By Mike Montemarano, Associate Editor04.23.24
The natural and organic products market, including foods and beverages, dietary supplements, and products in the natural living category, has tripled in size since 2007, from $97 billion to over $300 billion at a CAGR of 6.67%, according to Carlotta Mast, senior vice president and market leader at New Hope Network, who presented at the “State of Natural and Organic” seminar at Natural Products Expo West in March.
Withholding the natural living category, 2023 sales of natural and organic products grew 4.8% to reach $209 billion. Although growth slowed in 2023, mainly due to decreased unit sales, New Hope predicted that growth will pick up in 2024.
Shifts in sales channel dynamics were notable, as e-commerce once again experienced the fastest growth rate (+7.3%) after a 2022 slowdown, while mass-market retail sales grew 5.9% and natural/specialty sales rose by 2.1%.
It's important to note, however, that e-commerce still only represents 8% of all natural and organic product sales, Mast noted, while mass-market makes up 61% and natural/specialty channel sales make up 21% of the $300 billion market.
In the natural expanded retail channel, natural products saw a CAGR of 4.9%, while conventional products grew 0.6%. Natural products also outperformed non-natural in the regional and independent grocery channel (+1.2% vs. -0.8%); conventional multi-outlet channel (+4.6% vs. +3.4%); and the convenience channel (+8.6% vs. +4.5%).
Organic-certified products are outpacing the growth of non-organic counterparts in virtually all categories. The top performers this year include organic sodas (+121%), organic pasta and pizza sauce (+75%), infant formula and toddler nutrition (+31%), bacon and breakfast meats (+26%), and meat, poultry, and seafood (+25%), Peters said.
“The strength of organic also continues to grow, as consumers come to trust and understand the organic seal even more,” Peters noted. “The organic seal is especially trustworthy among younger consumers,” and, along with Non-GMO Project Verified, is the only certification which grew in “net importance” between 2019 and 2023, according consumer research, Peters said.
Today, 65% of all shoppers report that they’re more likely to buy a product if it has USDA Organic certification, with younger shoppers strongly over-indexing, and 86% of younger natural channel shoppers saying they believe organic and regenerative agriculture can improve the nutrient density of food.
“Year over year, there’s been a gradual return to normal levels of spending at restaurants, resulting in a decline in units sold in grocery stores, which impacts the whole natural products industry,” said Nick McCoy, co-founder and managing director at Whipstitch Capital. “But the clouds are parting. This quarter is the first since COVID started in which we’ve seen positive year-over-year growth not just in sales volume but also in units sold for natural products.”
Even as food inflation comes down, consumers today are still upset by food prices, said Peters. While brands have seen major cost reductions across the supply chain, they’re largely not yet willing to reduce product prices despite pressure to do so from retailers. For the time being, retailers are relying on promotional discounts to improve consumer perception. Most brands are taking a risk-averse approach, so fewer new product launches are occurring, Peters said.
Consumers, however, are demonstrating with their dollars that they’re looking for innovative products and up-and-coming brands. In the natural channel, larger companies that Whipstitch Capital classified as more strategic grew 4.2% on average, while smaller brands the firm classified as innovators grew 7.3% on average in 2023.
“The number of companies has bloomed,” McCoy said, “and there’s much more buyout from big brands.” Investors are “increasing supply chain and omnichannel integration to increase brand headroom, becoming more efficient at marketing through better data, and creating a greater number of ‘rising tides’,” to lift all boats.
Venture funds are more likely to buy out smaller brands ahead of legacy market players, and there is now several initial public offers, which were few and far between until a few years ago. Merger and acquisition activity are also expected to tick up as interest rates go down, McCoy said.
From a marketing perspective, consumption today is strongly swayed by the notion of increasing one’s “health span,” or taking proactive measures to prevent health issues late in life, noted Peters.
