, and retailer. Each plays a vital role and has a unique responsibility in bringing products to market. We will explore the role each plays in the process. In the first half of this presentation we looked at the consumer of natural products, and his/her uniqueness. Now we look at the process of bringing products designed to fit the needs of this consumer to the marketplace.

Retailers

There are numerous categories of retail accounts selling natural foods. Among these are traditional supermarkets, natural food supermarkets, health/natural stores and small chains, drug stores, warehouse clubs, greengrocers, specialty stores, and food co-ops.

Traditional Supermarkets: While natural foods are not the primary category of products stocked at the major chains markets in the area, the large customer traffic flow makes it the leading venue for the purchase of these items. As the demand for natural and organic food grows, and the profitability of these offerings becomes even more apparent, these retail venues will increase the allotment of space for natural foods. This will result in an even greater expansion of sales.

It is rare, however, that the chain's primary distribution system, be it chain warehouse or wholesale grocer, would handle natural products. An exception to this is sometimes found in the fresh produce section as perishability and relatively high volume makes it advantageous to handle these along side non-organics. As a rule, natural and organic shelf-stable products are serviced by a distributor, who handles the ordering, shelf maintenance, and frequently the pack-out of the products onto store shelves. Depending upon the chain, the distributor utilized might either be a natural food or a specialty food distributor. Generally chains hold contractual arrangements that define which distributors handle which class of products. Sometimes one distributor handles all specialty and natural DSD (direct store delivery) products, and sometimes the authorizations are split between two or more distributors.

Depending on customer demographics and chain marketing strategy, some chains in the tri-state area place a greater emphasis on natural and organic products than others.

The chains with the greatest emphasis on this category, and the location of their headquarters are:

The Food Emporium - Dobbs Ferry, NY
Kings Supermarkets - Parsippany, NJ
Wakefern Food Corp / Shop Rite Stores - Elizabeth, NJ
Stop and Shop - Boston, MA
Dagostino Super Markets - Larchmont, NY
Wegman's Super Markets - Rochester, NY

Other chains with significant emphasis on natural foods are:

Gristedes - New York, NY
Pathmark - Carteret, NJ
A & P Super Markets - Montvale, NJ
King Kullen - Westbury, NY

Traditional Supermarkets generally work on margins of between 28% and 33% for products of this nature.

Natural Food Supermarkets: Over the past decade a new class of retailer has reached the forefront. Unlike the traditional supermarket, this retailer focuses attention specifically on healthy natural foods. The target demographic is the consumer who shops for natural and organic products exclusively, or predominantly, and allows this shopper the ability to find the types of products that they seek quickly and easily. Focusing on the LOHAS lifestyle, a greater emphasis is placed on products such as environmentally friendly household products, and these chains often sponsor classes, forums, and community projects that focus on sustainable lifestyle issues. Natural food supermarkets are generally serviced by natural food distributors, with some supplemental product purchased through specialty or grocery distributors.

The leading natural food supermarket in the tri-state area is Whole Foods Markets. Another type of natural supermarket, but with an emphasis on supplements, is GNC stores which proliferate at malls and shopping centers throughout the tri-state area. Natural food supermarkets generally work on margins of between 30% and 35% for products of this nature.

Health/Natural Food Stores: Independently owned and operated health/natural food stores and small chains, have long been a staple in the tri-state area. Drawing from a local clientele, these small stores (generally less than 7,000-sq. ft.) provide a diverse assortment of natural products as well as product knowledge and advice. Some of the key retailers in this category are Mrs. Green's Natural Foods, The Health Nuts, and dozens of other single unit stores.

Health/Natural food stores are generally serviced by natural food distributors, both by the larger national/regional distributors and by small local distributors as well. Health/Natural food stores generally work on margins of between 35% and 50% for products of this nature.

Drug Stores/Pharmacies: Perhaps surprisingly, in the tri-state area drug stores and pharmacies are not particularly effective outlets for natural and organic foods, except in the snack category. Natural snacks sell well and are a staple in this class of trade. In general, drug stores look for sharp prices and widely accepted items. Since natural food items generally do not fit these criteria they are usually not handled in this class of trade.

The major drug chains operating in the tri-state area are:

Duane Reade
Rite Aid
Eckerd/Genovese
CVS

Warehouse Clubs: Warehouse clubs feature large quantity retail purchases generally in extra large sized or multi-packs. While major clubs such as BJ's Wholesale Club, Sam's Club, and Costco operate retail outlets in the tri-state area, there are no local sales opportunities that generate from this area.

