Turning Points 2008: Organic Goes Flat
By Tom Ryan
Editor’s note: In what
we plan to make an annual end-of-year tradition, RetailWire has compiled
a list of the most significant retail industry “Turning Points” of
2008. (See
our news release…) What follows
is the second of a series of 12 discussions based on the list.
Picture this: A young
boy at the dining room table is pushing around the peas on his plate with
a fork and looking none too happy.
After watching this for
several minutes, his father says, “Eat your peas.”
The boy looks up and
says, “I don’t like these. I want the kind we used to get.”
The father, visibly upset,
throws down his napkin on the table and yells,
“You’ll eat your peas with pesticides and like them. When I was a boy
we never had organic peas. They put all sorts of stuff on our food and we
turned out alright.”
Okay, obviously joking
here, and conventional foods haven’t been scientifically proven to be any
less nutritional or safe than organics. But, it’s becoming increasingly
clear watching Whole Foods struggle and consumers reign in spending that
organic foods have become a casualty of the rotten economy. Sales of organics
are still on the climb but no longer at the pace of recent years.
Julie Hennessey, a consumer
from West Bloomfield, Mich., told The Associated Press that she
used to buy more organic fruits and vegetables. Now, she said, she buys
conventional (and cheaper) strawberries and spends a little more time washing
them off.
According
to NPD Group, the
number of people who buy organic products fell four percent in August of
this year compared to the same period the year before.
Still,
it isn’t all doom and gloom for organics. The Organic Trade Association
has forecast annual sales increases of 18 percent for organic foods through
2010.
Discuss Question: What
are the near-term prospects of organic foods at retail? What do you see
for the longer term? Is it possible, for example, that organics may become
the
“conventional” food in the future?
GMA predicted that Food Safety would become even more important in 2009, reflecting the larger concerns we have about our food supply. In fresh products, organics will likely continue to maintain position, but staples and snacks not as strong. Shoppers do understand value very well, and are their making choices that reflect concerns for healthier living in a more discriminating way.
Some food industry people are thinking that organic will become more of a “certification” safer to eat and healthier for you–but with taste and quality the critical attributes. A few European marketers are emphasizing the product, say apple juice, that also happens to be organic certified. Makes sense–many shoppers discovered that organic and great taste were not always linked, particularly in dessert and snack items.
The near term prospects for organics continue to trend down. The higher prices for organics seem like a luxury when incomes are down and unemployment is up.
Longer term, organics will rebound with the economy, but with a lag.
Customers are into value mode, no matter what their situation is. As good as organics are, they suffer from higher prices and smaller pack sizes. As consumers tighten the belt, they will be looking at ways to save and organics is probably the first off the grocery list. I foresee big specials and creative merchandising to get the ball rolling again.
The economy may have a longer-term negative effect on organics. After people buy regular again and find that they haven’t died from eating non-organic foods, they may decide that it was an expensive fad that they can live without.
Some in this forum suggested that organics were a fad on par with low-carb, lite, etc. While the economy is causing a short-term downturn, it could exacerbate a longer term downward trend. Like Art says above, when they figure out that you won’t die from regular products, the decline should hasten.
I agree with Art too. Factor in that organics generally have come under scrutiny about their wholesome origins and some have been found lacking. Whether you think this recession will last one or two years the consumer will continue to become more budget conscious and not forget the pain of this downturn quickly.
Organic foods thrive when surplus monies jingle in our jeans. We want what we think is the best and safest when the bucks are there. When they aren’t we fall back upon what got us this far: non-organic things. The near future isn’t too bright for organics.
Blasphemy alert–look away now. Those of you who know and love my comments may be surprised to know that I am not a big fan of organics. I won’t bore the whole lot of you with reasons but anyone who cares is welcome to ask me privately.
What I do wholeheartedly endorse is supporting small local growers and producers. I know this may sound protectionist (more about this on Tuesday) but I strongly believe growers and producers do not have to be certified organic to do a great, healthy, high quality job. I also like knowing where my food comes from and getting to know the people who produce it. And helping to keep the money I spend in their pockets rather than those of faceless corporations and shareholders. I realise, of course, that small and local is not always good but for my money I would rather decide for myself than trust photographs on packages that anyone can make look attractive.
Back to the question–I believe a lot of consumers are beginning to think the way I do and that the slowdown in the growth of organics may be attributable (partially) to a switch in what they’re buying. Price is of course a major consideration as is the lack of convincing evidence about whether organic food is healthier. But there are lots of people who simply prefer not to eat food that has been produced in vast quantity and/or loaded with pesticides and now realise that the label doesn’t necessarily have to say Organic for that to be the case.
