Serving the natural & organic dairy foods business.

Chicago’s Lincoln Park Whole Foods Market is the department store of supermarkets - everything you could ever want in a grocery store, all under one roof. In addition to packaged groceries, there’s an in-house bakery, specialty cheese department and even a “make your own trail mix” station. This is in addition to multiple bars - antipasto, beer, coffee, salad, soup, sushi and wine - located throughout the store, as well as a food court featuring various Chicago cuisines, and, of course, hot and cold buffet lines with freshly prepared entrees and side dishes. With an in-store mural designed by a local graffiti artist and a stage for poetry readings and musical performances, this Whole Foods Market emphasizes the importance of the “whole” food experience and the interdependence of its parts.

It’s no longer simply about organic or natural. Grocery shopping and dining have taken on a holistic approach in order to nourish and rejuvenate a person as a whole. This store attempts to treat the mind and the body, as well the environment.  Real or perceived…this perception of holism is driving consumers to purchase products that might be priced a little higher, but they believe in the long run will make them, and the world a better place. This is the future of the organic and natural categories.

The Oreo test

With marketers of all types of foods pursuing the movement towards natural and organic labeling, a better understanding of the influence of these label claims is necessary. Researchers from Cornell University, Ithaca, N.Y., set out to understand how organic labels on less healthful snacks may influence perceptions and habits.

Fifty-four college students were randomly assigned to try cookies that were labeled organic or cookies that had no label. Both groups of cookies were in fact Organic Oreos. Participants rated the nutritional, value and sensory attributes of the cookies, and were also asked about their personal environmental awareness and behavior, such as whether they recycled, liked being outdoors, their shopping habits, nutrition awareness, etc.

The findings confirmed the power of perception. The students who consumed organic-labeled cookies believed they had approximately 40% fewer calories, more fiber and were overall more appetizing in appearance, then those who consumed and rated the non-labeled cookies. Not surprisingly, the participants who claimed to typically buy organic foods and regularly use Nutrition Facts labels were those who believed the organic labeled cookies were better overall. Participants who claimed to enjoy nature as well as those who enjoy hiking and walking were also influenced by the label, but these groups tended to believe that the organic cookies tasted less natural.

Beyond organic and natural

According to a new report from The Hartman Group, Inc., Bellevue, Wash., appropriately titled Beyond Organic & Natural, consumers are moving beyond the terms ‘organic’ and ‘natural’ toward broader expectations of minimal processing and general healthfulness. The report explains that today’s consumers are confused, yet continue to be engaged by the vast array of messages, symbols and labels they encounter when making decisions about what to eat or drink and where they shop. The picture is no longer black or white; it is a colorful mosaic where organic and/or natural intersects and overlaps with attributes such as local, fresh, sustainable, safe, green, quality, lack of additives and many more.

During the April 8 webinar “State of the Organic Consumer 2010” hosted by The Hartman Group, Arwen Kimmell, senior ethnographic analyst explained that about 75% of consumers use organics, and one-third buy organics monthly, up from 22% in 2000. “Consumers are using the same or more organics than a year ago, indicating the economy isn’t stopping organic purchases,” she said.

While some say the organic market can be characterized as mature (bordering on the brink of becoming a commodity), the vast sea of products regularly launched and marketed under the claim of “natural” seems to ebb and flow uninterrupted despite the fact that consumers often perceive the term natural simply as a marketing ploy, according to the report. What seems to keep the term natural alive, is that it fulfills certain symbolic ideals.

Organic and natural are seen as complementary attributes. The Hartman Group explains that organic is understood as pertaining to what happens to food at its origin. Conceptually, consumers think of organic as making a product “more natural.” However, as organic has become more mainstream, it has lost some meaning for consumers, which makes additional attributes increasingly necessary. Not surprisingly, price remains the key barrier to purchasing organic; other barriers such as availability of organic options are declining.

Consumers understand natural as what happens to food after it is grown. In other words, the food was prepared using as minimal of processing as possible. However, consumers remain very skeptical about the term, and view it more as a marketing term than anything else.

One of the problems with foods labeled as natural is that they do not always live up to consumers’ expectations. Consumers read the ingredient list and don’t understand why many chemically sounding ingredients, in particular ingredients that function as stabilizers, emulsifiers and preservatives, are in a product labeled natural.

In general, consumers don’t believe the word natural when they see it on the package. “They read the labels,” said Kimmell. “They are going to flip it over and see if it is ideal.”

Nevertheless, food manufacturers continue to launch natural foods and beverages, and it is now the leading label claim on new products, according Chicago-based market research firm Mintel.

Further, it’s no surprise that when products labeled natural and/or organic are clearly not healthy (e.g., high in fat, sugar or sodium and low in nutrients) consumer skepticism grows. Does the world really need Organic Oreos?

The new buzz is around clean and simple branding and product formulations. Clean and simple goes beyond organic and natural. Today’s consumers are seeking more specific information regarding the foods and beverages they purchase.

“Clean is not a marketing term,” said Kimmell. “It has symbolic and objective associations.”

The notion of clean and simple encompasses a wide variety of attributes that communicate quality to consumers including farming, production, processing and ingredients. To many consumers, clean and simple has both symbolic associations, including fresh, local and sustainable, as well as  objective associations, including minimally processed, free from chemicals and made with nothing artificial.

Organic retail sales

Data from the Organic Trade Association (OTA), Greenfield, Mass., supports The Hartman Group’s research showing that most consumers are buying the same amount or more of organic, natural, local and fair trade products when compared to a year ago. Specifically, the economy is not stopping organic purchases.

