Make no mistake: Retailers like the National Organic Program. It's been good for business, helping to standardize an otherwise byzantine cottage industry, and open a whole new world of goods to consumers.
eady under way at the time the program took effect in October 2002, industry sources said. Organic sales had been climbing steadily in the years leading up to the NOP's implementation, as consumers became more health-conscious. The NOP may have instilled confidence in some who hadn't previously bought organics, and it undoubtedly spurred retailers to pay more attention to how they're merchandising the category. That, in many cases, has sent sales soaring.
According to retailers, the benefits of the NOP are numerous: Product is easier to get; consumer spending is growing; and their questions about such foods are easier to answer, thanks to the standards. At the same time, costs to retailers haven't risen as was expected, government inspectors have not invaded their stores, and they've even seen improvements in packaging. What's more, retailers anticipate more variety and a more consistent supply of product as a result of the NOP.
"It's been a good thing. I think the big benefit is for the customer, which in turn is good for us. They're confident they're really getting an organic product," said an official at a large Northeast chain.
Produce Director John Odahara at Lazy Acres Market, an upscale, single-unit independent in Santa Barbara, Calif., echoed that sentiment.
"By the mandates, the group to benefit the most is the shopper. Overall, it's bringing all involved -- from grower, distributor to retailer -- in line. Assurances all along the way are in place to ensure shoppers are indeed really getting what they're paying for. Our organic sales continue to increase, if anything just out of the publicity the press brought to the public. That has brought more awareness."
At another mainstream supermarket on the West Coast, the reaction also was positive.
"We see a lot more people willing to try organic produce. We did post information about the program in our departments, and then the [consumer] media certainly helped raise awareness," said a source at six-unit Nugget Markets, Woodland, Calif. "It's a combination of things, but our organic sales are great this year."
None of the retailers SN talked to gave much credit to the USDA certification seal. Instead, they credited the general flurry of attention given to organics for helping sales.
One produce director said he is particularly optimistic about the future, as growers and shippers invest more in organic planting -- something that will ultimately reap big benefits for retailers and their customers.
"I think the program has had the most effect on growers. It got more people on the supplier side excited about organics as a viable business, and that will help solve one of the biggest drawbacks still in organics -- the [small] amount of variety available," said Brian Gannon, director of produce and floral, at 52-unit Big Y Foods, Springfield, Mass. "The more people who get into organic growing, the better the consistency of stockkeeping units, and the better you can improve your sales of those items."
An official with one of the big players on the grower side, Natural Selections Foods, San Juan Bautista, Calif., confirmed the company recently made a major commitment to growing the business. Natural Selections Foods has a 70% share of the organic produce market.
"We put a $40 million capital investment into facilities and infrastructure this last year in both Yuma and San Juan Bautista," said Tonya Antle, vice president of organic sales. "Our operations were not keeping up with [the company's sales growth]."
Such investment could be tied to the launch of NOP. In fact, Gannon at Big Y Foods theorized that growers assigned more acreage to organics -- and more growers got into organics -- in anticipation of NOP's launch. They expected it to expand the organics market and to level the playing field in regard to competition.
"The organics regulation has had a positive impact on the industry, helping to create standardization and common expectations. Retailers can rely on the product," said Tom Stenzel, president and chief executive officer, United Fresh Fruit & Vegetable Association, Washington. It has helped consumers and everybody all the way around, in organics and in conventional agriculture. A big sign of that is the Organic Trade Association's joining in with our multi-part convention with FMI in Chicago next May."
Industry sources from coast to coast voiced confidence in the market and the product
"Everything that I have heard is primarily positive; that's the best way to characterize it. There have been far fewer problems than people anticipated," noted Bryan Silbermann, president, Produce Marketing Association, Newark, Del.
Looking back a year, Silbermann said most of those on the supply side of the business are saying they are making money. Indeed, almost everybody is making money, he said.
"Look at the specialty retailers like Whole Foods and Wild Oats. They're growing. Look at the discussion about reports Kroger wants to buy someone [like them]," Silbermann said. "Very clearly, all this shows there is a sustainable demand from consumers for organic products. Everybody I've spoken to has said sales are up."
In the past year, retailers have taken unprecedented steps to raise awareness of organic merchandise. Lunds/Byerly's, Minneapolis, for instance, held an "organic farmers' market" that was chainwide and storewide for the first time this year. [See "Retailer's Fete Stars Organics Chainwide," SN, Sept. 8, 2003.]
Other retailers are using point-of-purchase materials effectively. Some have posted signs that explain what the USDA certification seal means.
On the other hand, sources speculated some retailers may have played it too safe.
"I've seen some go from integrating product back to putting it into a segregated section, I guess, because they were afraid they couldn't keep in compliance. That has to have affected their sales because studies have shown that integrating organics with conventional products is the best way to sell them," an industry source said.
Not surprisingly, uncertainty about what to expect was prevalent when the program was implemented.
"There was a lot of confusion in the beginning. During the first few weeks, we and [the Food Marketing Institute], too, were barraged with phone calls from retailers. We explained to them what was required of them, and it was a lot less than many of them had expected," said Katherine DiMatteo, executive director, Organic Trade Association, Greenfield, Mass.
Not a lot of change was necessary for most growers or retailers since most suppliers were already certified organic by one of the agencies now approved by the USDA, and most retailers were buying organic products only from certified organic growers. The category most affected was fresh produce, DiMatteo said, but she pointed out that produce suppliers were quick to help retailers comply with the new rules.
"For example, those that can do it, are packaging their products."
That's a big help to retailers who are integrating organics with conventional produce, since NOP guidelines prohibit co-mingling of unpackaged organic products and conventional products.
Yet there are other advantages just as important, Big Y's Gannon told SN.
"Natural Selections offers leaf lettuce in a package now, and other suppliers are packing apples and peaches, four to a clamshell. That does two things: It eliminates the possibility of them touching a conventional product, and it ensures proper accounting at the register."
Associates at checkout don't always ring up the correct price look-up number on bulk organic produce, which can result in a loss of money and valuable sales information, he said.
The NOP has spurred peripheral activity that will benefit retailers, and maybe even attract a new wave of consumers into the organic fold. For example, the OTA's new Center for Organic Education and Promotion is focused on raising awareness of the environmentally friendly nature of organic farming.
"With the implementation of the National Organic Program, the community of businesses and organizations concerned with organic agriculture can finally turn its attention from discussions of standards to looking into research on quality and benefits to the environment, and then promote those benefits," DiMatteo said.
The center is headed by Theresa Marquez, former chief marketing executive at Organic Valley, the country's largest organic dairy cooperative, based in LaFarge, Wis.
