Clear-Cut Wins

When it comes to sales growth, natural and organic products continue to outpace mainstream items.

According to “Natural and Organic Foods and Beverages in the U.S.,” a July 2014 report from the Packaged Facts division of Rockville, Md.-based MarketResearch.com, U.S. sales of natural and organic food and beverages rose 5.5 percent to reach nearly $53.5 billion in 2014, with the organic sector growing at a 12.5 percent clip. In Canada, meanwhile, sales of natural and organic food and beverage items grew at a compound annual growth rate of 9.4 percent between 2009 and 2013, Packaged Facts reports in its September 2014 “Natural and Organic Foods and Beverages in Canada” report.

Consumer interest is strong on the non-food natural and organic side as well. In fact, in its November 2014 “Natural and Organic Personal Care Product Market in the US, 2014–2018” report, London-based research firm TechNavio forecasts U.S. sales in the segment to grow at a compound annual growth rate of 9.1 percent between 2013 and 2018.

The appeal of organic

Organic items, in particular, continue to grow in their appeal to consumers. In a 2014 survey, the Washington, D.C.-headquartered Organic Trade Association (OTA) found that the majority of Americans families — 81 percent — now choose organic food at least sometimes. And although 51 percent of parents surveyed said the cost of organic products was one of the key factors in limiting their organic purchases, that number represents a significant drop from the previous year, when 62 percent said the same thing.

“Consumers want better transparency about their foods and beverages,” explains Kim Holman, director of marketing for Wixon, St. Francis, Wis. “Buying organic gives them a better sense of what they are purchasing for themselves and their families.”

Indeed, organic products are governed by strict government standards — produced “without the use of toxic and persistent pesticides and synthetic nitrogen fertilizers, antibiotics, synthetic hormones, genetic engineering or other excluded practices, sewage sludge or irradiation,” OTA says. And animals are “raised without the use of antibiotics or synthetic growth hormones,” fed organic feed and housed under “clean, cage-free living conditions.”

Holman says organic food and beverages also fit in with consumers’ desire for “better-for-you” products.

“I think consumers have started to question the ingredients in products and how things are made,” she says. “With almost a 30 percent obesity rate in the U.S. and diseases such as cancer impacting millions of people’s lives, consumers are questioning the quality of products that they are consuming on a daily basis.”

Education also comes into play. Lou DeMent, CEO of Syracuse, N.Y.-based Giovanni Food Company Inc., notes that consumers are becoming more educated each year about the drawbacks of not using organic products.

Other factors behind the growth of organics are related to cost and quality.

“The affordability of organic products has increased significantly, while quality of organic products and packaging has increased,” says Mike Hackbarth, vice president, private brand and customer demand, The Fremont Co., Fremont, Ohio. Store brand product development within the organic space has played a large role in cost and quality improvements, he adds.

Opportunity knocks

With consumer interest in organic products increasing every year, many retailers will want to beef up offerings within the segment. Although the USDA points to fruit and vegetables and dairy products as the top areas for organic sales, Holman believes retailers will find product development opportunities in almost every category throughout the store. And snacks represent a prime area for growth.

“Americans snack throughout the day,” she says. “Consumers are looking for snacks that meet their health and wellness needs and make them feel better about what they are feeding themselves and their family. Targeting snacking-occasion products such as salty snacks, bars, cereals and beverages can help drive incremental growth for store brands.”

Another opportunity lies in flavor extensions of existing organic items, Hackbarth says. He points to ketchup as an example.

“Consumer demand for lower-sodium, jalapeño and reduced-calorie products continues to grow,” he explains, “so expanding into one [to] two line extensions of organic makes sense.”

Club packs of organic items present a growth proposition, too, Hackbarth adds. He notes, for example, that the two-pack of Heinz organic ketchup currently represents 7 percent of all organic units and 17 percent of all organic ketchup dollar sales.

“The consumer acceptance and demand for such a large size exemplifies that organic is going more mainstream, especially when this size is only sold in 800 Sam’s Club and BJ’s Wholesale Club [locations],” he says.

And on the non-food side, the best opportunities can be found in personal care, notes Lyne Appel Downing, vice president of sales and marketing for GreenBlenz, Auburn Hills, Mich. She says items such as hand washes are “the easiest to produce with comparable performance and could be marketed as a premium-tier brand.”

Rethink ‘natural’

Although “natural” products also are in growth mode, the lack of specific government guidance here has made consumers increasingly wary of “all-natural” product claims.

“My advice to buyers and category managers, when we’re asked how to handle the natural’ phenomenon, is to just steer clear of natural’ and use other certifications like organic or Non-GMO Project Verified,” DeMent notes. “That’s something you can sink your teeth into — we can prove it.”