According to OTA’s 2010 Organic Industry Survey, U.S. sales of organic products continued to grow during 2009 despite the distressed state of the economy. In fact, organic product sales in 2009 grew by 5.3% overall, to reach $26.6 billion. Of that figure, $24.8 billion represented organic food. The remaining $1.8 billion were sales of organic non-foods.

“While total U.S. food sales grew by only 1.6% in 2009, organic food sales grew by 5.1%. Meanwhile, organic non-food sales grew by 9.1%, as opposed to total non-food sales, which declined by 1% in sales. These findings are indicative that even in tough times, consumers understand the benefits that organic products offer and will make other cuts before they give up products they value,” says Christine Bushway, OTA’s executive director.

The mass market channel had the lion’s share of organic food sales in 2009, with 54% of organic sold through mainstream grocers, club stores and retailers. Natural retailers were next, with 38% of total organic food sales. Although still representing a small percentage of sales, farmers’ markets, co-ops and community-supported agriculture operations gained a lot of interest as consumers increasingly look for locally and regionally produced organic foods.

The organic dairy category

Growth of the $3.6 billion organic dairy category slowed significantly in 2009, down from the spectacular double-digit figures of the first several years of the decade, when it averaged 23% growth per year between 1997 and 2008, according to data from OTA. The category lost $37 million in sales in 2009, and fell from 15% to 14% of total organic food sales.

Only the yogurt subcategory saw positive growth, up 4.3% to $953 million in U.S. consumer sales, and it now accounts for more than a quarter (27%) of total organic dairy sales. Growth for the yogurt subcategory has slowed, however, in comparison to previous years, having boasted 9% growth in 2008 and 18% in 2007.

Conventional milk hit an all-time pricing low, and organic dairy prices were forced upward due to high organic feed costs. The number of organic dairy farms in the U.S. also tripled to 1,600 from 2002 to 2007, and the number of certified organic dairy cows increased an average of 25% per year from 2000 to 2005, according to the U.S. Department of Agriculture (USDA). This increased production volume exceeded demand in a year when consumers were tightening budgets.

Interestingly, data from The Hartman Group show that when it comes to paying a premium for organic, most consumers will do so for dairy but not other categories. The significant reduction in willingness to pay a 30% premium for organic products is reflective of the equalization between the cost of organic and conventional foods. Consumers recognize that typically it is no longer necessary to pay a 30% premium for all organic foods. To illustrate this point, regular users of organics are willing, for example, to pay approximately 15% more for natural milk and 33% more for organic milk compared to their conventional counterparts. Consumers are not willing to pay a premium for natural cereal, but will pay more for organic cereal compared to conventional cereal.

Next time you find yourself in Chicago, quite possibly for the IFT 10 Annual Meeting + Food Expo, treat yourself to a “whole food” experience. Visit the Lincoln Park Whole Foods Market located at 1550 N. Kingsbury St. (312/587-0648). It is a short cab ride from most downtown hotels and is located in the trendy North Avenue and Clybourn shopping district.  

Sidebar: Status of the Health and Wellness Industry

The Natural Marketing Institute (NMI), Harleysville, Pa., reports that retail sales within the U.S. consumer packaged goods health and wellness industry reached almost $125 billion in 2009, representing an overall growth of 5% over the previous year. This figure includes sales across all retail and direct-to-consumer channels for the six categories detailed below. These findings are part of NMI’s annual Health & Wellness Trends Database research study, conducted during the 4th quarter of 2009 among 5,607 U.S. households.

While functional/fortified foods and beverages continue to represent the largest portion of sales, this category had the smallest growth rate (only 2%) over 2008. The majority of other categories also saw growth rates in the single digits ranging from 5% to 8%. The notable exception was the natural/organic general merchandise category, which for the second year in a row, exhibited double-digit growth. This category, which includes pet products, clothing and household cleaning products, grew by 15%. The proliferation of these products in mainstream shopping channels was likely a major factor that contributed to this growth.

Based on consumer spending by product segment, consumer penetration/usage trends, and projected data, industry retail dollars in billions for 2009 (and growth versus 2008) are as follows:

• Functional/Fortified Foods and Beverages: $41 (2%)
• Vitamins, Minerals, Herbal and Dietary Supplements: $25 (8%)
• Organic Foods/Beverages: $25 (5%)
• Natural Foods/Beverages: $15 (5%)
• Natural/Organic Personal Care: $10 (8%)
• Natural/Organic General Merchandise: $9 (15%)

According to NMI President Maryellen Molyneaux, “The economic crisis has affected consumer shopping for health and wellness. Many have changed what, where and how they buy. These changes are not short term but are lifestyle changes that could impact the industry into the future. Based on our research and analysis, NMI projects that the health and wellness industry will grow at a rate of approximately 3% to 15% across various categories in 2010.”

Sidebar: Sunflower Farmers Market Wins Hot Retailers Award

Sunflower Farmers Market, Denver, has proven once again to be an exceptional supermarket. The grocer, famous for serving its customers “Serious Food at Silly Prices,” has been awarded the 2010 Hot Retailers Award from the International Council of Shopping Centers (ICSC), New York. The Hot Retailers Award is currently celebrating its eighth year.

Sunflower Farmers Market emerged as one of the top retailers from a pool of more than 3,000 companies. Winners were chosen based on the results of an annual survey sent to over 55,000 ICSC members who were asked to name the concepts they considered to be the “most original and innovative” in the industry.

“We are very honored to receive this award and recognition,” said Mike Gilliland, CEO of Sunflower Farmers Market. “This award is a true tribute to our grocery store concept, which we believe has brought the best of both worlds together - low price points and natural, organic foods. We couldn’t be more thrilled with the growth of our company and the enthusiasm we have seen from our customers.”