By Jill Rivkin

Natural and organic foods hit the mainstream market with gusto in the past few years as media attention and thus consumer education brought many new consumers to this segment. Mainstream retailers blasted the market with natural and organic products — most of which carried higher price points than conventional counterparts — and consumer response was tremendous.

 

As a result, many leading retailers catalyzed growth in this segment, including Bentonville, Ark.-based Wal-Mart Stores, which committed to a giant organic introduction and Pleasanton, Calif.-based Safeway, which launched its own “O” brand across the store, and across the country. The influx of natural and organic products available outside the traditional organic retail outlets such as Monrovia, Calif.-based Trader Joe’s and Whole Foods Market, Austin, Texas, meant an entirely new demographic group of people consuming these products, albeit still highly educated and somewhat more financially comfortable ones.

 

But despite the genuine interest in eating healthier and providing less processed and purer foods to their families, many of these consumers have been forced to reign in their commitment to organic because of changing personal finances. Organic products have higher price tags not just because they can demand them thanks to high quality, but because ingredients are limited and the processes involved in production are more intensive and thus costly.

 

As a result of changing economic times, consumers have had to trade down in many categories and once gung-ho retailers have pulled back organic programs. So, like many other things, the organic market — to some extent — has fallen victim to the country’s uncertain economy.

 

“Organic is seeing less and less sales volume,” says John Brandley, vice president, national sales manager, at Boardman, Ohio-based Summer Garden Food Manufacturing. “Today’s economy has so many people faced with the high cost of everything. They’re without jobs, have less dollars and have to make decisions about how to spend money. And organics cost more. They are trading down to natural products and to more mainstream products.”

 

Chicago’s Euromonitor reports: “One of the largest threats to the future growth of organic products, at least in the near term, is the price sensitivity among U.S. consumers, given the current economic conditions. In previous years, many consumers were willing to trade up to premium products; however, more consumers are looking to trade down, as they can no longer afford to even try some premium products, much less purchase them on a regular basis. With manufacturing costs and retail prices on the rise, organic foods, already at higher price points than their standard counterparts, may be limited to those with less restrictive budgets.”

 

The Natural and Private Label Revolutions

As the costs of many organic products price consumers right out of the segment, the natural marketplace has picked up steam and met consumers in the middle. Though not regulated as closely as organic products, which have specific government-mandated ingredient and processing guidelines in order to carry an “organic” label, natural products still offer much of the same attributes in that they do not include artificial ingredients and have an overall healthier profile. And they carry lower price points.

“In the absence of organic, we’re seeing natural products take the forefront,” says Peter Cokinos, senior vice president of sales and marketing at Elk Grove Village, Ill.-based Little Lady Foods. “Natural products are nowhere near as expensive, and ingredients are available year round.”

Also helping to offset the price-prohibitive nature of some organic lines are an influx of private label natural and organic offerings developed by major retailers across the country.

“Consumers view organic as more pure and healthier in most cases,” says Jin Kim, product manager at Fullerton, Calif.-based Pulmuone Wildwood Inc. “However, with the current economic situation, more consumers are looking for an economic line of organic foods, which has led to a boom for private labels.” In many cases, private label options are replacing national brands in some organic categories, Kim adds.

Organic dried fruit is an example of a “high-flying segment,” according to Jane Asmar, director of retail sales at Fowler, Calif.-based National Raisin Co. However, thanks to its success, major retailers have been keen on launching private label options to keep the price point (and profitability) in line. “The momentum was so significant that organic dried fruit recently went private label,” Asmar says. “Safeway introduced their own brand of organic fruit under the ‘O’ master brand of organic foods. We see other retailers expressing interest in private label dried fruit, too.”

The biggest challenge in the natural and organic segment she says, “is keeping an organic price point that will effectively compete in the dried-fruit category, especially now that private label organic dried fruit is becoming a reality.”

Who and What

While the stereotypical organic consumer once only wore hiking boots and all-natural fibers, the demographic mix of consumers seeking organic and natural products has shifted notably in the past few years. Mainstream consumers have appreciated the health benefits of products processed naturally, and the trend toward offering them in mainstream stores has introduced many new consumers to the segment and made the products readily available.

Yet while natural and organic consumers now span demographics, there still are some core values they share.

According to Carla McCabe, sales and business development at Fresca Foods Inc., Louisville, Colo., brand owners are targeting “consumers who are aware of the threats to the food chain, the health implications of obesity and processed food, the threat of GMOs, the negative effects of high-fructose corn syrup and other non-nutritional additives. Consumers who are looking to provide better food choices for their family — soccer moms, college-educated, financially stable consumers.”

Brandley agrees, though points out that geography matters, too. “It changes in different parts of the country,” he says, “because there is better education about what organics are. Out West, for example, they are very knowledgeable… There are pockets of the East that are like that, and in the Midwest where it’s more traditional, it hasn’t taken on as much.”

Cokinos points to different levels of education as a demographic indicator. A college-educated female that is the primary grocery shopper for her family really understands the differences and benefits of natural and organic products, he says. “This is a mom who is going into her regular grocery store, but she is educated and concerned about the choices she makes for her family,” he says. “And she’s choosing natural — and sometimes organic — products.”

Euromonitor also points to education as a major influencer: “Shoppers with higher education have a higher level of awareness about the benefits of organic foods,” the firm reports. “People who purchase organic food tend to have a greater interest in disease prevention, longevity and fitness than the general American population.” However, according to Euromonitor, parents — and, in particular, new parents — produce the highest demand for organic foods: “Even consumers who are reluctant to purchase organic foods for themselves, because of the higher cost, are buying organic foods for their children.”