Rebecca Wright01.01.09
While the current economic environment is applying downward pressures on growth for the natural and organic products industry in conventional food, drug and mass retail channels, the outlook remains positive overall, according to a study released from SPINS, Schaumburg, IL, in October. Key success determiners for both manufacturers and retailers include a continued commitment to the authenticity of the products, to the core consumer, and to the underlying drivers of the industry.
These drivers include aspects of sustainability, a growing personal awareness of the environment, and the direct effects of purchase decisions on the environment and health. The "natural products industry" posted sales of $13 billion (12% growth) within conventional food, drug and mass retailers over the 52 weeks ending October 4, 2008, the report states. And body care, general merchandise and frozen and refrigerated continued to post double-digit growth rates. Organic products continue to out-perform the overall natural products industry (13% growth over the previous year).
Despite more organic food and beverage products on grocery store shelves, all is not healthy in the world of pesticide-free, additive-free edibles. In fact, Mintel International, Chicago, IL, predicts that market growth rates for organic food and drink will decline, especially as the economy struggles.
According to Mintel, the market for organic foods and beverages should exceed $7 billion in 2008, an increase of more than 140% from the $3 billion recorded during 2003. But year-over-year, Mintel has seen sales growth slowing. With many Americans now struggling financially, the market research firm projects that sales of organic foods and beverages will not rally anytime soon.
"Rising food and gas prices, the credit crunch and economic uncertainty have deeply affected people's shopping habits," commented Marcia Mogelonsky, senior analyst at Mintel. "Across the board, Americans are spending less and 'organic versus traditional' is a decision many people are thinking about carefully."
Natural and organic ingredients, as well as finished products, frequently carry a hefty price tag. So with many analysts predicting dark days for the economy in general, how will this impact formulation development and consumer behavior in this sector? Most experts seem to be cautiously optimistic about what lies ahead.
"As it is focusing on making products that positively impact the health and well-being of both consumers and the environment, I believe this market will continue to grow," said Antoine Dauby, group marketing manager, Naturex Inc., South Hackensack, NJ. "Consumers continue to retain an interest in their health and consequently they expect good ingredients in their foods and supplements."
Further, as more people become aware of environmental issues and safety concerns, the seismic shift toward natural ingredients will continue, he added.
So far the economy doesn't appear to be hurting the organic sector, according to Harley Pond, vice president, Technical Sales, Van Drunen Farms/Futureceuticals, Momence, IL. "In the grocery stores we might see a little slowdown in the fresh sector, but organic is leading the way in supplements and functional foods, and I don't see things going backward at all," he said. "We haven't seen a drop-off in sales because I think people in stressful times realize they need to take care of their health. The decision to become an organic consumer at times can trump a terrible economy."
Due to the competition between organic and natural products and basic food staples-e.g., milk, bread, eggs-there might be some erosion in the mass market, predicted George Pontiakos, president and CEO, BI Nutraceuticals, Long Beach, CA. But, he said, the core consumer base will continue to be strong. "There were a lot of strong growth expectations for this market two to three years ago, and while those expectations never materialized, companies in this sector are growing very respectfully."
Offering a similar perspective, Rodger Jonas, national business development manager, PL Thomas, Morristown, NJ, said, "Core consumers will remain loyal, but first time buyers will most likely migrate back to conventional foods."
Some experts believe the economy will force everyone to make some tough decisions. "Clearly the economy is putting a ceiling on what any ingredient can cost," said Brian Stagg, New Business Development-North America for Diana Naturals, Valley Cottage, NY. "It's now a question of, 'Can I afford to buy groceries for my family?' versus, 'Can I pay a premium for an organic product?'"
Still, Mr. Stagg claims there are quite a few Diana Naturals' customers looking at the organic space. "In an industry with so few growth segments, organic continues to rise to the top and garner ongoing interest," he said.
Noah Herron, marketing coordinator, Verdure Sciences, Noblesville, IN, believes most consumers will recognize the benefits of consuming natural and organic products and continue buying. "Since organic ingredients are grown without synthetic chemicals and genetic engineering, the overall yield of crops is much lower, giving way to higher cost for organic ingredients," he explained. "This cost is then passed on to the consumer who must choose between quality and price. As the consumer becomes more informed, we believe that higher cost will not discourage educated consumers, because they know the health benefits associated with eating organically grown ingredients."
