Is gluten-free still worth the investment for retailers?
For years, industry observers, health experts and even food companies have questioned the staying power of gluten-free food. They’ve labeled the trend a fad and said the booming segment was a bubble waiting to burst. Why do people without a medically defined intolerance — a major segment of the category — still consume gluten-free products?
A decade or so after the trend stormed the industry, gluten-free demand continues to confound the skeptics. According to research firm Packaged Facts, U.S. sales of gluten-free products, estimated at $973 million in 2014, are projected to exceed $2 billion by 2019.
Retailers have enjoyed the higher margins and intense customer loyalty that come with gluten-free. And many remain fully invested in the trend. But others see warning signs that a much-anticipated downturn could still lie ahead.
At the very least, capitalizing on gluten-free demand presents a complex proposition for supermarkets — one that requires both smart merchandising and consumer outreach, which seeks to meet diverging needs for the same products.
“Gluten-free became a little bit of a different nugget because you have two different consumer segments to go through,” Susan Budlong, marketing and communications manager for Dave’s Fresh Marketplace, which operates nine stores in Rhode Island, told Food Dive. “You’ve got those looking to eliminate gluten from their diet because they believe if they purify their body in that sense, they’re going to feel better. And then there are those that have a gluten intolerance.”
For some retailers, the demand for gluten-free is as strong now as it’s ever been. Such is the case at Dave’s, where customers can find thousands of gluten-free products integrated throughout the store. Where gluten-free cookies and other indulgent goodies were hot items several years ago, demand has shifted more toward gluten-free snack bars, pastas and bread.
“We’ve managed to hold steady over the years, and actually see uptrends where options become available for customers,” said Budlong. “The key, though, is that it has to taste good.”
Lucky’s Market, a natural and organic retailer that operates stores in 11 states, has also seen steady demand for gluten-free products. Kristen Tetrick, Lucky’s director of marketing and community engagement, told Food Dive stores are currently expanding their assortment of products. They are keeping an eye on pantry staples like energy bars, cereals and granola. Overall, she estimated that 80% of the company’s grocery products are gluten-free.
“Our grocery buyer has reviewed 18 lines of crackers this week alone, where 15 of them were gluten-free,” said Tetrick.
Some supermarket operators say they’ve seen a drop-off in demand for gluten-free products, especially among customers who don’t have celiac disease or another form of gluten intolerance.
“We’re still selling a lot of gluten-free products, but I think those for whom it was never a medical necessity have moved on to the next free-from trend,” Leah McGrath, registered dietitian with Ingles Markets, a supermarket chain based in Asheville, N.C., told Food Dive.
Those skeptical of the trend's longevity point to the fact that a large chunk of the industry’s sales come from people without gluten intolerance. According to a study from The Hartman Group, 35% of consumers who buy gluten-free say they have no particular reason for doing so. Just 8% of those surveyed said they have a gluten intolerance.
Considering that gluten-free products are typically pricier than their conventional counterparts, why are they purchased by people who don't need them?
Gluten-free skepticism is trickling down to the consumer level. A 2015 Mintel study found that 47% of consumers think gluten-free is a fad, up from 31% who said the same two years earlier.
Others point out that the gluten-free industry of today is not the same as it was 10 years ago. Manufacturers have improved the taste of their products and are incorporating more natural ingredients. Many gluten-free pastas nowadays are made from crushed chickpeas or black beans.
As a result, gluten-free companies are latching on to the clean-eating trend, said retail analyst Sandy Skrovan. (Editor's note: Sandy Skrovan is also a writer for Food Dive.) They’re also capturing millennials, who tend to be receptive to new and natural products, as well as customers who generally want to eat healthy.
Skrovan also noted that there’s untapped demand for the products from those with an undiagnosed gluten intolerance. The Celiac Sprue Association estimates that more than 90% of Americans with celiac disease have not been formally diagnosed.
Recent research also suggests that the number of individuals with non-celiac gluten sensitivity is rising. A study published in the journal Mayo Clinic Proceedings found that the number of individuals identified as “people without celiac disease avoiding gluten,” or PWAGs, tripled between 2009 and 2014.
“A perfect storm of converging factors is driving demand for gluten free and other food allergy friendly products,” Skrovan told Food Dive.
Carla Spacher, a manufacturing consultant who runs the gluten-free cooking website Carla’s Gluten Free Recipe Box echoed Skrovan, pointing out that many suppliers are simplifying their ingredients list, defying the popular notion that gluten free equals highly processed. Gluten-free bread, for instance, often uses tapioca starch rather than modified starch.
“If you look at the ingredients in [gluten-included] bread, you see a lot of modified starch, and modified starch has no flavor,” Spacher told Food Dive.
With their health-first positioning and large selection of products, natural and organic retailers like Whole Foods and Lucky’s Market have traditionally been top-of-mind for gluten-free consumers. According to Skrovan, these companies excel at the details beyond just stocking gluten-free products that consumers demand — like providing comprehensive worker training, avoiding cross-contamination,and merchandising for maximum impact.