“People used to go see their doctor once a year. Now, they spend hours a day on podcasts, health and wellness books, natural products, saunas, cold plunges, food as medicine, and new ways of reducing their alcohol intake. Shoppers in every generation are turning to wellness products instead of pharmaceuticals, and health ingredients are flooding into more indulgent categories like snacks and beverages. The fastest-growing beer in today’s market is non-alcoholic.”
Mast said the most important product attributes that drive Gen Z purchases include quality (67%), convenience (35%), clean label (40%), and price (54%), while environmental and social responsibility lagged behind (24% and 15%).
This could be in part due to Gen Z’s overall lack of trust in ESG product certifications; 45% of Gen Z shoppers said USDA Organic certification was the most important natural product certification to them.
Compared to Millennials and Generation X, Gen Z shoppers under-index in online spending, perhaps because of COVID-19 which inspired a love of cooking as they entered adulthood under lockdown, McCoy noted.
“By next year, Gen Z will be 27% of the workforce — they’re the most diverse generation we’ve seen in the U.S. so far, and also the most college-educated,” noted June-Jo Lee, founder of Food Ethnographer, a company that specializes in qualitative research for the food industry. Many of their values can be found in their relationship with food, she said.
Digital and social media are inseparable from how Gen Z experiences food, Lee noted. Compared to other generations, the sense of social suffering because of today’s global issues is strong among this generation, and, according to Food Ethnographer’s research, “food is emotional medicine,” Lee said, especially those foods which are carbohydrate-rich, comforting, spicy, and internationalized.
Gen Z is full of complex cultural identities. “Gen Z is internationalized, and beyond ethnic identity, are queer by default, and have very fluid and creative identities,” said Lee. “A lack of change bores them.”
While Gen Z is overwhelmed by systemic issues, Lee found through her qualitative research that they values opportunities to contribute creatively to causes greater than themselves on a personal and community level. They “crave nature, the outside world, and eating in a way that supports the environment,” said Lee.
Withholding the natural living category, 2023 sales of natural and organic products grew 4.8% to reach $209 billion. Although growth slowed in 2023, mainly due to decreased unit sales, New Hope predicted that growth will pick up in 2024.
Shifts in sales channel dynamics were notable, as e-commerce once again experienced the fastest growth rate (+7.3%) after a 2022 slowdown, while mass-market retail sales grew 5.9% and natural/specialty sales rose by 2.1%.
It's important to note, however, that e-commerce still only represents 8% of all natural and organic product sales, Mast noted, while mass-market makes up 61% and natural/specialty channel sales make up 21% of the $300 billion market.
Natural and Organic Products Outperform the Conventional
Kathryn Peters, head of industry relations at SPINS, noted that compared to all CPG sales, those categorized as natural saw greater growth from the second half of 2023 into the beginning of 2024, after an inflationary period in which sales were skewed toward more budget-friendly, non-natural options.In the natural expanded retail channel, natural products saw a CAGR of 4.9%, while conventional products grew 0.6%. Natural products also outperformed non-natural in the regional and independent grocery channel (+1.2% vs. -0.8%); conventional multi-outlet channel (+4.6% vs. +3.4%); and the convenience channel (+8.6% vs. +4.5%).
Organic-certified products are outpacing the growth of non-organic counterparts in virtually all categories. The top performers this year include organic sodas (+121%), organic pasta and pizza sauce (+75%), infant formula and toddler nutrition (+31%), bacon and breakfast meats (+26%), and meat, poultry, and seafood (+25%), Peters said.
“The strength of organic also continues to grow, as consumers come to trust and understand the organic seal even more,” Peters noted. “The organic seal is especially trustworthy among younger consumers,” and, along with Non-GMO Project Verified, is the only certification which grew in “net importance” between 2019 and 2023, according consumer research, Peters said.
Today, 65% of all shoppers report that they’re more likely to buy a product if it has USDA Organic certification, with younger shoppers strongly over-indexing, and 86% of younger natural channel shoppers saying they believe organic and regenerative agriculture can improve the nutrient density of food.
