Organic Growth 2010

MATTHEW ENIS

When times get tough, it always helps to have a loyal fan base. The organic produce category is a case in point. Despite usually being a little more expensive than conventional produce, despite naysayers who continue to claim that organic consumers are receiving no added benefit for their extra money, and despite the pressures of a bad economy that has had most shoppers tightening their belts, dollar sales of organic produce grew more than 12% in 2009, according to the 2010 Organic Industry Survey, published by the Greenfield, Mass.-based Organic Trade Association.

Sales of fresh organic produce were up 12.1% for the year, reaching $9.5 billion in total sales. Dried organic fruits, vegetables and beans were up 14.9%, while canned organic produce was up 6.2% and frozen organic produce sales declined 2.9%.

Although this double-digit performance actually represents a slowdown from the 20% growth the category regularly posted each year during the past decade, it is still remarkable, considering the many ways shoppers were working to trim their food budgets last year.

“What we're hearing from our consumer surveys is that people who buy organic produce really see their food choices as affecting their health,” said Barbara Haumann, press secretary for the OTA.

“They see produce as a part of a healthy diet … and they are seeking [produce] grown without the use of pesticides.”

These shoppers were also cooking at home more often and eating out less, Haumann said, which helped the category continue to grow at retail.

“The growth rates for organic produce have fallen from where they were pre-recession, but it is still growing, and it's growing at a rate that's quite a bit better than the total produce department,” agreed Steve Lutz, executive vice president for the Perishables Group, West Dundee, Ill.

According to the Perishables Group, during the most recent 13-week period ending May 29, dollar sales of organic produce were up 12.2% compared with a year earlier. Volume sales were up 7.8%, and average retail prices were up 2.4%. Compare that with the total produce category, where volume was actually down 1.1%, but dollar sales rose 4.2% on price increases of 5.4%.

This spring, Lutz moderated a panel of retail produce managers — all of whom were winners of the 2010 United Fresh Retail Produce Manager Awards — during the United Fresh Produce Association's annual trade show. And, their experiences at the store level tend to support the observations made by Lutz and Haumann.

“At our store, we're committed to our organic product line; we have 24 feet plus dry table space, and I haven't really seen a huge decline in that area,” said panelist John Thut, produce manager for a Bel Air Markets store in Sacramento, Calif. “I think the price points have come closer together between conventional and organic over the years, and the quality is there. … People can be picky at times, but when they can get a quality product, they're willing to pay the price.”

Other panelists agreed, noting that product quality and consistency have improved within the organic produce category as well — not only have organic fruits and vegetables gotten less expensive, these items are also as visually appealing as conventional produce on the shelf.

Of course, there are still different levels of dedication. In surveys specific to organic produce, Lutz said the Perishables Group has categorized four different consumer approaches to the organic category.

First, there are the most committed organic shoppers, who buy organic whenever possible and are almost impervious to price.

Second, there are shoppers who prefer to buy organic whenever possible, but are more price sensitive, and will shop around or trade out of the category when necessary.

Third are the opportunistic buyers, who will buy organic when the price is right and they feel like they are getting a good value. “Otherwise, they're not that consistent,” Lutz said.

And, finally, there are people who never buy organic.

“What we saw as we went through the recession was that the people who were in those second and third groups — the people who were inclined to buy, but would shop around, and the opportunistic shoppers — they were abandoning or decreasing organic purchases as a cost-saving move,” Lutz said.

“What you're seeing now, as you look at those growth rates, is that you continue to have the committed consumer, whose purchase behavior throughout the recession hasn't wavered, and you're beginning to see the return of some of those consumers who are on the lookout for organic or may be dabbling in the category.”

If supermarkets want to attract and retain those core and occasional organic shoppers, they have to make sure that key organic items are kept in stock.

“Organic customers come in [to a store] and they want to find that organic item every time they come in,” said Gary Viall, produce manager for a Hannaford Bros. location in Colonie, N.Y., during Lutz's panel. “There's a lot of people who want to buy organics, but the price kind of drives them away a little bit. But, your traditional organic customers want to come in and they want to find that item every time, or they'll go somewhere else.”

Viall later added that, it's difficult to pick a “sweet spot” for price differential, when trying to attract new or occasional organic shoppers.

“I would say they expect to pay a little more. But, when it's quite a bit more, you lose those new customers.”

That scenario has been amply demonstrated by the once high-flying organic dairy category. Between 2000 and 2007, organic dairy regularly posted 20% sales growth every year, according to Nutrition Business Journal, a sister publication of SN. But, in 2008, sales growth dropped to 10.6%, and in 2009, sales grew only 0.8%.

Simply put, oversupplies of conventional milk caused a crash in conventional dairy prices, while the long-term contracts offered to farmers by organic dairy cooperatives kept organic milk prices stable — and high. Core organic consumers continued buying, but the ensuing difference in price was too stark for many other shoppers.

But, a similar situation is unlikely to develop in the produce department on a widespread basis, or on a sustained basis for any specific, popular commodity.

By contrast, prices for organic produce have slowly become more accessible, and both Haumann and Lutz said they expected the organic produce category to continue to grow and attract new customers as the economy improves.

“The price premium for organic produce has continued to decline,” noted Lutz. “It's fairly common now to see a 20% to 30% price premium every day on most items. That's not huge. Not like it was before, when you could see a 50% premium or even higher.”

Haumann said that other factors could lead to growth as well, pointing to a report released in May by the President's Cancer Panel, a non-partisan group of experts first assembled in 1971 to review America's cancer program.

“It exhorted consumers to avoid products produced with toxic and persistent pesticides to help minimize their risk of cancer,” Haumann said. “That is going to encourage more and more health-minded consumers … to seek out organic produce.”

Of course, 12% growth during a very tough year is already proof that the category still has plenty of additional potential.

“If there's been this much interest in organic fruits and vegetables when the economy has not been good, then we definitely expect continued growth,” Haumann said.