But traditional retailers, club stores and other formats are intent on becoming gluten-free destinations as well. United Supermarkets, which operates 66 stores in Texas and New Mexico, has expanded its selection of gluten-free products, particularly at its Market Street banner stores, which tend to serve a more affluent population.
Alicia Jerome, United’s health and wellness manager, said stores have special gluten-free sets that average 12 feet, and in some locations go as high as 28 feet.
“I think a lot of people just assume that going gluten-free means going to Whole Foods,” she told Food Dive. “But we’ve steadily, almost secretly, increased our shelf space for gluten-free over the years, and really want to make them aware of that.”
Retailers of all types need to carefully consider their merchandising model for gluten-free products. For some, like United, this means creating dedicated gluten-free sections stocked with everything from gluten-free flour to snack bars, cereal and cake mixes.
Other retailers see higher returns from integrating gluten-free products throughout the store. Many that follow this approach, like Harmons in Salt Lake City, use shelf tags to label gluten-free products. Some say this reinforces a sense of normalcy for gluten-free shoppers.
“Especially when people have to convert over to gluten-free, they’re used to shopping those regular aisles and not seeking out a separate section,” said Spacher.
Skrovan said more retailers are adopting a hybrid approach that combines dedicated sections for some categories with an integrated approach for others. Some stores, she said, offer a dedicated section for products that contain a gluten-free certification from the Gluten Intolerance Group, Celiac Sprue Association and other organizations, which set a stricter definition for gluten-free classification below the 20 parts per million required by the Food and Drug Administration. Top-selling gluten-free products are integrated throughout the store to capitalize on high traffic.
“From a business perspective, it’s probably a good move for retailers to integrate gluten-free into the center store set,” said Skrovan. “It exposes more shoppers to product alternatives and specialty items, like gluten-free foods.”
Retailers said it’s also important to pay attention to small gluten-free manufacturers, which can be easily overshadowed by mainstream companies. Many pointed out that they are the ones driving innovation and loyalty in the category.
“A lot of our sales have come from a movement of small operators,” said Budlong. “We try to do business with all of these folks. We’ll bring them in, give them some shelf space and see what they can do.”
Taking full advantage of gluten-free demand requires more than just crunching data and updating planograms. It also needs outreach and support to test the health-focused investments retailers have made in recent years.
Store dietitians are often the first line of defense. At Harmons, a team of seven dietitians lead special gluten-free store tours, organize cooking classes with store chefs, and field numerous calls and emails from gluten-free customers each week.
Jonnell Mason, one of Harmons dietitians, said she and her colleagues are often the first resource customers turn to after learning they have a gluten intolerance.
“They often feel that their entire way of eating will need to change, which can cause many people distress,” she told Food Dive. “Our role is in helping them to find a way to follow a gluten-free diet that minimizes the impact on their day-to-day life.”
Supermarkets are a natural resource for gluten-free shoppers, but their focus on sales can run counter to proper nutrition counseling. Still, most dietitians say they advise customers to focus first on naturally gluten-free products that might appear outside of a dedicated section — foods like fruits and vegetables, meat, fish and eggs.
“Some people think the way to do gluten-free is to buy a bunch of cookies and pizza and beer that’s gluten free,” said McGrath. “That’s not going to make them magically healthier.”
Education is key and can take many forms. Dave’s Fresh Marketplace customers can download a list of the company’s 5,000 plus gluten-free products on the store's website. In stores, warnings about cross-contamination are listed on signs and frequently reinforced by staffers. In the bakery department, for instance, signage informs customers that Dave’s does not operate a gluten-free facility, and thus can’t guarantee that certain items are free from gluten contamination.
Beyond its many lists and labels, Dave’s also hosts gluten-free support groups at two of its stores in coordination with the New England Celiac Organization. In addition to providing space for meetings, managers will also offer product samples and invite manufacturer representatives to talk about their companies.
“We get a lot of feedback from people who appreciate the time and the opportunity and the space,” said Budlong.
Not every store can or should become a gluten-free destination. But those with high shopper demand should consider promotions and outreach that target these individuals.
At United, gluten-free store tours are sparsely attended these days, indicating that new demand may be waning, according to Jerome. That’s worrying, but at the same time, she said, United’s stores are seeing increasing demand from established gluten-free customers. To entice these shoppers into building their baskets, and to reach out to new gluten-free consumers, last spring the company held a gluten-free festival at select Market Street stores in the Dallas-Fort Worth area showcasing thousands of products.
The festivals were so well attended that United has planned another round this spring at all 15 Market Street locations.
“We tracked sales pre- and post-event, and even at six weeks post-event, we found that those stores that held gluten-free fests still had significantly higher sales than those that hadn’t,” said Jerome.
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