Most of the misunderstandings revolving around organics have to do with price and healthfulness, or what it actually takes to produce an organic ingredient or product.
As Diana's Mr. Stagg pointed out, "First you have the field, which has to be grown organically for three years before it can be certified. This presents challenges with product development and availability issues. You may require dedicated equipment and an incredible paper trail once it gets past the field. It's not like 'flicking on a light switch' and making an ingredient change from conventional to organic."
Another issue is cleanliness. "Just because a product is organic doesn't mean it's clean. The microbial load can be fierce in some of these products," said BI's Mr. Pontiakos. "The core consumers are well aware of this issue, but the mass market is just starting to realize that organic can sometimes be filthy."
To address this, BI offers a unique sterilization process for organic ingredients. Specifically, Protexx HP uses super-heated dry steam to reduce microbiological load. The results are comparable to that of treatments with ethylene oxide (ETO) or irradiation-except Protexx HP is a truly organic process that's environmentally friendly. Moreover, it doesn't leave any residue, so there are no potential regulatory issues and no additional label declarations are required.
In some ways, the extreme growth of organic products is a blessing and a curse, especially in terms of supply and demand. Organic ingredients often take much longer to produce compared to their conventional counterparts, so one of the biggest challenges in this respect is sourcing, according to Mr. Pontiakos. "The land allocated to organics is limited. California and a handful of other states are some of the only in the world with true organic farmland, so trying to find organics in volume is a real challenge. In other parts of the world, sometimes just feeding the population is more important than organic."
Van Drunen Farms/Futureceuticals' Mr. Pond agreed. "It always comes down to supply, which is tricky for organics. Consumers create a demand and that funnels back to us, and then we have to go buy the raw materials. But this market can be very sensitive."
Mr. Pond emphasized the importance of communication in this regard, especially if a potential customer has unrealistic expectations with regard to when the product will hit the market. In many cases, he said, it may take a year or two before that material is ready for product development.
One controversy that continues to be debated is whether organic and/or natural foods are actually more nutritious. Verdure's Mr. Herron offered his view. "Many people tend to think that eating organic is just a healthy thing to do, but eating organic foods also helps create healthier soil, water, eco-systems and long-term viability," he said. "As consumers become more educated on the products and ingredients they eat, they learn that organic ingredients are healthier and more environmentally friendly."
Nutraceuticals World's online editor, Joanna Cosgrove, covered this issue late last year. In her article, she said, "It's commonly held that the health benefits associated with consuming pesticide-free, organically grown produce and grains justify their higher price points. Pesticide use aside, researchers at the University of Copenhagen recently compared the nutrient content of organic versus conventionally grown produce and determined that 'organic' is no more nutritionally superior than less costly alternatives."
The study, which was published in a September issue of the Society of Chemical Industry's (SCI) Journal of the Science of Food and Agriculture, investigated the effect of three different model cultivation systems on selected major and trace element contents of dried foodstuffs-carrots, kale, peas, potatoes and apples-grown in two consecutive years, as well as mineral retention determined in 36 rats (second generation in a multi-generation study) fed diets based on these foodstuffs for one year.
According to Ms. Cosgrove's article, the study conclusion did "not support the belief that organically grown foodstuffs generally contain more major and trace elements than conventionally grown foodstuffs," nor did it appear to have "an effect on the bioavailability of major and trace minerals in rats."
In the food and beverage sector, Mr. Jonas of PL Thomas says natural is leading the way-companies are looking for options that not only offer flavor and color, but also nutritional functionality.
Geographically, Mr. Dauby of Naturex says the strongest demand for natural and organic ingredients is coming from the Amazon and North Africa. "Our clients are enthusiastic for new product development and always ask for new ideas. Maca, a tuber from the central highlands of Peru, has tremendous potential. It enjoys a long history of traditional use for improved energy, stamina and sexual enhancement."
Mr. Dauby also highlighted antioxidants like green tea as well as other teas, such as white or red rooibos, which he said are among the most widely recognized-they are also growing in popularity as organic functional ingredients. Supplements incorporating botanicals like guarana or pomegranate are also still performing very well, he added.