Todd Whitten, vice president of sales for Nature’s Habit, Napa, Calif, agrees, noting that the “natural” issue is a major industry one that likely won’t be resolved anytime soon. He says his company’s partners are increasing placement of non-GMO, kosher and vegan products, and opportunities also lie in “healthy” grab-and-go snacks that retail up to $6.99.

“Some healthy lifestyle categories will have a very hard time switching to organic due to the retail price restrictions,” he adds. “Consumers are on the move and looking for healthy alternatives to what has been offered in the past. Instead of potato chips, they will grab a trail mix or a yogurt pack to [lessen] hunger between meals.”

Hackbarth also suggests that retailers should avoid the use of “natural” claims. Instead, they could point out the absence of specific unwanted ingredients. For ketchup, for example — which the government regulates as a “clean product” because it is not to contain any preservatives, starches or specific other ingredients — retailers using cane sugar could call out “no high-fructose corn syrup” (HFCS).

“When sugar replaces the traditional HFCS sweetener, it meets today’s general natural ‘requirements,’” he explains. “However, with all the pending legal and government confusion of using the term, I would not use ‘natural’ on the label.”

But “natural” can be an acceptable claim within the non-foods space, Appel Downing notes. (In fact, the Natural Products Association developed the Natural Standard and Certification for Personal Care Products, a set of guidelines that dictate whether a product can be deemed truly “natural.”)

“Natural needs to be clearly defined in some way with the product; ‘100 percent naturally derived ingredients’ is a verifiable claim and allows for a ‘not made with’ approach to point out what is being removed for the consumer’s benefit,” she says. “Vague statements that generalize ‘natural’ or point out the two natural components lead to frustration from consumers.”

Showcase your wares

Whether the store brand item is organic, “natural” or just a better-for-them option, retailers could fire up sales by homing in on packaging and merchandising efforts. On the packaging front, Holman notes, on-panel messaging works to sell a product.

“Consumers need to understand very quickly the benefits of a product. ‘Natural’ and ‘organic’ should be dominant in the communication on the front panel,” she says.

And it’s also important to educate consumers via packaging on the non-food side, Appel Downing says.

“These consumers are seeking authenticity and full disclosures so they can further research and seek the products they feel are best,” she says. “To be a leader in this market, you need to develop the items with a plan to educate and explain the ingredients.”

Because consumers who gravitate toward natural and organic products are looking for packaging that supports their lifestyle, Holman also advises retailers to use eco-minded packaging — and to tout its use on-pack.

Speaking of eco-minded packaging, less is more in the eye of the “healthy” consumer, Whitten says.

“The healthy consumer is more likely to read the label and pay a premium for the products they eat,” he stresses. “They like healthy callouts on the front labels: ‘non-GMO,’ ‘kosher,’ ‘vegan.’ In most cases, they want to see the product instead of just looking at a picture on the packaging.”

Retailers also will want to consider the category when choosing a packaging option. For sauces and similar products, glass is viewed as preferable to PET, even though PET is BPA-free, DeMent puts forth.

“It just has a perception of higher quality and has been a proven package for many years,” he says. “It’s just a safe, natural way of packaging products for the consumer.”

Organic ketchup, meanwhile, should get upscale packaging that helps the shopper justify the extra money it costs, Hackbarth notes. He says 20-ounce private brand inverted/upside-down organic ketchup offerings outsell the more traditionally packaged 24-ounce organic offerings two to one.

Sales of non-food natural and organic items, meanwhile, might benefit from differentiated custom bottles made from recycled materials, Appel Downing says.

When it comes to merchandising, several national retailers have created “healthy lifestyle” sections in their stores, Whitten notes, and have added a healthful own-brand label to that mix.

But DeMent isn’t convinced that placement should be limited to special sections. He believes organic, non-GMO and other more healthful items need to be merchandised alongside their mainstream counterparts to attract shopper attention. After all, a lot of consumers stick to the main aisles during their shopping trips.

Cross-merchandising, too, can be an attention-grabber. Hackbarth points to opportunities to cross-merchandise organic products such as ketchup and mustard and peanut butter and jelly. Combo packs containing such items also can be effective.

“Nothing prohibits retailers from co-promoting/merchandising and/or creating combo packs on their own organic private brand SKUs,” he stresses.

Off-shelf placement in logical areas also can grab shoppers’ attention. Some retailers also are merchandising healthful snacks at the checkouts and cross-merchandising such snacks near the produce department, Whitten adds.

Finally, Whitten encourages retailers to listen to and learn about their shopper base before investing in natural and organic product development — and packaging and merchandising efforts related to it.

“The days of being everything to everybody are over,” he stresses. “Pick a consumer and build a product to meet their needs, and you will win.”