Greengrocers: One distinctive class of trade prevalent in the tri-state area and not frequently seen elsewhere, is the greengrocer trade. These retail outlets are generally small produce stores that carry a myriad of other products including cut flowers, fresh bread, cheeses, packaged groceries, and sometimes even fresh seafood and/or meat. They are found on nearly every street in Manhattan, and are scattered throughout the outer boroughs and suburbs as well. These stores are generally owned and managed by Asian immigrants (mostly Korean), but cater to the local clientele. The products that they sell frequently have a predominance of natural, organic, and specialty items. These shops are serviced by several distributors of Korean descent. Since many of the stores are in high-rent areas, margins of 45% to 55% are not unusual.

Specialty Stores: Unlike natural food retailers, the primary sales point for most specialty stores is quality, uniqueness, and taste. When natural and organic foods fit those criteria, the health benefits present a bonus to the consumer of the specialty store. In addition, the demographics of the specialty store shopper are quite similar to the natural food shopper, especially in terms of education and income.

Specialty stores are most often supplied by specialty distributors who are predominantly regional or local in scope. They tend to be smaller than the grocery distributors (who do some sales to specialty stores, but it is not a major part of their business). They may even be individual entrepreneurs who have a truck, a small warehouse area, and a lot of energy.

Specialty stores tend to cluster in Manhattan, higher income suburbs, areas where weekenders have second homes, and tourist and vacation areas. Retail pricing is generally not highly price sensitive, and these store generally work on margins of 40% to 55% and above, most often on the higher side.

Co-ops: Since users of natural foods often share similar lifestyles, many have banded together and formed membership groups. These groups purchase in a cooperative fashion to receive better prices and to make certain that they have availability of products that they desire. Some of these co-ops make products available to people outside the group, as well. In the tri-state area some of the major co-ops are:

Connecticut

Earth Balance, LLC - (Taftville)
Willimantic Food Co-op - (Willimantic)

New Jersey

George Street Co-op - (New Brunswick)
In Good Taste - (Vineland)
Sussex County Food Co-op, Inc - (Newton)

New York

4th Street Food Co-op - (New York)
Esperance Co-op -(Pattersonville)
Flatbush Food Co-op - (Brooklyn)
GreenPeople- (High Falls)
Hungry Hollow Co-op - (Chestnut Ridge)
Park Slope Food Co-op - (Brooklyn)
Purchase College Food Co-op - (Purchase)
Sweet Potatoes Organic Market & Eatery - (Huntington)
Twin Pines Food Co-op (Port Washington)

Specialty Stores Hybrid: Relatively new to the tri-state area is Trader Joe's. Since purchasing for this national chain is done outside the local market, we will just describe this chain because of its uniqueness. Unlike most specialty stores it focuses on featuring quality products at aggressively low prices. Natural foods and organic products fit the sales profile quite well, as long as they can be retailed at a sharp price. This chain prefers private labeling its products whenever possible.

Distribution Networks

Several distribution networks exist to allow manufacturers to get products to market in the tri- state area. Many of these service the market on a regional basis, and are not necessarily headquartered within the tri-state area. The type of network that operates best for a particular manufacturer is primarily dictated by the type of product, and the target retail outlet. In some cases a single distributor may serve well in two or more areas of distribution. In other cases it may be necessary to utilize multiple distribution networks, and multiple distributors, to cover the intended market.

Some of the available distribution networks for natural and organic food producers are:

Natural Foods Distributors
Greengrocer Distributors
Specialty Foods Distributors
Grocery Distributors
Food Service Distributors
Produce Distributors
Beverage Distributors
Direct Warehouse/Wholesale Grocers

Natural Foods Distributors: Most likely the natural food distributor provides the best distribution potential for manufacturers of natural and organic products. The business of this group is focused directly on the wishes, requirements, and methodology of doing business within this trade segment. They are the primary source of supply for all of the natural food retailers and always have the attention of their customers. They coordinate marketing programs, deliver product, and provide industry information in an environment where information is vital. Perhaps most importantly, they are purchasers of products from the manufacturers, and have the responsibility for payment of invoices. This relieves the manufacturer from handling multiple accounts receivable, including the verification of credit or assuming the risk for, numerous retailers. Natural Food Distributors work on margins between 28% and 35%.

These distributors vary widely in size. The largest, United Naturals, is a single division of a national company servicing nearly every natural food outlet in the nation. The second largest distributor, Tree of Life, is nearly as large nationally, but somewhat smaller in the tri-state region.

Some Natural Food Distributors servicing the tri-state area are:

United Natural Foods
260 Lake Road, Dayville, CT 06241

Tree of Life N.E.
PO Box 852, North Bergen, NJ 07047

Northeast Cooperatives
49 Bennet Drive/PO Box 8188, Brattleboro, VT 05304

The Bridge
24 Village Green Drive, Litchfield, CT 06759

Natural Food Distributing
77 South Main Street, Newtown, CT 06470

Island Natural
4207 20th Ave, Long Island City, NY 11105

Smokey Bay Foods
22 Clarkson Court, Paramus, NJ 07652

Greengrocer Distributors: As was noted, this group of mostly Korean businessmen service the produce and specialty shops that proliferate in the area. They sell and service these accounts working on margins between 25% and 35%.