But none of these ingredients compare to the intense interest in the superfruit category, which Mr. Dauby says represents one of the biggest areas of growth.
In a similar vein, Van Drunen Farms/Futureceuticals' Mr. Pond, believes the action is in organic fruit/vegetable ingredients. As the largest organic culinary herb farm, Mr. Pond says his company has been working with customers for years to help them make the transition from conventional to organic. "We are developing new products that are very close to their existing products, but that have organic status," he said. "These companies know that they need to be organic in order to compete."
Fruit, vegetable and botanical powders seem to be making the biggest impact on the market because they are the closest to the "organic" field crop, noted Matt Phillips, president and COO, Cyvex Nutrition, Irvine, CA. "Also, consumers are more familiar with fruits, vegetables and botanicals, therefore it is easy for them to make the 'organic' connection."
Switching gears, Verdure's Mr. Herron focused on organic extracts, which he believes are starting to make a big impact. "Not many companies can process 100% organic herbal extracts because of the expense and long-term investment," he said. "For this reason, many companies are having difficulty finding high quality organic extracts."
Verdure is able to get around this issue by manufacturing organic extracts using feedstock herbs that have been certified organic and comply with NOP (USDA Organic) guidelines.
Steve Bransky, technical sales manager, Premium Ingredients International, Carol Stream, IL, said ingredients such as agave syrup and stevia are very hot right now due to the negative publicity surrounding artificial sweeteners. "Products like these for alternative flavoring, seasoning or preserving will continue to pop up in the future and provide new natural alternatives to replace some of the old standards, including saccharin and high fructose corn syrup."
And the news for stevia gets better. On December 18th, Whole Earth Sweetener Company, a subsidiary of Merisant Company, received a no objection letter regarding the GRAS (Generally Recognized As Safe) petition it filed on behalf of its stevia-based sweetener, PureVia, in May last year. Also receiving a no objection letter in mid-December was Cargill, makers of Truvia. Developed jointly by Cargill and The Coca-Cola Company, Truvia natural sweetener is a zero-calorie natural sweetener using rebiana, which comes from the "best-tasting" part of the stevia leaf.
PepsiCo, on the other hand, plans to use PureVia across several of its beverage brands, including Tropicana and SoBe. PureVia will also be sold as a tabletop sweetener by Whole Earth Sweetener Company.
As for Coca-Cola, it launched Truvia in three new beverages: Odwalla Mojito Mambo and Odwalla Pomegranate Strawberry, as well as Sprite Green.
Mr. Dauby of Naturex believes it's no longer enough to just introduce an organic ingredient and believe that alone will make it distinctive. As the market grows and evolves, he said people would be looking for more in terms of benefits. "It's not that organic has become old fashioned, but future product development will have to meet performance expectations of both customers and consumers.
"In addition, I believe there is a huge opportunity to take the authenticity of botanical extracts to the next level by supporting socially responsible initiatives in product development," he added. "This is why at Naturex we have launched our corporate foundation, which supports education, medicine and basic necessities in communities where we source plant materials."
For example, as part of the company's sourcing program for its maca extract, it goes to the central Peruvian Highlands on a regular basis, to Ninacaca specifically. "In this remote area," Mr. Dauby said, "the Naturex Foundation projects are driven to improve care access, education and means of communication for the local community."
Focusing on the economy, Diana Naturals' Mr. Stagg said it would be challenging for suppliers to keep prices on organic products feasible, particularly in the area of concentrates. He added, "A secondary issue may be the possible impact on clinical trials. Diana Naturals performs many clinicals to support the science behind our products, but these projects may be more difficult to fund due to the current economic climate."
BI's Mr. Pontiakos sees FDA becoming a bigger player on the natural and organic scene with regard to GMP compliance. "I think FDA is going to target a very small percentage of companies for GMP compliance in 2009, because several are knowingly using irradiated and ETO products. I think the agency will try to make an example of them and it will be vicious," he said, adding, "This [behavior] is embarrassing for FDA, especially in light of recent food safety concerns."
