Emerging Trendsin the Organic Marketplace: Part II

The organic market continues to grow, however, so do the number of barriers.

By Gregory Stephens, RD

In a recent “Business Insights” column (Nutraceuticals World, November 2007;10(10):22-23), we reviewed the or­ganic market for nutritionals through consumers’ eyes, specifically how health and sustainability are driving product purchases. In this issue, we’ll take a broader look at key trends and dynamics driving growth of the organic market.

Insights in this column come from the newly released “2008 Health and Wellness Trends Report” (HWTR 9th Edition) from the Natural Marketing Institute (NMI). The HWTR contains a key update to NMI’s “Organic Consumer Trends Report,” including essential, in-depth insights into what will drive growth of the organic market during difficult economic times.

Across the product categories in the health and wellness industry, natural/organic personal care products and organic food and beverages are the fastest growing, and now account for one-quarter of all health and wellness spending. Natural/organic general mer­chandise (e.g., clothing, linens, and household cleaners) is a small but burgeoning category expected to double in size within the next five years.

Organic Household Penetration

We have all seen evidence of sustained growth of organic foods and beverages. Once limited to local health food stores and co-ops, organic food and beverages are now marketed in nearly every retail outlet, from mainstream grocery stores, to convenience stores and mass merchandisers. It’s no surprise then that spending on organic food and beverages continues to rise at an impressive rate. This growth, of course, is attracting the interest of mainstream retailers. According to NMI’s Health and Wellness Treads survey, the average monthly spending on organic food and beverages among general shoppers was $48.44 in 2007, up from $26.60 in 2002. This represents a five-year average annual growth of 13%.

Overall, household penetration across the organic categories—packaged food, produce, beverages, personal care and linens—was 59% in 2007, up slightly from 2006. Further, half of the primary grocery shoppers in the U.S. agree that it is important for their store to have food and beverages with the “USDA Certified Organic” seal. As more consumers become educated about the benefits of organics and begin to incorporate them into their diets and lifestyles, spending on organic food and beverages is expected to continue, particularly among the most integrated users of organics.

U.S. vs. Global Organic Product Introductions

According to NMI’s Product Attribute Trend Identifier database (PATI), the number of organic products introduced in the U.S. retail market has more than doubled in the past six years, with nearly 3000 introductions in 2007 (see Figure 1, page 22). Outside the U.S., global growth rates of organic product introductions were relatively flat from 2001 through 2004 but have increased dramatically since, including a two-fold increase from 2006 to 2007, with over 7000 new organic product introductions (see Figure 2).

In the early 2000s, organic product introductions in the U.S. represented roughly one-third of all global organic offerings, and increased to approximately 50% of all introductions from 2003 to 2005. However, as more products are introduced outside the U.S. to meet the skyrocketing global demand, in the past two years the proportion of new U.S. introductions to the rest of the world has declined.

The U.S. and Europe have seen the greatest number of organic product introductions in the past six years—each witnessing approximately 13,000. Canada and the Asia Pacific countries have the next highest number of introductions with nearly 3000 each, with the number of introductions surging since 2005. While developing countries had fewer introductions, they experienced the highest growth percentage as organic offerings continue to infiltrate the global market.

The growth in global organic product introductions shows no signs of slowing down. No individual organic category has matured—in fact, most are still in their infancy. In addition to the health benefits of organics, increased awareness of global warming and water quality issues and growth in awareness and understanding of the environment and sustainability will continue to fuel industry growth.

U.S. Organic Product Introductions

In 2007, there were 2910 new organic product introductions in the U.S., across all categories, with particularly high percent growth in beverages, skincare and snacks. The beverage category played host to the highest number of new organic product introductions, with more than 400. This represents a 34% increase over 2006 and nearly 20% compound annual growth (CAG) since 2001. However, the skincare category also represents the category with the greatest CAG over the past six years (42%), and is the second highest category in terms of new organic product introductions. This growing category is likely a result of a myriad of factors, including aging Baby Boomers searching for products to reduce the signs of aging and products that do not contain synthetic chemicals. Despite some volatility in organic introductions in the haircare category, 141 new products were introduced in 2007, an increase of 81% over the previous year, representing a CAG of 24% since 2001.

Entry Drivers & Pathways to
Organic Usage

From NMI’s Health and Wellness Trends Report, the number one reason shoppers reported that they first started using organic produce, packaged food and beverages (excluding milk) was to avoid pesticides, genetically modified ingredients, hormones and/or antibiotics. Further, more than half said that they started using products across each of these three categories because “they are better for me.”