Several key greengrocer distributors are:

J & J Distributing
1350 Lafayette Avenue, Bronx, NY 10474

Morning Calm
47-10 Grand Avenue, Maspeth, NY 11378

Novel Foods
865 East 135th Street, Bronx, NY 10458

Specialty Food Distributors: These distributors do not focus on natural and organic products, but these categories remain an important part of their product offerings. While they do cross paths with Natural Distributors at some retailers, they service a broad spectrum of stores and offer excellent opportunities for quality natural and organic foods. The effective margins for specialty food distributors average about 32%.

Key specialty distributors in the area are:

Steiner Food Company
510 North Avenue, New Rochelle, NY 10802

Newmarket Fine Foods
1 Evertrust Plaza, Jersey City, NJ 07508

Nassau Candy Company
530 West John Street, Hicksville, NY 11801

Grocery Distributors: Grocery distributors service the major supermarkets in the tri-state area. Some also service specialty stores and other classes of trade. Depending on their agreements with the chains that they service, they may or may not have primary responsibility for natural and organic products in the stores. However, they almost always have this responsibility somewhere, and thus are required to stock these products. Based upon the level of service that they are required to provide, they work on margins of 30% to 38%. The scope of these distributors is regional, and few are based in the tri-state area.

The major grocery distributors serving the area are:

Gourmet Award Foods
4294 Albany Street/PO 12579, Albany, NY 12212

Millbrook Distribution
PO Box 454, Leicester, MA 01524

Haddon House Food
250 Old Marlton Pike, Medford, NJ 08055

Fleming GMD-KOP
201 West Church Road, King of Prussia, PA 19406

Cavallaro Specialty Foods
5881 Court Street Road, Syracuse, NY 13206

Davidson Co
30 Fieldstone Ct , Cheshire, CT

Brokers

The lynchpin of the entire natural food distribution system is the broker. His contacts, knowledge, sales force, planning, accounting, communication network, and tenacity pull together what would be an otherwise unwieldy network of participants working toward their own self- interests. The broker does not take ownership of product, but does take command of the entire sales process. The broker functions as an agent of the manufacturer. Since the distributors tend to be regional and cover a wide geographic territory, brokers in the natural food industry likewise tend to be regional in scope.

Key to the success of the sales process are the relationships that a broker has developed and his reputation in the industry. His interaction with the various participants in the sales process is critical to the successful introduction and on-going sales of any product.

As complete as this report may be, it is unable to outline all of the nuances and individual circumstances that confront any manufacturer attempting to enter the natural food industry. As in most things, the rules are general, and there are many exceptions and additions, and in fact, many day to day changes. A well-qualified natural food broker, whose job is to keep abreast of these things, is critical in the planning and continuing sales process.

Broker/Manufacturer: The broker acts as an agent for the manufacturer. The relationship is generally an exclusive one within the agreed parameters. These parameters may be geographic, class of trade, or based upon some other distinction.

As an active participant in the industry, the broker keeps abreast of new trends, industry developments, successful and unsuccessful sales strategies used by others, marketing tools that have proven effective and those that have not, the best ways to approach the decision makers, and all of the other key points that a professional needs to know in order to be effective. With this knowledge he is able to work with the manufacturer to formulate a strategy targeted specifically for success in the proper channels.

In many cases, when new products, or even products that are already in stock, are to be introduced or promoted, there are negotiations as to the conditions under which a distributor agrees to purchase and distribute products. A broker's industry knowledge and advice with regard to whether certain agreements are advisable or not, are often vital in helping the manufacturer make the proper decisions.

Broker/Distributor: The broker, functioning as the manufacturer's representative, makes new product presentations to the distributors. He negotiates the terms of the sale in the interest of his principal (the manufacturer). Generally the manufacturer reserves the right to finalize any agreement.

On an on-going basis, the distributor provides many merchandising opportunities to the broker for the promotion of his products. Among these are ads in merchandising flyers, newspaper and direct mailer inserts, and demo programs. There are direct costs to the manufacturer for these vehicles, but they generally prove effective as a method to increase sales, IF they get the proper follow through, which means the broker's sales force soliciting orders from retailers as part of the program.

Promotion is an important factor in building business within the industry. In general, the manufacturer offers a temporary price reduction, generally in the range of 15% to 20%. In many cases the distributor will agree to also reduce his margin in order to lower the price to a more attractive retail, somewhere in the 25% off range. Negotiating these agreements, and making certain that everything works properly in the implementation is a key service that the broker provides to the manufacturer, distributor, and retailer.