On a lighter note, Mr. Phillips from Cyvex believes the long-term prognosis for the natural/organic market is good. "Consumers are managing their health themselves, therefore products that are natural/organic and can demonstrate better nutritional value will continue to be in demand."
These drivers include aspects of sustainability, a growing personal awareness of the environment, and the direct effects of purchase decisions on the environment and health. The "natural products industry" posted sales of $13 billion (12% growth) within conventional food, drug and mass retailers over the 52 weeks ending October 4, 2008, the report states. And body care, general merchandise and frozen and refrigerated continued to post double-digit growth rates. Organic products continue to out-perform the overall natural products industry (13% growth over the previous year).
Despite more organic food and beverage products on grocery store shelves, all is not healthy in the world of pesticide-free, additive-free edibles. In fact, Mintel International, Chicago, IL, predicts that market growth rates for organic food and drink will decline, especially as the economy struggles.
According to Mintel, the market for organic foods and beverages should exceed $7 billion in 2008, an increase of more than 140% from the $3 billion recorded during 2003. But year-over-year, Mintel has seen sales growth slowing. With many Americans now struggling financially, the market research firm projects that sales of organic foods and beverages will not rally anytime soon.
"Rising food and gas prices, the credit crunch and economic uncertainty have deeply affected people's shopping habits," commented Marcia Mogelonsky, senior analyst at Mintel. "Across the board, Americans are spending less and 'organic versus traditional' is a decision many people are thinking about carefully."
Will a Tough Economy Stifle Consumer Interest and Product Development?
Natural and organic ingredients, as well as finished products, frequently carry a hefty price tag. So with many analysts predicting dark days for the economy in general, how will this impact formulation development and consumer behavior in this sector? Most experts seem to be cautiously optimistic about what lies ahead.
"As it is focusing on making products that positively impact the health and well-being of both consumers and the environment, I believe this market will continue to grow," said Antoine Dauby, group marketing manager, Naturex Inc., South Hackensack, NJ. "Consumers continue to retain an interest in their health and consequently they expect good ingredients in their foods and supplements."
Further, as more people become aware of environmental issues and safety concerns, the seismic shift toward natural ingredients will continue, he added.
So far the economy doesn't appear to be hurting the organic sector, according to Harley Pond, vice president, Technical Sales, Van Drunen Farms/Futureceuticals, Momence, IL. "In the grocery stores we might see a little slowdown in the fresh sector, but organic is leading the way in supplements and functional foods, and I don't see things going backward at all," he said. "We haven't seen a drop-off in sales because I think people in stressful times realize they need to take care of their health. The decision to become an organic consumer at times can trump a terrible economy."
Due to the competition between organic and natural products and basic food staples-e.g., milk, bread, eggs-there might be some erosion in the mass market, predicted George Pontiakos, president and CEO, BI Nutraceuticals, Long Beach, CA. But, he said, the core consumer base will continue to be strong. "There were a lot of strong growth expectations for this market two to three years ago, and while those expectations never materialized, companies in this sector are growing very respectfully."
Offering a similar perspective, Rodger Jonas, national business development manager, PL Thomas, Morristown, NJ, said, "Core consumers will remain loyal, but first time buyers will most likely migrate back to conventional foods."
Some experts believe the economy will force everyone to make some tough decisions. "Clearly the economy is putting a ceiling on what any ingredient can cost," said Brian Stagg, New Business Development-North America for Diana Naturals, Valley Cottage, NY. "It's now a question of, 'Can I afford to buy groceries for my family?' versus, 'Can I pay a premium for an organic product?'"
Still, Mr. Stagg claims there are quite a few Diana Naturals' customers looking at the organic space. "In an industry with so few growth segments, organic continues to rise to the top and garner ongoing interest," he said.
Noah Herron, marketing coordinator, Verdure Sciences, Noblesville, IN, believes most consumers will recognize the benefits of consuming natural and organic products and continue buying. "Since organic ingredients are grown without synthetic chemicals and genetic engineering, the overall yield of crops is much lower, giving way to higher cost for organic ingredients," he explained. "This cost is then passed on to the consumer who must choose between quality and price. As the consumer becomes more informed, we believe that higher cost will not discourage educated consumers, because they know the health benefits associated with eating organically grown ingredients."
