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A Safe Way to Organics?

Safeway (NYSE: SWY  ) is embarking on a rather unusual new initiative. It's planning to offer its "O Organics" line not only in its stores, but through other channels as well. covered the grocer's analyst day, reporting Safeway's forging partnerships to sell the O Organics line, which consists of 300 products, in Asia and South America. It's also providing the line to the food-service channel through a partnership with SYSCO (NYSE: SYY  ) .

It's not the only conventional grocer with such aims. Kroger (NYSE: KR  ) has its own line of organic goods, which it expanded last summer. Wal-Mart (NYSE: WMT  ) has also started carrying organic merchandise. You don't have to think too hard to see that these mainstream grocers have seen the success of Whole Foods Market (Nasdaq: WFMI  ) and privately held Trader Joe's and want a piece of the action.

MarketWatch interpreted Safeway's move as a nod to consumers' increasing appetite for organics. Indeed, O Organics sales are expected to nearly double to $300 million this year from $164 million in 2006, the year it was launched.

In fall 2006, an Advertising Age article claimed organic's faddishness was beginning to show itself. I rebutted that idea then; I believed marketers' attempts to release organic versions of tried-and-true mainstream products (think Ragu, Kraft (NYSE: KFT  ) Macaroni & Cheese, or DiGiorno pizzas) was a strategically unsound way to go.

Is this a giant step?
Old-school organics shoppers -- the first movers, as it were -- focused on the ethics of purchases. I don't think Safeway's O Organics line is really about them at all, but rather about mainstream shoppers with an interest in the products. Of course, if organic products from places like Safeway get people thinking about "going organic" -- and then later, thinking about having a more pervasive organic experience -- it stands to reason that higher-end, more authentically organic (or at least pure-play) retailers like Whole Foods might benefit.

That's long been Whole Foods founder and CEO John Mackey's contention about mainstream competition -- that it has often acted as a gateway to Whole Foods. (The way things have gone does seem a bit entertaining -- Mackey's first natural-foods store was dubbed Safer Way.)  

We'll see which retailers will end up getting -- and keeping -- the biggest share of organic spending. I'm not sure I'd put my money on Safeway as a global leader in organics, but the store is working hard to put the brand to work.

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