This time, are organics really going mainstream?

Discussion
Nov 11, 2014
Tom Ryan

After slowing down during the recession, the organics business is booming again with Americans gravitating toward healthier foods. With Walmart, Kroger and others expanding organic assortments, and McDonald’s entering the fray, the category appears set to reach another gear.

According to Bloomberg News, Walmart is not only expanding its selection of organic foods with the launch of the Wild Oats label, but seeking to sell it at the same prices as non-organics. Market estimates currently place most organic products about 20 percent higher than non-organic options.

On its second-quarter conference call, Kroger officials raved that its Simple True organics and naturals label will reach $1 billion in sales only two years after its launch and expected to double over the next few years. CEO Rodney McMullen said, "When you think about a brand reaching that level in its second full year, not many companies can say that."

Meanwhile, McDonald’s, suffering its fourth straight quarter of declining same-store sales, said last month it was looking to sell more organic food as part of an upgrade to its offerings.

According to the Organic Trade Association, organic food and nonfood in the U.S. sales jumped 11.5 percent in 2013 after slowing to a 4.6 percent gain in 2009 amid the recession.

Wall Street continues to fixate on how organic’s broadening popularity affects Whole Foods, which faces heightened competition from mainstream retailers and niche chains like Sprouts and Fresh Market.

Claiming its efforts to lower prices and emphasize value are paying off, Whole Foods last week reported a better-than-expected fiscal fourth-quarter, leading to its strongest one-day share gain since July 2012. On its conference call, Whole Foods officials stated they believe the company is uniquely positioned.

"It’s true that natural and organic products are increasingly available in stores and online, yet no one does what we do," said John Mackey, co-CEO. "We hold the idea of food to a higher standard, banning more than 75 ingredients commonly found in other stores, and we believe our unparalleled quality standards and selection are a large part of why we maintain a broad base of loyal customers and attract new customers aspiring to a natural and organic lifestyle."

Is the organic pie growing fast enough for the many competitors going after the market? What factors will likely drive the next phase of growth for the organics category?

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15 Comments on "This time, are organics really going mainstream?"


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Ian Percy
Guest
5 years 26 days ago

Can’t tell you how disappointed I am that your reference to “organic pie” was merely metaphorical. Actual organic pie would indeed drive the next phase of growth for the organics category!

Max Goldberg
Guest
5 years 26 days ago

People are concerned about what’s in their food, and as a result the organic sector is growing. I like Walmart’s approach: Try to sell organics at or slightly above the cost of the same non-organics. The primary hurdle for consumers is the higher price of organics. If the prices can be brought down, the sales will go up.

Ben Ball
Guest
5 years 26 days ago

This is purely anecdotal (I’d love to see data if anyone has it) but it seems to me that the combination of increased distribution in lower price retailers (i.e., Walmart) and actual price reductions (i.e., Whole Foods) has lowered the price premium for “organic” considerably in the last year. Since volume for “better for you” is typically a function of price premium demanded and shopper enthusiasm for a particular benefit, it makes sense that we should be seeing increasing organic sales. If this is a.) a correct hypothesis and b.) continues, then growth should be robust.

Paula Rosenblum
Guest
5 years 26 days ago

It’s impotant to note, I think, that given the extent to which overall sales slowed down during the recession, organics sales continued to rise, just at a slower pace. There’s plenty of room for organics. The question is, what will traditional food sellers do to hold on?

What will Monsanto do, since its GMO products are falling out of favor? That’s the interesting question. People really DO prefer non-GMO produce. What kind of study will Monsanto come up with?

Tony Orlando
Guest
5 years 26 days ago

Organics will continue to grow in the areas with good economies, and will not in struggling rural areas like mine. I have tried many different times to promote select items of produce, and even discounted could not generate enough sales to make a profit, as they simply won’t pay a premium in our area. Organic half-gallons of milk do OK and local eggs sell well. It comes down to money, and risking capital on perishable foods for me is too risky, as price is a huge factor. Honeys and some healthier-type dry goods sell a little, and that is about it.

I have had many requests for organic chicken breasts and some beef items, but have not sold any to the people who are asking prices on these items, so it is a steep uphill battle around here to push any organic products. However as I said, the higher-income areas are growing this business, which is a good thing for their bottom lines.

Dave Wendland
Guest
5 years 26 days ago

Ironically, ORGANIC GROWTH is defined as the growth rate that a company can achieve by increasing output and enhancing sales. That’s precisely what the organics category is experiencing.