Common Misconceptions
Most of the misunderstandings revolving around organics have to do with price and healthfulness, or what it actually takes to produce an organic ingredient or product.
As Diana's Mr. Stagg pointed out, "First you have the field, which has to be grown organically for three years before it can be certified. This presents challenges with product development and availability issues. You may require dedicated equipment and an incredible paper trail once it gets past the field. It's not like 'flicking on a light switch' and making an ingredient change from conventional to organic."
Another issue is cleanliness. "Just because a product is organic doesn't mean it's clean. The microbial load can be fierce in some of these products," said BI's Mr. Pontiakos. "The core consumers are well aware of this issue, but the mass market is just starting to realize that organic can sometimes be filthy."
To address this, BI offers a unique sterilization process for organic ingredients. Specifically, Protexx HP uses super-heated dry steam to reduce microbiological load. The results are comparable to that of treatments with ethylene oxide (ETO) or irradiation-except Protexx HP is a truly organic process that's environmentally friendly. Moreover, it doesn't leave any residue, so there are no potential regulatory issues and no additional label declarations are required.
In some ways, the extreme growth of organic products is a blessing and a curse, especially in terms of supply and demand. Organic ingredients often take much longer to produce compared to their conventional counterparts, so one of the biggest challenges in this respect is sourcing, according to Mr. Pontiakos. "The land allocated to organics is limited. California and a handful of other states are some of the only in the world with true organic farmland, so trying to find organics in volume is a real challenge. In other parts of the world, sometimes just feeding the population is more important than organic."
Van Drunen Farms/Futureceuticals' Mr. Pond agreed. "It always comes down to supply, which is tricky for organics. Consumers create a demand and that funnels back to us, and then we have to go buy the raw materials. But this market can be very sensitive."
Mr. Pond emphasized the importance of communication in this regard, especially if a potential customer has unrealistic expectations with regard to when the product will hit the market. In many cases, he said, it may take a year or two before that material is ready for product development.
One controversy that continues to be debated is whether organic and/or natural foods are actually more nutritious. Verdure's Mr. Herron offered his view. "Many people tend to think that eating organic is just a healthy thing to do, but eating organic foods also helps create healthier soil, water, eco-systems and long-term viability," he said. "As consumers become more educated on the products and ingredients they eat, they learn that organic ingredients are healthier and more environmentally friendly."
Nutraceuticals World's online editor, Joanna Cosgrove, covered this issue late last year. In her article, she said, "It's commonly held that the health benefits associated with consuming pesticide-free, organically grown produce and grains justify their higher price points. Pesticide use aside, researchers at the University of Copenhagen recently compared the nutrient content of organic versus conventionally grown produce and determined that 'organic' is no more nutritionally superior than less costly alternatives."
The study, which was published in a September issue of the Society of Chemical Industry's (SCI) Journal of the Science of Food and Agriculture, investigated the effect of three different model cultivation systems on selected major and trace element contents of dried foodstuffs-carrots, kale, peas, potatoes and apples-grown in two consecutive years, as well as mineral retention determined in 36 rats (second generation in a multi-generation study) fed diets based on these foodstuffs for one year.
According to Ms. Cosgrove's article, the study conclusion did "not support the belief that organically grown foodstuffs generally contain more major and trace elements than conventionally grown foodstuffs," nor did it appear to have "an effect on the bioavailability of major and trace minerals in rats."
Strongest Demand
In the food and beverage sector, Mr. Jonas of PL Thomas says natural is leading the way-companies are looking for options that not only offer flavor and color, but also nutritional functionality.
Geographically, Mr. Dauby of Naturex says the strongest demand for natural and organic ingredients is coming from the Amazon and North Africa. "Our clients are enthusiastic for new product development and always ask for new ideas. Maca, a tuber from the central highlands of Peru, has tremendous potential. It enjoys a long history of traditional use for improved energy, stamina and sexual enhancement."
Mr. Dauby also highlighted antioxidants like green tea as well as other teas, such as white or red rooibos, which he said are among the most widely recognized-they are also growing in popularity as organic functional ingredients. Supplements incorporating botanicals like guarana or pomegranate are also still performing very well, he added.
But none of these ingredients compare to the intense interest in the superfruit category, which Mr. Dauby says represents one of the biggest areas of growth.
