Costco's organic food sales approach $3 billion

by Eric Schroeder
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Costco offers organic products under its own label, Kirkland.

ISSAQUAH, WASH. — Wal-Mart and Kroger, the nation’s two largest retailers, and Target, the fourth-largest retailer, have made significant strides in the organic food category over the past year, so it’s only fitting that Costco — the No. 3 chain — is getting in on the action.

Each of the retailers has taken a different approach in how it addresses the organic food market, which has seen sales in the United States increase 11% to reach $35.9 billion in 2014, according to a survey released April 15 by the Organic Trade Association. Organic food sales accounted for close to 5% of total U.S. food sales, according to the O.T.A.

Kroger introduced its own line of products under the Simple Truth Organic brand in 2012, while Target partnered with other companies to offer a Made to Matter collection of better-for-you products in 2013, and Wal-Mart teamed up with Wild Oats last year to offer organic food items that are at least 25% less expensive than the national organic brands it carries.

Costco is taking a more steady approach to its organic food program. Like Kroger, Costco offers organic products under its own label, Kirkland. A few years ago, Costco, in an effort to offer its customers more organic snacks, partnered with PepsiCo, Inc. to provide organic versions of Ruffles and Stacy’s Pita Chips. The products are exclusive to Costco members. More recently, Costco in early April signed a deal with Amira Nature Foods Ltd. under which Amira would provide Costco with organic products, including 20-lb bags of Amira Organic Sona Massori Rice.

“We are very proud to announce the launch of Amira Organics in Costco stores,” said Karan A. Chanana, chairman of Amira Nature Foods. “We understand the U.S. consumer demand for organic products, and we have worked diligently to create the highest quality organic rice products. It is exciting to see the product on the shelves following its initial launch with a strong retailer like Costco.”

The organic rice falls into a broader category that Richard Galanti, chief financial officer of Costco, earlier this year called a “small percentage of Costco,” but it remains a segment ripe for growth.

“(Organics) is a fast-growing area, as it is with a lot of other retailers as well,” Mr. Galanti said during a March 5 conference call to discuss second-quarter results. “You’re going to see more and more of it. Part of that is availability. We and everybody else could sell a lot more if there was more out there. I think we’re doing a pretty good job of lining up our sourcing.”

Mr. Galanti said organic sales approached $3 billion for Costco in 2014, which was up more than twice what it was two years earlier.

“It’s growing fast,” he said. “I don’t know if it’s 50% a year, but it’s certainly growing at a high — at a low-mid or mid-double digit number. And it’s great for us, because we show even a better value on that stuff than some of the things that it replaces.”
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