Natural Growth

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Natural Growth

02/01/2012

Despite the down economy, strong growth is occurring in the natural and organic sector, spelling opportunity for retailers' store brand programs.

Although has rather impacted hard the in economic the retail recent years, downturn industry the natural and organic sector actually has seen some healthy growth (no pun intended). U.S. retail sales of natural and organic foods and beverages rose to nearly $39 billion in 2010, an increase of 9 percent over 2009's sales of $35 billion, notes "Natural and Organic Foods and Beverages in the U.S., 3rd Edition," a July 2011 report from the Packaged Facts division of Rockville, Md.-based MarketResearch.com.

The sector's growth far outpaced that of conventional groceries, and Packaged Facts projects sales to more than double by 2015. This growth © along with consumers' desire for value © spells plenty of opportunity in the store brand natural and organic zone.

Food claims matter

On the food side, consumers are most likely to purchase natural and organic products within categories such as eggs, milk, yogurt, cheese, poultry, beef, dried fruit and nuts, grains/rice and bread, notes "Natural and Organic Food and Beverage: The Consumer — US," a November 2011 report from global research firm Mintel International. And the right product claims here can help sway consumers to a sale.

Jeff Wright, president of the Washington, D.C .-based Natural Products Association and owner of Wright's Nutrients, an organic grocery store in New Port Richey, Fla., notes that consumers continue to seek out foods and beverages bearing such claims as "fair-trade-certified," "no hidden unnatural ingredients" and "certified humanely raised and harvested."

And "locally sourced" resonates with natural product consumers. Wright explains that these consumers often seek out natural products that help them connect with their local farmers.

"The natural consumer is truly different from the traditional consumer in regards to the fact they're much more motivated to help their local community," he explains. "In fact, [local sourcing] will be a better marketing tool than price."

But even though the "locally sourced" claim is hot in the natural segment, keeping products true to the claim isn't easy. For example, retailers could have trouble maintaining product consistency, notes Jonathan Miller, president of Chicago-based Element Bars. For example, his company © which uses only all-natural ingredients © had difficulty dealing with a local honey supplier.

"Our honey farmer was a local father-and-son enterprise © the 60-year-old father would lug the 50-pound pails off the truck," he says. "It was a great story, but when the taste would vary so much between batches, or when we wouldn't get our weekly delivery, we had to complement our local sourcing with a larger national company to ensure we could deliver to our customers."

Speaking of suppliers, retailers need to make sure they don't settle for an inferior product formulation when sourcing natural and organic products, says Mike Hackbarth, vice president, private label with the Fremont Co. of Fremont, Ohio.

"In today's quest for lower prices, retailers need to resist the temptation to introduce a perceived premium item like [a] natural or organic [product] in an inferior product formulation," he explains. "Ketchup has a U.S. standard of identity with various grades; unfortunately, some retailers have launched natural ketchup in a 'Grade B' formulation without identifying it as such, versus the normal 'Grade A/Extra Fancy' formulation that consumers are used to."

Don't neglect non-foods

But natural and organic opportunities are not limited to foods and beverages; retailers shouldn't neglect their non-food categories in store brand product development, says Dana Devorzon, CEO of Los Angeles-based Ton Savon.

"A wide range of products in the health and beauty care category, for example, can be created with natural and organic ingredients," she explains, "allowing for a much broader program that gives organic- and natural-minded consumers even more reasons to purchase store brands."

However, false claims could hurt a brand's reputation and, in turn, that of the retailer's entire private label program. Devorzon notes that some retailers label certain health and beauty products as "natural" or "organic" when only a few of the products' ingredients are, in fact, natural or organic.

"Combining a few of these ingredients with decidedly unnatural, inorganic or even unhealthy ones puts the store brand's reputation at risk," she says.

Think beyond the product

Packaging also helps convince consumers that a natural or organic product is the "real deal." Whether a product is edible or not, its packaging should be made of materials that "remain consistent with the philosophies of the organic or natural lifestyles," DeVorzon notes.

"Recycled, recyclable or otherwise eco-friendly packaging enhances and bolsters perception of not only the product, but perhaps the entire brand © or even the retailer," she says.

And some retailers are using social media to let their customers promote their own-brand natural and organic products. For example, Pleasanton, Calif.-based Safeway dedicates an entire page on its Facebook profile to consumer reviews of its Open Nature line of all-natural products.

Cross-merchandising also helps increase the sales potential of natural and organic store brand products. As an example, Scott Van Winkle, managing director of Boston-based Canaccord Genuity, points to store brand condiments.

"Consumers might buy natural beef but then throw conventional barbecue sauce or ketchup on it," he explains. "Why not offer organic condiments next to natural products? Incremental sales are likely."

Demonstrations, too, help increase sales of natural and organic products. Arnold Coombs, director of sales and marketing with Brattleboro, Vt.-based Bascom Family Farms, notes that his company has developed recipes and demonstrations showing consumers how pure and organic maple syrup can be used as a healthful sweetener in a number of products, including whipped cream, salad dressing and lemonade. "Category sales go up when this happens," he says.

Finally, retailers might want to consider connecting shoppers with the folks closest to a product's origins. Product sales increase when Wright brings local farmers that supply his natural products into the store to chat with customers.

"Consumers are able to identify with a face," he explains. "When we've done that in our store, we see an increase of anywhere from 15 to 20 percent in sales when we introduce a product."

Organic and natural claims, explained

  • USDA regulates the term "organic" as it applies to agricultural products through its National Organic Program. A label that reads "organic" indicates the food has been produced through approved methods. Synthetic fertilizers, sewage sludge, irradiation and genetic engineering may not be used.
  • All-natural claims on food products, with the exception of meat and poultry, are not regulated. However, on its website, the FDA says it does not object to the use of the term if the product does not contain artificial color, artificial flavors, or synthetic substances.
  • The term "organic" is not regulated on personal care products, notes the Organic Consumers Association on its website, but a company may voluntarily get its products certified to the National Organic Program standards, which are specific to food.
  • FDA does not regulate the term "natural" when it comes to personal care products. However, the Natural Products Association developed a (voluntary) Natural Standard for Natural Personal Care Products, a set of guidelines that dictates whether a product may be deemed truly "natural."