Competition trims organic outlook
by Allison Gibeson
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When asked what is driving the organic market right now, Suzy Badaracco, president of Culinary Tides, said the better question to address is what is holding the market back.
Ms. Badaracco said the main hindrances to the organic market are higher price points and trust issues. Higher prices are difficult for many consumers to afford during the recession, and consumers often don’t understand what the organic label means and are often mistrustful of such products in general.
Despite these factors holding the market back, some consumers still are buying organic.
“The typical natural and organic consumer — even during the recession — they haven’t stopped buying these products,” said David Browne, senior analyst at Mintel International, Chicago. “This is because they really see this as a lifestyle. It’s not a discretionary food purchase they are willing to give up. They see it as much more important than that.”
He said while consumers haven’t shifted their behavior, many have traded down from name-brand organic products to private label, especially in sectors like dairy where there isn’t much difference between the private label and name brand. Ms. Badaracco said during a recession, consumers will still stay with buying organic fruits and vegetables while possibly abandoning organic processed foods. Mintel said dairy, beverages, meat and seafood categories remain popular in the organic market.
Mr. Browne said the organic consumer is often young, between the ages of 18 and 34, and because it is a young market there are many consumers entering and experimenting in the category. Consumers in general usually prioritize price, convenience and flavor, but organic consumers often choose to focus on quality as well. In addition, the organic consumer usually values fewer ingredients and less processed products, even if they are less convenient.
Overall, the main driver to buy organic products is to be healthier and achieve good health followed by a desire to ensure children eat healthy, Mr. Browne said. Mintel said other, less prominent, reasons people choose organic include environmental concerns and dietary sensitivities.
Ms. Badaracco said consumers are turning to organic to avoid pesticides, and there is an overriding belief among consumers that the products are somehow more nutritious than traditional products despite numerous studies suggesting otherwise. In addition, consumers believe organic somehow implies a food safety halo.
There are various trends competing with organic products in the marketplace. Currently, the natural market has an edge over organic because it gets lumped in with terms like simple, artisan, local, and home-made, Ms. Badaracco said. In addition, natural isn’t associated with a higher price point. Overall, consumers seem to trust natural products more than organic ones and natural products tend to appeal to a broader market.
“It’s completely backwards,” Ms. Badaracco said. “Consumers believe more in natural, which isn’t regulated, than organic, which is regulated.”
In fact, Mintel reported 59% of consumers believe products labeled “natural” must meet a government standard. Mintel said 33% trust the term “natural” on labels and 45% trust the term “organic.”
Overall, Mr. Browne said natural always will be a larger market than organic simply because organic products are more expensive due to the requirement to meet specific regulations and because consumers don’t understand the difference between natural and organic.
When it comes to making messaging on organic products more clear, Ms. Badaracco said it is really the U.S. Department of Agriculture’s job to communicate more effectively about the organic market, and it’s not necessarily the industry’s responsibility to do this because they don’t control the legislation. She also said it would take more than just one company to try to clear up the message behind organic.
“Instead of one company educating on organic, it would have to be a growers association or a sub-group within the food industry working together to put out a marketing campaign,” Ms. Badaracco said. “Because organic is so big one company wouldn’t be the right voice for it. Really what needs to be done is a study by government as to where the breakdown in communication with consumers is. That’s the first point because it’s not well understood why consumers are distrustful and why they will abandon organic for local.”
Mr. Browne also said consumer education about organic is the biggest challenge to growing the business in the future as consumers need to understand what exactly they are buying in order to justify the purchase.
While it might not be intended to be a competing trend, consumer desire to buy locally produced products also may trump the organic trend as some consumers will choose a locally grown non-organic product over an organic product that is not local.
“As the economic crisis lifts, organic numbers will rebound,” Ms. Badaracco said. “It is always going to be limited. It’s self-limiting simply because of the number of acres in the country you can plant organic.”
In contrast, she said natural doesn’t have similar limiting factors and has the potential for more growth.
Mintel expects the organic food and beverage market to rebound during the next two years reaching nearly $8 billion by 2012, a 28% growth rate during 2010 to 2012. But this still doesn’t match pre-recession growth rates. The market was at about $6.2 billion in 2009. Overall, organic foods and beverages have grown 41% in sales since 2006, but the market declined slightly in 2009.
“The market still has a lot of room to grow,” Mr. Browne said.
Mintel said Dean Foods, Groupe Danone and the Hain Celestial Group represent 30% of organic food and beverage sales in mainstream retail outlets, whereas the leading companies represent 25% of sales in natural supermarkets.
According to Mintel’s Global New Products Database, there were 1,639 new food and beverage products introduced with organic claims in 2009, down from 2,529 in 2008. In 2010 through Aug. 3, there were 877 new organic products introduced.