SPECIAL REPORT: NATURAL AND ORGANICS

November 1, 2010
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Although some predicted the Great Recession would bring organic sales growth to a grinding halt, the segment not only survived, it thrived. Dollar sales of organic foods and beverages in natural and conventional supermarkets combined expanded 4.2 percent to $6.05 billion during the 52 weeks ended June 12 - significantly outperforming the marketplace as a whole, according to figures from SPINS, a Schaumburg, Ill.-based market research and consulting firm for the natural products industry.
“True organic consumers will not leave the category,” no matter how tight their budgets, explains natural and organic category manager Mike Renkosiak of Arlington Heights, Ill.-based Federated Group. “It’s their lifestyle.” Fortunately, he adds, increasing availability of organic private label products allowed many of those consumers to choose less expensive alternatives to pricy national brands.

As a result, reports SPINS, sales of store brand organic foods and beverages in conventional supermarkets shot up nearly 9 percent during the past 52 weeks. Anecdotal evidence suggests store brands’ dollar share of total organic food and beverage sales likely hovers around 23 percent.

Retailers considering expanding their organic offerings should consider products made for children as well as looking at dry, bottled and canned products such as oils, peanut butter, crackers and cereal, experts advise.

 

THE BENEFITS OF BETTER-FOR-YOU

Organic products represented approximately 3.7 percent of total food and beverage sales last year, up from 1.2 percent in 2000 when the final National Organic Program rule was published, according to the Organic Trade Association (OTA), Greenfield, Mass. Despite the gains, however, the segment has yet to achieve critical mass in many categories. Still, almost every major retailer - and most smaller chains as well - offer at least some private label organic products. Why?

Because offering organics produces a halo effect of more sales in a given category. Plus, major national competitors such as Whole Foods and Earth Fare already are making an impact in the categories. Failure to compete could mean losing consumer business down the road to more nimble competitors.

At Fowler, Calif.-based National Raisin Co., for example, sales data shows that as the company’s distribution of organic dried fruit expanded, so did total dried fruit sales, suggesting that the availability of an organic alternative brought new users to the category, says Jane Asmar, vice president of sales. Introducing a private label version of an organic product is likely to boost sales even further since it gives customers the opportunity to purchase an organic snack for just a little more than they would pay for a national brand non-organic, she notes.
Chains such as Whole Foods and Earth Fare already offer extensive private label organic programs, making it imperative for conventional retailers that want to keep organic shoppers in their stores - and out of the natural food channel - to offer competitively priced organic options, i.e. private label, says Renkosiak,

“With strong national and regional [natural food] stores offering consumers a real choice,” he explains, “traditional retailers need to offer both a broad selection of organic products and good pricing.”

But the decision to offer a strong private label organic program isn’t based only on its potential to boost sales. In fact, one of the most significant benefits of such a program is the goodwill it can build among customers, who begin to see the retailer as more concerned about their health and wellness than corporate profits. In a down economy, adds Ron LoDato, Sr., vice president at Blackwood, N.J.-based Caesar’s Pasta, “It’s a great way to save your customers a few bucks,” which suggests you understand their financial problems and want to help.
Another reason retailers are going ahead with private label organic programs is because such product lines have a unique opportunity to quickly become the category’s best-selling “brand.” The relatively new organic marketplace is home to very few well-known national brands. As a result, the best known brand in a given category is often the store brand. In fact, a recent study by The Hartman Group, Bellevue, Wash., revealed that more consumers misidentified Nature’s Promise (57 percent), Nature’s Place (48 percent), Farm Fresh (43 percent), Archer Farms (42 percent) and Wild Harvest (39 percent) as national brands than correctly identified them as store brands.
“Shoppers are increasingly finding it difficult to distinguish between national and private label brands,” says the group. “Misidentification is strongest in natural and organic, which are sites of early private label adoption.”

Adds Renkosiak, “Few national natural/organic manufacturers play in all categories [like private label]. By that fact alone, private label brands have the opportunity to gain more recognition and power.”

