Raley's Organic Program Scaling New Heights

Over the past 14 months, Raley’s has pushed the envelope on its organic produce section testing the limits and pushing sales to new heights.

Michael Schutt, who basically built the category for the retailer beginning in 1995, said this new effort has been educational and given him a strong appreciation of the desires of his customers.  And though, as a chain, they have backed off the pedal a bit, he remains very bullish on the future growth of the category.

“We are building from a much bigger, robust base so from a percentage standpoint the gains are not going to be as great but the department is still growing.”

He added that organic SKUs throughout the entire store, in virtually every department, are creating a different mindset and a greater acceptance of the concept.  For a mainstream grocer, he believes Raley’s matches up favorably against any other conventional retailer in his service area and can even give Whole Foods a run for its money.

Schutt calls Whole Foods “the gold standard” in the organic supermarket sector and admits that the natural foods chain was his model when he started expanding Raley’s organic produce offerings in the 1990s.  “If a Whole Foods shopper got lost and wandered into Raley’s, I wanted to give them a menu to choose from.”

For Schutt, his organic produce experience began a handful of years into his employment with Raley’s.  He went to work as a very young man in his native Nevada with his first big move involving transferring to the San Francisco Bay area.  In 1995, he showed promise and was shifted to a store in the Sonoma County city of Santa Rosa, which is pretty close to the epicenter of alternative lifestyles. 

That Raley’s had a small, 12-foot section of organic produce.  Though Schutt was told by his produce supervisor to dismantle the section and put it to more profitable use, an older and more locally-aware colleague convinced him the organic shoppers of Sonoma County would rebel.  The young produce man heeded that advice and slowly started to work the section.  Sales increased and profit margins grew.  By the time, he was shifted to headquarters in 1997, that Santa Rosa store was devoting 44 linear feet to organic produce.

At corporate headquarters he was involved in quality control, but was also given the task of expanding the company’s organic produce offerings.  Initially, he didn’t use the corporate buying team at Raley’s but instead counted on the San Francisco wholesale market and specifically, Earl’s Organic Produce.  “Earl Herrick and his team were instrumental in helping us build that department,” he said.

Schutt didn’t officially become a produce buyer until 2003, at which time he was again given the task of expanding the firm’s organic produce category.  He did so gradually utilizing a strategy that involved advertising (putting an organic item on ad each week), substitution (only offering an organic option for low-volume items), and execution at store level.

The organic department at Raley’s has had good steady growth for more than a decade because of this effort. By 2015, it accounted for about 10 percent of total produce sales, a very credible number for a conventional retailer. 

But at that point the company’s CEO challenged the produce team to grow the department by 50 percent to 15% of produce sales.  Schutt said the effort has been very worthwhile and has resulted in gains as well as a better understanding of their customers.  While the produce team did hit that number of 15%, they did so by often choosing what the customer was going to buy, through lack of choice, rather than letting the customer drive that decision.

“We stubbed our toes a bit, but we have learned a lot.  We have stores that should be at 20%.  We have one that is at 26%,” he said.  “But we have others that need to be at 5-7% or 7-9%.”

At this point, he says organic produce sales account for 13% of produce sales. Schutt firmly believes that a conventional supermarket like Raley’s can double its organic sales over time.  He said as millennials age and have kids that will occur.  He added the supply side of the fresh produce industry also needs to continue to expand its organic choices, which will naturally grow sales.