In a similar vein, Van Drunen Farms/Futureceuticals' Mr. Pond, believes the action is in organic fruit/vegetable ingredients. As the largest organic culinary herb farm, Mr. Pond says his company has been working with customers for years to help them make the transition from conventional to organic. "We are developing new products that are very close to their existing products, but that have organic status," he said. "These companies know that they need to be organic in order to compete."
Fruit, vegetable and botanical powders seem to be making the biggest impact on the market because they are the closest to the "organic" field crop, noted Matt Phillips, president and COO, Cyvex Nutrition, Irvine, CA. "Also, consumers are more familiar with fruits, vegetables and botanicals, therefore it is easy for them to make the 'organic' connection."
Switching gears, Verdure's Mr. Herron focused on organic extracts, which he believes are starting to make a big impact. "Not many companies can process 100% organic herbal extracts because of the expense and long-term investment," he said. "For this reason, many companies are having difficulty finding high quality organic extracts."
Verdure is able to get around this issue by manufacturing organic extracts using feedstock herbs that have been certified organic and comply with NOP (USDA Organic) guidelines.
Steve Bransky, technical sales manager, Premium Ingredients International, Carol Stream, IL, said ingredients such as agave syrup and stevia are very hot right now due to the negative publicity surrounding artificial sweeteners. "Products like these for alternative flavoring, seasoning or preserving will continue to pop up in the future and provide new natural alternatives to replace some of the old standards, including saccharin and high fructose corn syrup."
And the news for stevia gets better. On December 18th, Whole Earth Sweetener Company, a subsidiary of Merisant Company, received a no objection letter regarding the GRAS (Generally Recognized As Safe) petition it filed on behalf of its stevia-based sweetener, PureVia, in May last year. Also receiving a no objection letter in mid-December was Cargill, makers of Truvia. Developed jointly by Cargill and The Coca-Cola Company, Truvia natural sweetener is a zero-calorie natural sweetener using rebiana, which comes from the "best-tasting" part of the stevia leaf.
PepsiCo, on the other hand, plans to use PureVia across several of its beverage brands, including Tropicana and SoBe. PureVia will also be sold as a tabletop sweetener by Whole Earth Sweetener Company.
As for Coca-Cola, it launched Truvia in three new beverages: Odwalla Mojito Mambo and Odwalla Pomegranate Strawberry, as well as Sprite Green.
Beyond Natural & Organic
Mr. Dauby of Naturex believes it's no longer enough to just introduce an organic ingredient and believe that alone will make it distinctive. As the market grows and evolves, he said people would be looking for more in terms of benefits. "It's not that organic has become old fashioned, but future product development will have to meet performance expectations of both customers and consumers.
"In addition, I believe there is a huge opportunity to take the authenticity of botanical extracts to the next level by supporting socially responsible initiatives in product development," he added. "This is why at Naturex we have launched our corporate foundation, which supports education, medicine and basic necessities in communities where we source plant materials."
For example, as part of the company's sourcing program for its maca extract, it goes to the central Peruvian Highlands on a regular basis, to Ninacaca specifically. "In this remote area," Mr. Dauby said, "the Naturex Foundation projects are driven to improve care access, education and means of communication for the local community."
Focusing on the economy, Diana Naturals' Mr. Stagg said it would be challenging for suppliers to keep prices on organic products feasible, particularly in the area of concentrates. He added, "A secondary issue may be the possible impact on clinical trials. Diana Naturals performs many clinicals to support the science behind our products, but these projects may be more difficult to fund due to the current economic climate."
BI's Mr. Pontiakos sees FDA becoming a bigger player on the natural and organic scene with regard to GMP compliance. "I think FDA is going to target a very small percentage of companies for GMP compliance in 2009, because several are knowingly using irradiated and ETO products. I think the agency will try to make an example of them and it will be vicious," he said, adding, "This [behavior] is embarrassing for FDA, especially in light of recent food safety concerns."
On a lighter note, Mr. Phillips from Cyvex believes the long-term prognosis for the natural/organic market is good. "Consumers are managing their health themselves, therefore products that are natural/organic and can demonstrate better nutritional value will continue to be in demand."
