Certain shoppers will continue to pay a premium for organics, but others need more persuasion
When Albertsons LLC started rolling out more than 100 items in the O Organics line in April, it did so to give consumers more variety and value, the company told SN.
The move was a smart one in these recessionary times. That's because today's shoppers are seeking out more health and wellness options. The problem is many can't afford to pay for them.
More than three-quarters (78%) of people last year said they would buy more organics if they were less expensive, up from 67% who said the same in 2007 and 62% in 2006, according to a Mintel survey of 2,000 adults.
And 47% of shoppers said they are buying fewer organic products over the past six months because they are more expensive, according to an Information Resources Inc. study conducted Feb. 24-March 16.
Albertsons LLC underscores the fact that O Organics is a healthy choice at a reasonable price point.
Circulars promote more than a dozen items, like canned vegetables, four for $5; salad dressing, two for $6 and boxed macaroni and cheese, two for $3.
O Organics got its start as a Safeway private label but is now being sold to retailers around the world. The rollout doesn't include Supervalu-owned Albertsons locations.
The line kicked off with an Earth Day-themed promotion that included in-store demos; in-store media including ceiling danglers, shelf signs and shelf talkers; and radio spots in the Phoenix, Orlando, Dallas and Denver markets.
While organics have posted 20% to 30% growth rates over the last few years, albeit on a small base, the recession has changed the trend.
Organic sales grew just 2.1% for the 13 weeks ending May 16 in food, drug and mass (excluding Wal-Mart), compared with the same period in 2008, according to Nielsen.
“This is the lowest amount of growth since we've been tracking organics,” Tom Pirovano, Nielsen's director of industry insights, told SN.
The numbers hint that category loyalists are staying the course, but new users are falling off.
“People who are passionate about organics, despite difficult times, will not give it up,” he said. “But fewer people are willing to try organics.”
Still, retailers should not reduce shelf space or, worse yet, get out of the category completely, said Pirovano. Rather, by remaining committed to organics, retailers can attract upscale, educated shoppers, and differentiate their stores by positioning them on the leading edge.
“It's imperative that retailers not give up on organics, even if sales don't justify the amount of shelf space they get,” he said.
Pirovano predicts that organic growth will start to rise again once the economy improves, saying the first signs of new life could start during the back-to-school season and, later, around the holidays.
In the meantime, there are ways for retailers to build sales. To attract new users, retailers should more aggressively promote the health advantages of organics, observers say, because people are reading labels more to make sure the health benefits of organics outweigh the cost.
“People are more interested in things like how the product is harvested, it's sodium content and other forms of nutritional value,” according to Thom Blischok, IRI's consulting and innovation president.
The reason for this is that shoppers want foods that will prevent sickness, and thereby avoid a visit to the doctor's office and getting stuck with a pricey bill.
FROZENS OVER FRESH
Along with reading labels more, certain occasional organic shoppers may make a tradeoff by buying organic frozens rather than their costlier fresh counterparts. They'll do so as a way to save money because frozens let them cook only what's needed and save the rest for later, reducing waste.
“Frozens appear to be a good value because of the issue of portion control,” Blischok said.
Indeed, consumers are increasingly looking to keep portions in check. Americans are consuming 6% less than they did a year ago to stretch their dollar, and have 37% fewer leftovers in their refrigerator now than they did a year ago, according to IRI.
“There's a new conservative shopper who's seeking out frozen products that will help her manage the portions placed on a table and reduce waste,” he said.
Along with looking out for frozens, certain organics shoppers will give private label more consideration. In fact, private label can encourage people who left the category because they felt it was too expensive to start buying again.
Private-label organics generated $1.1 billion in dollar sales, a 37% increase, for the 52 weeks ending May 16 in food, drug and mass (excluding Wal-Mart), according to Nielsen, based on sales of prepackaged, UPC-coded products that carry the organic claim on product packaging.
Private-label organics continue to have more of a presence at retail. Last year, 520 new organic private-label food products were launched in the U.S., down slightly from 546 in 2007, but much greater than the 205 in 2006, according to Mintel.
“Private brands are beginning to penetrate virtually every category of the store, and private-label organics will continue to grow,” Blischok said.
Big Y, Springfield, Conn., reports good success with its Full Circle private-label organics brand, priced 15% lower than national brands.
“Our Full Circle sales are very healthy, showing substantial sales and unit increases yearly,” Phill Schneider, Center Store vice president for Big Y, told SN. He declined to elaborate.
Unified Grocers, Commerce, Calif., is so pleased with the performance of its year-old Natural Directions natural and organics private-label line that it's expanding with 30 new products over the next three months and an additional 50 to 75 items over the next year. Salsa, crackers and canned seafood are among the new items.
The line debuted in April 2008, and currently has 164 SKUs: 133 dry grocery, 15 frozen and 16 refrigerated. Selections include canned beans, cereal, frozen vegetables, and nonfoods like carcinogen-free household cleaners, and bathroom tissue and napkins made from 100% recycled paper.
Private label isn't the only bright spot at food retailers. At Big Y, overall organic sales are up 25%, according to Schneider.
There's no reason why other retailers can't experience the same, observers said, adding that the key is knowing how to market the category effectively.
Retailers should use shelf signs and other in-store media to educate shoppers about the benefits of organic products, such as how it's grown and if it is locally sourced, they said.
“Organic products are understood by some people but not all people, so retailers need to show what organic means,” Blischok said.
Sale items can be emphasized as well. At natural food co-op PCC Natural Markets, Seattle, shoppers are increasingly seeking out sale items, according to Stephanie Steiner, grocery merchandiser.
The most popular shelf-stable organic products at PCC are cereal, both boxed and bulk, as well as bulk grains, pasta and dried fruits.
“For PCC shoppers, the selection of organic food products is a lifestyle choice they believe to be an investment in their long-term health,” Steiner noted.
Such beliefs are especially strong when it comes to kids, noted Sara Walsh, PCC's community relations manager.
“Interest in natural and organic, kid-friendly products is definitely on the rise, particularly as more attention is being given to nutrition-related health issues such as childhood obesity and juvenile diabetes and food safety concerns,” Walsh said.