2024 Macro-Trends
There are several macro-economic factors for brands to consider in today’s natural and/or organic marketplace.“Year over year, there’s been a gradual return to normal levels of spending at restaurants, resulting in a decline in units sold in grocery stores, which impacts the whole natural products industry,” said Nick McCoy, co-founder and managing director at Whipstitch Capital. “But the clouds are parting. This quarter is the first since COVID started in which we’ve seen positive year-over-year growth not just in sales volume but also in units sold for natural products.”
Even as food inflation comes down, consumers today are still upset by food prices, said Peters. While brands have seen major cost reductions across the supply chain, they’re largely not yet willing to reduce product prices despite pressure to do so from retailers. For the time being, retailers are relying on promotional discounts to improve consumer perception. Most brands are taking a risk-averse approach, so fewer new product launches are occurring, Peters said.
Consumers, however, are demonstrating with their dollars that they’re looking for innovative products and up-and-coming brands. In the natural channel, larger companies that Whipstitch Capital classified as more strategic grew 4.2% on average, while smaller brands the firm classified as innovators grew 7.3% on average in 2023.
“The number of companies has bloomed,” McCoy said, “and there’s much more buyout from big brands.” Investors are “increasing supply chain and omnichannel integration to increase brand headroom, becoming more efficient at marketing through better data, and creating a greater number of ‘rising tides’,” to lift all boats.
Venture funds are more likely to buy out smaller brands ahead of legacy market players, and there is now several initial public offers, which were few and far between until a few years ago. Merger and acquisition activity are also expected to tick up as interest rates go down, McCoy said.
From a marketing perspective, consumption today is strongly swayed by the notion of increasing one’s “health span,” or taking proactive measures to prevent health issues late in life, noted Peters.
“People used to go see their doctor once a year. Now, they spend hours a day on podcasts, health and wellness books, natural products, saunas, cold plunges, food as medicine, and new ways of reducing their alcohol intake. Shoppers in every generation are turning to wellness products instead of pharmaceuticals, and health ingredients are flooding into more indulgent categories like snacks and beverages. The fastest-growing beer in today’s market is non-alcoholic.”
Accounting for Gen Z’s Buying Power
Generation Z represents about 5% of all consumer spending today, but that’s expected to approach 20% by 2030, said Mast. Their shopping habits and values will be important to account for in future planning.Mast said the most important product attributes that drive Gen Z purchases include quality (67%), convenience (35%), clean label (40%), and price (54%), while environmental and social responsibility lagged behind (24% and 15%).
This could be in part due to Gen Z’s overall lack of trust in ESG product certifications; 45% of Gen Z shoppers said USDA Organic certification was the most important natural product certification to them.
Compared to Millennials and Generation X, Gen Z shoppers under-index in online spending, perhaps because of COVID-19 which inspired a love of cooking as they entered adulthood under lockdown, McCoy noted.
“By next year, Gen Z will be 27% of the workforce — they’re the most diverse generation we’ve seen in the U.S. so far, and also the most college-educated,” noted June-Jo Lee, founder of Food Ethnographer, a company that specializes in qualitative research for the food industry. Many of their values can be found in their relationship with food, she said.
Digital and social media are inseparable from how Gen Z experiences food, Lee noted. Compared to other generations, the sense of social suffering because of today’s global issues is strong among this generation, and, according to Food Ethnographer’s research, “food is emotional medicine,” Lee said, especially those foods which are carbohydrate-rich, comforting, spicy, and internationalized.
Gen Z is full of complex cultural identities. “Gen Z is internationalized, and beyond ethnic identity, are queer by default, and have very fluid and creative identities,” said Lee. “A lack of change bores them.”
While Gen Z is overwhelmed by systemic issues, Lee found through her qualitative research that they values opportunities to contribute creatively to causes greater than themselves on a personal and community level. They “crave nature, the outside world, and eating in a way that supports the environment,” said Lee.