Overall, the broker forms a working relationship with the distributor, and as a bridge to the manufacturer, makes certain that everything gets done as agreed.

Broker/Retailer: In the natural food industry, the broker takes an active role in the sales, placement, display, marketing, merchandising, demonstration of products, and resetting store shelves. Naturally, the purpose of these merchandising opportunities is to increase sales. One key broker's function is to introduce the retailer to new products and solicit purchase for these items through the appropriate distributor. The broker also keeps the retailer informed as to upcoming programs and promotions. Brokers arrange in-store demo programs, and negotiate for best display and shelf locations. In short, the broker "takes possession" of the store and assumes a proactive role to maximize sales and profitability at each venue.

In support of this goal, the broker generally is able to offer incentives directly to the retailer for the purchase of display quantities of merchandise. Most often these are accomplished by use of Manufacturer's Chargebacks (MCB's). If the retailer meets a required purchasing level, he receives a discount from the distributor, who then "charges back" the cost to the manufacturer. This is usually done by deduction from an invoice. Needless to say, this system generates significant record keeping, and it is most important that the broker documents and regulates these deductions, to keep this significant expenditure under control. In addition, the payments for participation in flyers and ad programs are also made by invoice deduction. Keeping these deductions reconciled is imperative since generally distributors do not wish to research deductions after a period of time has passed, and may charge manufacturer's to do so.

The role of the broker is critical in making certain that the system functions as it should. Brokers work on a commission basis which often has a base level, and has incentives that increase the rate. In many cases, new and underperforming companies looking for broker representation are asked to work on a retainer basis. This is because the broker is expected to devote substantial time and effort into establishing a product line before significant commissions will be generated. This is a negotiable point and one in which the manufacture and broker must be in agreement. Some brokers are specialists in the natural food industry, devoting nearly all of their time and energies to that class of trade. Some natural food brokers do function well in other classes of trade, such as specialty foods and grocery, while some do not. Some specialty food brokers are excellent at representing natural and organic products in the grocery and specialty classes of trade, but do not function well within the natural food realm. Some natural food brokers are divisions of large brokerages with other divisions for specialty and grocery products. How a manufacturer's products fit with a particular broker, and whether he or she decides to hire a single broker to covers all classes of trade or splits the responsibility, is a decision that must be made by each manufacturer.

Following is a list of key brokers in the tri-state area that handle natural products:

Armor Sales & Marketing Inc
PO Box 1356, Laurence Harbor, NJ 08879

Asset Inc
909-C Merritt Dr, Somerville, NJ 08876-5310

BIN Sales & Marketing Inc
6-8 Knight St, Norwalk, CT 06851

DKB Sales & Marketing Inc
109 W. 70th St, New York, NY 10023

Golick Martins Inc
140 Sylvan Ave, Englewood Cliffs, NJ 07632

Hudson Valley Specialty Sales
40 River Road, Chatham, NY 12037

J.Z. Associates Inc.
2008 Rt. 37 E., Ste. 16, Toms River, NJ 08753

Natural Saleswks/Lotus Mkting
81-A Alexander Ave, Upper Montclair, NJ 07043

Natural Specialties
14 Bridge St, Blairstown, NJ

Natural Source Marketing
8 Concord Drive, Shamong, NJ 08088

Northeast Brokers Inc.
4 Wilsey Sq, Ridgewood, NJ 07450

Sidalp Co.
PO Box 242, Oradell, NJ 07649

Tozzi & Associates
PO Box 8408, Somerville, NJ 08876

Valk Enterprises
19 Sun Beau Ct, Tinton Falls, NJ 07724-3826

Wellspring Marketing
P.O. Box 398, Kinderhook, NY

Wildfire Sales Inc.
PO Box 10561, Westbury, NY 11590

Key Trade Events

Keeping abreast with trends, industry information, competition, and having the possibility of displaying product to potential customers is an important aspect of the natural foods industry.

Following are some of the key trade events upcoming:

EyeforFood Conf & Exhibition
April 9-10, 2002
Atlantic City, NJ

NASFT Spring 2002
May 5-7, 2002
Chicago, IL

SupplySide East Trade Show
May 6-8. 2002
Secausus, NJ

All Things Organic 2002
May 8-11, 2002
Austin, TX

Succeeding in the LOHAS Market
June19-21, 2002
Broomfield CO

NASFT Summer 2002
July 7-9, 2002
New York, NY

Natural Products Expo East 2002
October 3 - 6, 2002
Washington, D.C.

NASFT Winter 2003
January 19-21, 2003
San Francisco, CA

Natural Products Expo West 2003
March 6 - 9, 2003
Anaheim, CA