Have Organics really gone mainstream?
The answer is more elusive than you might think
By Bob Sewall, executive vice president for sales and marketing at Blount Fine Foods
This past November, RetailWire managing editor Tom Ryan posted a story that asked “This time, are organics really going mainstream?” His is a good question, and also one that is very challenging to answer.
Before one can answer the question of whether organics are really going “mainstream,” mustn’t one first have a quantifiable definition of what exactly “mainstream” means? Good luck finding a consensus answer to that question, but let’s explore the numbers nonetheless.
Jumping the gun in ‘06
In October of 2006, a CNN story declared that, yes, organic food and green products had gone mainstream. In supporting its argument, the article alluded to the shift in profile of the organic consumer from hippie, counterculture tree-hugger, concerned about the use of pesticides in the environment, to the upscale suburbanite concerned about rising obesity rates and mad cow disease.
The organic shopper/diner had evolved from the “counterculture hippie” to the “Prius-driving mother,” and sales of organic foods in the U.S. had jumped from $3.5 billion in 1998 to $13.8 billion in 2005. The momentum would continue, and nothing could stop it…
And then the Great Recession of 2008 hit and all but wiped out the momentum in the organic food space for the next several years. After all, with organic products capturing about a 30 percent price premium back then, how and why would cash-strapped consumers be willing or able to pay for such products?
Up to that point, according to the Organic Trade Association, U.S. organic sales had been growing consistently at about 20 percent a year annually since 1990. But in 2008, the annual growth rate number fell below 10 percent. Growth in organic sales bottomed-out in 2009, returning less than five percent annual growth.
Down, but not out.
But things have been picking back up and today, sales of organic foods in the U.S. are in the ballpark of $48 billion a year in the U.S.
If you are a number cruncher, that is a compound annual growth rate, or CAGR, of about 16.65 percent. If you compare that number to the CAGR for total grocery store sales in the U.S., which Statista and USDA say is about 2.49 percent, you will start to see that over the last 20 years or so, Organics are outperforming the industry significantly.
But before you declare the arrival of Organics in the mainstream, there is one more industry statistic to consider: Organics’ $48 billion in annual sales represents less than one percent of total U.S. grocery store sales, which Statista puts at $578 billion in 2013. And let’s not forget that grocery store sales only represent half of the dollars spent on food each year. What about sales of Organics in restaurants?
Enjoying eight-tenths of one percent market share does not equate to basking in the mainstream, no matter how much of a stretch is permitted. We’re going to have to look elsewhere for evidence of “mainstreaming” as it does not rest within the financials.
What do the big guys think about Organics?
If we cannot quantify the mainstreaming of Organics, perhaps we can qualify it.
Today, Organics are big business, and their appeal is expanding rapidly. Over the last decade-plus, Whole Foods Markets have been the poster child for the potential of retail organic foods. The company’s growth has been tremendous, and today it employs more than 58,000 people in its 401 stores in the U.S., Canada and the United Kingdom.
For restaurants, Organics are trickier business – you can only declare a dish “organic” if every ingredient is certified organic. Fast-casual success story Chipotle may be the largest chain with a stated commitment to sustainably raised food. On its website, Chipotle says “whenever possible, we use meat from animals raised without the use of antibiotics or added hormones.”
And according to a story on care2.com, which bills itself as online community of 26 million people passionate about making a difference, Chipotle also sources organic and local produce “when practical.” Does Chipotle leave a little bit of wiggle room? Sure. But in the minds of loyal diners, it is a company that cares about them.
The growth of Organics, and the success of retailers and restaurants specializing primarily in organic products points to an undeniable opportunity, which has attracted the attention of some of the largest supermarket players.
In April of 2014, Walmart announced it would begin offering as many as 100 Wild Oats brand organic food items in its stores, at a price point that allowed customers to save “25 percent or more” vs. national brand organic products. This marked a big step forward for the world’s largest retailer.
Many experts feared the Walmart news would be a huge step backward for traditional organics suppliers and retailers, as Walmart would certainly bring margin-eroding price pressure. Wall Street, as it is want to do, overreacted by hammering Whole Foods’ stock price, lowering its value by 20 percent in one day and leaving it down for the following six months. But Whole Foods bounced back after a few quarters, and trades today about 14 percent higher than it did on the day of Walmart’s Wild Oats announcement.
But it is something Kroger CEO Rodney McMullen said to investors and analysts that might point to the most promising evidence of the arrival of Organics in the mainstream. On September 11, 2014, during the company’s quarterly post-earnings conference call, McMullen said “well over half of our (in-store) customers will buy something” in the Organics category. He went on to say that internal research and data analysis indicates the trend “continues to increase.”
Redefining the Organics purchaser is the key
If we were to believe the 2006 CNN story, organic products are purchased by aging hippies and wealthy suburbanites. If you were to combine these two groups, there is no possible way they could amount to “well over half” of Kroger shoppers, nor could they come anywhere near $48 billion in annual grocery purchasing power.
Furthermore, never in a million years would Walmart undertake a major initiative to target such a sliver of a market segment.
What this all points to is that Organics haven’t become mainstream products because of the dollars spent by traditional organic products purchasers. They have gone mainstream because Organics are winning mindshare and purchase share among a wider market segment: the entire population of U.S. consumers and diners.
The result of this mainstreaming will not only be retail price points that more households can (and will) afford, but also economies of scale in farming, handling and production that will continue to dramatically broaden and advance the universe of organic food products available.
That, along with our ability to ensure high quality and delicious taste, is why we introduced Blount Organics in 2014, and points to why the line has performed so well.