My belief is that the country is becoming more and more conscious of what is in the food consumed and where that food comes from. Yes, the organics category will continue to grow (I believe outpacing many traditional categories). Hopefully prices will not become a barrier to better eating habits.

Tom Redd
Guest
5 years 26 days ago

No add, just thanks to all the veterans that helped keep America and our friends free and thus SAVED RETAIL!

Happy Veterans Day, gang!

W. Frank Dell II
Guest
5 years 26 days ago

The organic/natural market is again growing after the Great Recession. At the same time product availability has increased. As with all product categories they have high growth in the beginning and then reduced growth as the market needs are satisfied. Just like clubs did not replace supermarkets, they only cannibalized some volume, organic/natural will not replace all competing products. As the organic/natural market grows the price premium will decrease. This will increase sales and share. As mainstream retailers expand organic/natural products, the pure-play retailers’ growth rate will decline.

Ralph Jacobson
Guest
5 years 26 days ago

Although organics have been around for decades, as the demand/supply curve eases a bit hopefully more and more organic products will become affordable on a regular, not once in a while, basis for more consumers. I think shoppers would typically rather buy a product that is viewed as a healthier alternative, as long as it doesn’t break the bank.

So, yes, I see growth in organics in the U.S. market, however that growth is not universally strong around the world.

I think health awareness efforts by government organizations, NGOs, private companies, celebrities, etc., will continue to drive the demand for organic products. The average grocery shopper simply doesn’t even think about organics in the traditional supermarket.

Cathy Hotka
Guest
5 years 26 days ago

Millennials are educated about food and additives, and crave authenticity in everything. They’re one reason that organic sales are up.

Mark Price
Guest
Mark Price
5 years 26 days ago

The biggest change right now is that grocery retailers are using organic to help differentiate their store brands (private label) while achieving higher prices (based on competitive set) and increased profit.

The prices for organic private label are higher than traditional private label but still below competitive offerings.

By offering organic products, grocery retailers also receive the benefit of making their brand positioning more contemporary and somewhat upscale.

The next phase of organic will show further price declines as volume and quality continues to improve.

Robert DiPietro
Guest
5 years 26 days ago

I think the next factor to drive growth in the organics category is mass appeal and Walmart just did that. Not only the mass appeal but offering at a value to consumers. Consumers buy with their heart as much as their head and if they THINK organic is better for their children, that is what they will buy.

Larry Negrich
Guest
5 years 26 days ago
Organic products have been gaining ground in the consumers’ basket both at the specialty retailers and now the mass vendors (Walmart, Kroger…) The prices of organic have also dropped, making it within reach of more consumers. In the approaching years, I think the trend will be that the organics take up more and more of the produce shelf space and encroach on canned and prepared foods as well. Just to stir the pot a bit, research doesn’t show that organic foods are any healthier (and there are a lot of definitions of “healthier”) than conventionally-grown foods. Organics may contain slightly more antioxidants and fewer pesticides (neither contain much.) However, some studies have shown organics have the potential to carry more pathogens (we all need antibiotics once in a while). To my point, if conclusive evidence, or even better marketing, can convince consumers that organics=slower aging, longer life, etc., then I would expect that organic foods would be the standard, and enhanced/modified/conventionally-produced foods will be seen as the lower-priced alternative and will be given less space… Read more »
Stan Barrett
Guest
Stan Barrett
5 years 25 days ago
Thank you, Mr. Negrich, I am a day late to this discussion. I think a lot of this discussion is about marketing. I am eating a non RBST, GMO Project certified yogurt purchased from Whole Foods—only because it was relatively cheap and across the street from my office. I could walk 10 minutes to get a regular yogurt, but truth be told either one tastes the same to me. Non-RBST comes with a disclaimer from FDA on the label that no difference can be detected between non and RBST milk. With GMO project certified, this product’s ingredient list appears to contain no possible GMOs. Dairy, strawberries, etc, do not ever contain GMOs. If it was organic, it would have to be, by definition GMO free. Yes, there are reasons for organic to grow, but the majority of the science does not support it and most science does not support a 100% organic system for production agriculture. This is a lifestyle people choose. I am not judging this choice, but let’s not kid ourselves, this is a… Read more »
J. Kent Smith
Guest
5 years 20 days ago

I’m more concerned about the supply side and what pressures will inevitably do, not just to price sustainability, but also pressure on the true meaning of “organics.” But there is likely a large segment of the population who will opt organic if the product looks good and is priced within reason. The ones that do it right will earn the loyalty.

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