Through a special arrangement, what follows is a summary of a current article from Private Label Buyer, presented here for discussion.
After posting double-digit gains during each of the past five years, the organic segment appears to have run out of steam, thanks to an economic downturn that left even eco-conscious consumers short on cash. According to The Nielsen Co., unit sales of prepackaged UPC-coded organic foods and beverages in U.S. food, drug and mass merchandise outlets, excluding Walmart, edged up less than one percent over the 52 weeks ending July 11, while dollar sales expanded 5.1 percent.
But the modest gains didn't come on the national brand side, where organic food and beverage dollar sales actually decreased almost a whole percentage point. Instead, the increases came courtesy of store brands. According to Nielsen, dollar sales of store brand organics jumped a whopping 32.6 percent over the past 52-weeks, pushing private label's dollar share of the $4.4 billion organic marketplace (prepackaged only) to 22.6 percent -- up from 17.9 percent a year ago and 13 percent the year before.
While private label's growth during the recession has been well documented, such strong gains among what are often the highest-priced store brand options have come as a bit of a shock to some. But not "Chef Drew" Starkweather, CEO of Drew's All Natural.
"For people who've eaten organic for the past five or 10 years, it's a way of life, and not something they're willing to give up," regardless of a financial setback, he explained.
Sure, the "dabblers" might return to conventional non-organic products, he continued, but core organic consumers will find a way to keep eating organic. And for many, that means less-expensive store brand alternatives.
Of course, increased availability is one of the keys to private label's growth over the past year. The majority of large conventional retailers now offer a natural and/or organic private label program.
"There's been a perception in the industry that you're not a ‘full-service' retailer if you don't have an organic private label offering," especially over the last year or so, said Doug Baker, vice president of sales at Federated Group. This perception is prompting even unlikely sellers such as Houston-based wholesaler Grocers Supply Co., which caters mostly to Hispanics, to add Safeway's O Organics program to its lineup.
"In some markets," explained Mike Hackbarth, director of private label at The Fremont Co., "offering natural and organic store brands is a matter of survival. You have to offer those kinds of products - and not just in a little specialty set either - in order to keep certain consumers from abandoning your store in favor of specialty retailers" (such as Whole Foods and Trader Joe's).
"Organic may not have hit 'critical mass' just yet," added Nima Fotovat, general manager at Shandiz Natural Foods, "but, clearly, it's not a fad; it's here to stay... And retailers know it."
Discussion Questions: What's driving the recent success of store brands in the organics/natural opportunity? What can stores be doing to take their organic/natural offerings to the next level? On the other hand, what should national brands be doing to recapture the organic customer?