According to Pat Nicolino, vice president of marketing at Carneys Point, N.J.-based Clement Pappas & Co., the breadth of their private label natural and organic programs is exactly what retailers should advertise to their customers. “We see a lot of retailers promoting the fact that they’ve got a full range of private label natural and organic, which is the right thing to do right now. These broad promotions build equity in the store brand and emphasize the expertise the retailer brings to the party.”

Asmar adds, “Retailers who strategically leverage their store brand can maximize sales across departments through successful thematic promotions.” For example, promotions featuring only private label natural and organic products can be built around baking, healthy snacking or other themes.

 

WHAT ABOUT NATURAL?

Although organic gets a lot more press, the natural food and beverage marketplace is actually much larger - and it grew even faster over the past year. According to SPINS, sales of natural foods and beverages in natural and conventional channels combined jumped 5.3 percent to almost $8.47 billion during the 52 weeks ended June 12.
Pre-recession, retailers were gravitating more toward organic store brands, whose certification by the USDA offered consumers an extra measure of security. But when times got tough, some chains switched gears in an effort to provide cash-strapped customers with less expensive better-for-you options, i.e. all-natural.
“Private label items that were organic were kept as organic,” reports Renkosiak. “Where the shift seems to be occurring is in newly developed lines and items. A natural option allows retailers to offer that ‘clean’ product at a lower cost to their consumer.”
In fact, adds Doug Scott, vice president of project management at Lancaster, Pa.-based Sensible Snacks, now part of the Hain Celestial Group, “I think there’s more potential for growth in all-natural than in organic. I think that the majority of consumers are satisfied with all-natural, that it’s a better fit for most lifestyles.”
The problem is that, although the USDA has issued guidelines surrounding the use of the words “natural” and “all-natural,” it has yet to create an actual rule - a fact not lost on consumers well aware of marketers’ tendency to misuse the two terms.

“Natural is very vague,” agrees LoDato. “The boundaries can go wherever [the marketer] wants. But with organic, there’s no doubt, no question. If you want to eat clean, pure food without any contaminants, it’s the only way to go.”

 

WHERE THE SALES ARE

Whether organic or natural, most retailers’ better-for-you private label programs are focused on high-volume categories as well as those where store brand shares are already better than average. As a result, SPINS data shows that private label organic sales in conventional supermarkets are highest in the packaged fresh produce, milk, eggs and shelf stable fruits and vegetables categories.
But because many consumers come to the organic and natural marketplace because they’re concerned about the effects of pesticides, antibiotics and growth hormones, retailers should also be sure to offer better-for-you private label alternatives to products considered “higher-risk.”
Retailers also should offer a strong assortment of store brand items aimed at children, toddlers and babies, since parents will often buy natural and organic products for their kids before they jump in to the segment themselves. In fact, reports SPINS, sales of organic private label baby food jumped 14.3 percent over the past year while sales of organic private label frozen kids and baby foods shot up 231.4 percent. Frozen lunch and dinner entrees (+8.1 percent) and refrigerated entrees/grab ‘n go meals (+135.1 percent) also posted strong gains.
Many of the other private label organic categories with the highest gains were in shelf stable, prepackaged goods. According to the OTA’s 2010 Organic Industry Survey, “In a tough economic year, private label products generally thrived in center store while the perimeter store product suffered,” thanks mostly to widening price gaps between organic and conventional offerings in meat and dairy and the addition of more prepackaged branded items in produce.
However, “Strong private label categories for the future are dry, bottled and canned products such as oils, peanut butter, crackers and cereal.”
Outside the food and beverage arena, manufacturers also cite a need for more private label alternatives in organic and natural non-foods, including supplements, personal care products, household cleaners and other such items.

Consumer demand seems to be asking for organic and natural products. With both categories in their infancy, now is the time for private label to stack out its territory in both spaces before national brands and alternative format retailers become dominant. PLB

 

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