Now, that the National Organic Standard is close to being approved, what are some of the issues the industry is grappling with? Major supermarket chains and large conventional food product companies will launch organic lines. This is great news for the availability of organic foods – no doubt. General Mills’s organic division already grosses about $100 million in annual sales. But as large players enter the market, prices may be squeezed for the small organic farmer, and what of the retailers that have fueled the industry’s growth all these years?
The industry has been dealing with the joys and pains of rapid growth for the last decade. Amidst 20 percent-plus annual growth rates and the satisfaction of seeing their dreams realized as a result of mainstream interest, small retailers are re-evaluating their position, distributors are straining to meet demands, and margins are shrinking.
Mainstream grocers are muscling in for the action. It’s not hard to understand why when you look at the figures; when the numbers are in, industry experts project sales in organic food for 1999 to be 17-22 percent higher than 1998. Compare that to long term growth rates of two percent for mainstream groceries. According to a report published by the Private Label Manufacturer’s Assocation last year, “Organics: Growing from the Margins to the Mainstream,” the strongest period of growth for organic products is ahead. Analysts predict the market will reach $6.6 billion by year end, increasing by at least 20 percent annually over the coming years, reaching 10 percent of the total retail foods market by 2008.
The question is, will this growth go to natural food retailers or to mainstream grocers? Typical natural food store shoppers are educated, middle to upper middle class people in their 30s – 40s. Health-conscious Generation X’ers also patronize these stores. But the study shows that an equally large proportion of new naturals shoppers are buying from mainstream grocers, not natural food retailers.
The new naturals shoppers are Seniors and “Generation Y” (the group that follows Generation X, born between 1977-1990). Generation Y’ers spent a hefty $3 billion this year on the category, and the numbers are increasing each year. Seniors spent about $1.5 billion in 1999. Both groups shop at the supermarket down the street instead of searching out natural foods stores. As mainstream grocers carry more natural products, they buy them. These two groups combined bought over half of the total market sales of $6.6 billion; mass market natural product sales are now growing at the same annual rate as the natural foods market as a whole.
So far, supermarkets are not capitalizing on this trend. They remain focused on how to manage the category – how to separate organics from the rest of their products with store-within-a-store concepts, for example. Natural retailers have an opportunity to attract this new customer base if they target them. There’s no competition in terms of customer service, product knowledge and range of product offerings.
Source: Natural Foods Merchandiser
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