Old truths never die–they are just temporarily ignored.
Markets are all about relative utilities. “Organic” is a secondary utility to “sustenance” for 99.9% of people. The impact of “green” or any other secondary utility will always be relative to 1) how important it is to a given consumer relative to the primary utility of the product, and 2) the relative price premium charged for the secondary utility.
This is why getting the public to “do the right thing” en masse will always require a break-even or better financial proposition versus the current alternative. This barring government or other intervention of course.
We will move to electric or hydrogen fuel cell or some other technology to replace fossil fuels some day–because someone will figure out how to make it cheaper than oil to use. The biggest cost hurdles are in the manufacture of the initial appliance–we already know the sustaining costs (maintenance + fuel costs) will be less.
I’m not so sure about “organic” foods. The relative utility of organics may prove ephemeral versus the obvious need for alternative energy. Of course, we could rediscover that the fertilizers and pesticides applied on today’s factory farms actually add costs versus ‘the old-fashioned way’. It was not so long ago that the unblemished, pest free fruits and vegetables of today were commanding their own price premium over the “unenhanced” apples and peas grown by the local farmer. But I doubt our increasingly urban population will have much appetite for hoeing corn.
This is a tough one for sure and I have worried about this for years. With consumers struggling, this is an easy area for most of them to cut back on. With that said, I have a daughter with serious food allergies and we can not cut back. People like us will help them keep some of the market.
FWIW, Whole Foods is not the barometer for organic sales. Their current struggles point more to their position as a perceived luxury brand that was in reach of aspirational middle-class consumers.
The growth numbers of the recent past in the organic segment are surely due to more mainstream grocers carrying product and a curious public. It’s no surprise that consumers not truly vested in organics, who have purchased these products from conventional or mega stores, are reducing their spending.
The retail grocery food cooperatives in the US, which have long partnered with the organic and small producer community serve consumers committed to an organic lifestyle and continue to see strong growth. Indeed, nearly 50% of these independent, often organic-centric stores have no choice but to be in expansion mode.
I agree with Bernice, local is the new organic, and do not think organics will become the new conventional. I do believe the niche will continue to grow, but the growth seems best suited for specialty stores and independent operators that blend organic and local products, especially in smaller community-based store fronts.
I agree with Michael’s dissenting opinion. In the short-run, the economic problems will slow the growth in organic sales, but organics are not a fad like low-carb diets. Consumers are becoming more concerned about what they eat and food safety. In addition, over time the production and distribution costs of organics will decline, reducing the price difference between organics and non-organics.
Sometimes I think organics might have been a fad. We will still have a demand for those who desire or need organics. But with a weak economy it will be much harder to convert new shoppers. Beside the cost, organics did not provide instant change in our health. We did not see instant meaningful results that improved our lives.
A year ago it appeared that organics was to be the conventional food of the future. But how much of this was real or just a dream because we saw such big growth with Whole Foods? Now, no one is afraid of Whole Foods anymore and they are $10 per share from being de-listed from the NYSE.
Currently it appears that organics may be going back to their roots, to the coops near that big college in the liberal neighborhood, or farmers markets.
I’ll provide a dissenting opinion from the majority. In the short term, we are likely to see fewer mainstream consumers choosing organic, however, the core constituency will remain strong. In the long term, the organic trend will continue to gain force.
In fact, what we are talking about right now is not a loss of sales, but a slowing in the growth rate. If everyone’s growth rate slowed to 18%–or even half of that–we would not be in a recession.
It is a mistake to think that organic foods, or the associated trend to locally-grown foods, are fads. These are lifestyle choices rooted in perceptions about health and sustainability, fueled by continued concerns about the safety of our food supply. Questions about RGBH, dioxin, and melamine are real issues, and have so far only been addressed by the organic segment of the market.
In the long run, the recession may have the effect of bringing organic pricing in line with conventional foods. This is already happening with some foods, although the spread on fresh meat, dairy, and produce remains high.
I believe many people who usually choose organic foods will have to sacrifice some of them because of the increasing prices in the grocery store. While it’s an admirable concept to try to eat organic food where ever possible, people have to be practical when it comes to feeding their families. Although fuel prices have gone down for now, groceries seem to be continuing to rise in price weekly.
Unemployment doesn’t just hurt the spending of those without jobs. The folks who aren’t unemployed get scared. So they’ll prioritize: organic milk for the baby, but the adults eat the cheaper stuff.