The organic food and beverage market is changing. As product availability has increased, the barrier for entry among some of the nation’s largest retailers has been reduced, leading to an expansion of shelf space devoted to organic products.
The increased competition was a key reason for the announced acquisition of Wild Oats Markets, Boulder, Colo., by Whole Foods Market, Austin, Texas.
"Wild Oats and Whole Foods Market have both had a large and positive impact on the natural and organic foods movement throughout the United States, helping lead the industry to nationwide acceptance and to becoming one of the fastest growing segments in food retailing today," said John Mackey, chairman and chief executive officer of Whole Foods Market, during a Feb. 21 conference call with financial analysts. "The growth opportunities in the category have led to increased competition from many players, most of whom are not dedicated natural and organic food supermarkets, but are considerably larger than we are."
Retailers putting pressure on Whole Foods in the organic market include Wal-Mart Stores, Inc., Bentonville, Ark.; Safeway, Inc., Pleasanton, Calif.; and SuperValu Inc., Minneapolis. Wal-Mart’s efforts have been well documented, but they are not the only ones deriving profits by competing in the segment.
"We’re very excited about our organics offering, particularly our ‘O’ Organics line that we launched about a year ago," said Robert Edwards, chief financial officer and executive vice-president of Safeway, during the Bank of America Consumer Conference on March 13. "Sales in the first year were about $160 million, which was a tremendous success. We initially launched about 150 s.k.u.s (stock-keeping units) in that offering. It’s been tremendously received, and because of that success, we are doing some line extensions there and we’re targeting new products that we’re launching here early in 2007 and targeted at babies and kids."
Jeff Noddle, the c.e.o. of Supervalu, sees the burgeoning organic market in a similar vein.
"We believe that natural and organics are going more mainstream and one of the reasons that you’re seeing maybe not as strong a growth from those formats (like Whole Foods) organically is because all of us are getting more into natural organics," he said during the Bank of America Consumer Conference. "Manufacturers are coming out with organic raisin bran now, so they have a regular and an organic (type). When those come out from major manufacturers, they go through our distribution network and into our stores."
The expansion of the organic market has not been limited to major retailers, either. Meijer, a Grand Rapids, Mich., supermarket chain announced it was "going organic" in early March with the introduction of Meijer Organics, a private label brand featuring more than 200 different organic food products. The new line includes products such as ice cream, kosher pickles, minestrone soup and pizza.
"This is a very important move for us as more shoppers are demanding organic foods," said Ralph Fischer, group vice-president of Meijer.
Organic products also are starting to make inroads into the food service sector. For example, Pizza Fusion, Fort Lauderdale, Fla., formerly a regional chain, announced in mid-March the company is expanding nationally with the launch of a new franchise system.
"Pizza Fusion addresses a much needed void in the restaurant industry," said Randy Romano, vice-president of development. "It’s virtually impossible to eat organic when eating out. By combining the demand of the organic food market with America’s favorite food in a dine-in, carryout or delivery format, Pizza Fusion is at the forefront of the niche organic restaurant industry."
Research conducted by the National Restaurant Association identified organic as a growing trend in 2006 and 2007. According to the N.R.A., organic items are growing in popularity across the board at table service restaurants. Among fine dining restaurants that currently serve organic items, 52% said they expect higher sales of organic menu items in 2007; 42% of casual dining restaurants that serve organic menu items expect organic menu items to grow; and 27% of family dining restaurants report they expect sales of organic menu items to grow.
What do consumers want?
Demand for natural and organic meat exceeded 20%, with 21.2% of supermarket shoppers surveyed for a study conducted by the Food Marketing Institute and the American Meat Institute saying they purchased natural and organic products when they shopped during 2006. That number is up compared with 2005, when 17.4% of consumers who were surveyed said they purchased natural or organic meat. The report "The power of meat — an in-depth look at meat through the shopper’s eyes" is an annual report that profiles consumer perception of the meat and poultry products sold in retail meat departments.
The report also showed chicken is the most popular natural and organic meat, purchased by more than 7 in 10 shoppers, followed by beef and ground meat. According to the report, five beliefs motivate at least 4 in 10 shoppers to buy natural or organic products:
●Better health and treatment of the animal;
●Better nutritional value;
●Positive long-term health effects; and
Price, however, continues to be a restraint for the sale of natural and organic meat. More than 6 in 10 shoppers said they would buy more of the products if prices were more in line with conventional meat products.
While it is clear the organic market segment is expanding and many shoppers are interested in the products, research conducted by Kerry Americas, Beloit, Wis., indicates some consumers may be equally or more interested in products that are partially organic than 100% organic.
In the study, which focused on consumer perception of organic food bars, consumers were asked which food bar categories they preferred — traditional, all natural, made with organic ingredients, organic or 100% organic? Participants were allowed to check more than one category. Among the results, all natural (36%) led the way followed by traditional (33%), 100% organic (11%), made with organic ingredients (10%) and organic (10%).
Keith Parle, director of sales for Kerry’s food bar products, said the responses indicate consumers may not be focused on consuming only 100% organic products.
"I would just say that if a product is natural or organic, then consumers are very happy with it," Mr. Parle said. "So, if you add the two (all natural and the three organic choices on the survey) then it’s a majority. The take we got from that was if a company can build believability around its product being natural or organic, then they are already a ways there in accessing the majority of consumers."
Proposal made to renew 166 substances on U.S.D.A.’s organic-compliant National List
A proposed rule would renew 166 of 169 exemptions on the U.S. Department of Agriculture’s National List of Allowed and Prohibited Substances in organic crop and livestock production and organic handling. The proposed rule and the complete list of renewed substances appeared in the Federal Register of March 6 (Volume 72, Number 43).
A finished product qualifies for an organic seal from the U.S.D.A.’s National Organic Program if at least 95% of the product is organic and the remaining non-organic substances appear on the National List. A finished product may have a "made with organic" label if at least 70% of the product is organic and the remaining non-organic substances appear on the National List.
The U.S.D.A. will receive comments on the proposed rule until May 7. Comments may be mailed to Toni Strother, Agricultural Marketing Specialist, National Organic Program, USDA-AMS-TMP-NOP, 1400 Independence Ave., SW., Room 4008-So., Ag Stop 0268, Washington, DC 20250. More information may be found at www.regulations.gov.
One of the sections in the proposed rule involves non-organic, non-synthetic substances allowed as ingredients in or on processed products labeled as "organic" or "made with organic." Proposed renewed non-synthetics include such items as calcium carbonate, calcium chloride, carageenan, enzymes, flavors, sodium bicarbonate, sodium carbonate and bakers yeast.
Another section involves non-organic, synthetic substances. Proposed renewed synthetics include such items as calcium citrate, calcium hydroxide, nutrient vitamins, nutrient minerals, pectin (low-methoxy), tocopherols and xanthan gum.
In another section, proposed non-organically produced agricultural imports allowed include corn starch (native), gums (water-extracted only), kelp for use solely as a thickener and dietary supplement, lecithin (unbleached) and pectin (high-methoxy).
The three non-renewals are set to expire on Oct. 21. They are:
●non-organic milk replacers;
●non-synthetic colors used in organic handling; and
●potassium tartrate made from tartaric acid.
Before the proposed rule, an announcement on proposed rulemaking appeared in the Federal Register on June 17, 2005. About 350 comments came from consumers, producers, certifying agents, trade associations, retailers, organic associations, animal welfare organizations, consumer groups and the National Organic Standards Board.
This article can also be found in the digital edition of Food Business News, March 20, 2007, starting on Page 38. Click