The gateway to the use of organics continues to be organic produce; consumers are at least 20% more likely to state that they first started using organic produce for reasons including, “they are better for me,” of “higher quality,” and “better tasting.” However, while not to the same extent as organic produce, many consumers do recognize the benefits of other organic categories, including packaged food and beverage categories for which offerings continue to grow. For example, in the U.S., there were 257 new organic snack offerings in 2007, up from 210 in 2006. As more consumers come to understand the benefits of different organic categories, each providing a growing array of new offerings, they will become more integrated in their organic use.

Organic Benefits & Understanding

A slight disconnect exists with consumers between the features and benefits of organic foods and beverages and their perceived impact on safety and health, as well as their perceived monetary worth. In NMI’s Health and Wellness Trends Report, the majority of shop­pers stated that they are familiar with the features and benefits of organic food; however, less than half translated those benefits into favorable safety and health beliefs and even fewer perceived their benefits as being worth paying an extra 20% for. Herein lies an opportunity for marketers of organic products to educate consumers about how the intrinsic benefits of organics are not only safer for the environment, but are also tied closely to one’s personal health and performance. In comparison, consumers who have integrated organic foods in their lives (NMI organic consumer segment of “Devoteds”) have much stronger beliefs regarding organic features and benefits. And unlike the general population, they are far more likely to connect these features to the benefits of safety, health, taste and value.

Consumers in general are, however, becoming increasingly aware of the features of organic foods. Approximately two-thirds agree that organic foods are grown without pesticides, and that organic foods and beverages have no artificial colors, flavors or preservatives. A smaller proportion, albeit slightly, agree that organic food and beverages contain no genetically modified ingredients.

Mainstream consumers are not only becoming more aware of the benefits of organic food, their perceptions are also growing more favorable. Approximately one-half believe organic products are safer for the environment and that they are safer to eat than non-organic. However, only one-third perceive them to be more nutritious and fresher than non-organic alternatives. Overall, perceptions regarding taste and price premium, considered to be two main entry barriers to the organic category, have improved considerably in the past five years, with positive CAG since 2002 of 8% and almost 10% respectively.

Barriers: Credibility, Taste, Price

With U.S. consumers spending billions on organic food and beverages, it’s not surprising that so many companies are jumping on the “organic bandwagon” and hoping to cash in on the trend. The organic label, first found primarily on dairy and produce items, is now prominently featured in mainstream distribution channels on products ranging from frozen entrees to breakfast cereal to dietary supplements.

It is also not surprising that consumers are beginning to question the credibility of organics, especially considering their premium price tag. As news stories and other perceptions are causing some consumers to question the authenticity of organics, many are looking closer to home for options and alternatives. As shown in Figure 3, nearly half (44%) of non-organic users indicate it is more important to buy local than to buy organic (36% among organic users). Further, more than two-thirds of primary grocery shoppers used “locally-sourced” foods and beverages in the past year and in that same timeframe nearly one-quarter of those consumers increased their usage of locally sourced foods.

Finally, price is often said to be a major deterrent in the purchase of organic food, and for some consumers it definitely is. However, when there is a lack of understanding of the benefits and regulations of organics, price usually takes the blame for many consumers not selecting organic options. Interestingly, while nearly three-quarters of shoppers state that organic food is too expensive, this does not vary significantly by income. Consumers of all income levels appear equally inhibited by cost. It is in this regard that organic consumer segments are driven mainly by their attitudes and behaviors, not by their demographics.

Despite these barriers, growth in the organic category continues to meet projections, especially in the nutritional beverage and skin care categories. As consumers become more educated about the benefits and regulations of organics, marketers will make progress in overcoming the price issue. However, importers of organic products will face a double-edged sword that could prove to be difficult to overcome. Al­though often less costly, skepticism and lack of confidence in the quality of organics from other countries will be a barrier to growth. The short-term implication of this is that those organics produced within the U.S. certainly have a head start in capturing market share from early mainstream adopters.NW

Data sources for this article include The Natural Marketing Institute’s Health and Wellness Trends Report (HWTR), the 2008 Organic Trends Update, as well as other proprietary NMI sources. Please contact the author for information on these reports or the consulting and market research services of NMI; E-mail:greg.stephens@nmisolutions.com.