Organic: Private label's continued opportunity
Retailers of store brands continue to be in a prime position to grab an ever-increasing share of the organic food and beverage sector.
With many potential shoppers eschewing organic products because of cost concerns, retailers that take advantage of falling organic ingredient costs by bridging the price breach with conventional items can boost activity, analysts state.
“While a segment of the population will pay a super premium for organics, the overwhelming majority of consumers are only going to pay a slight premium,” says Jonna Parker, principal in the Fresh Center of Excellence for market research firm Information Resources Inc. (IRI). “Balancing that price gap is essential.”
Indeed, private brands, which have been the main driver of organic product launches in recent years, are strongly situated for expansion, reports market researcher Mintel.
“With consumers across demographics seeking more affordable natural and organic products, store brands have the advantage over name brands in being able to offer better prices,” Mintel notes in its July 2019 “The Natural/Organic Food Shopper US” report. “As consumers become more convinced of the quality of these products, there is potential for private label organics to continue moving in on name brand shelf space.”
The expansion of organic into a wider array of food channels is further strengthening sales opportunities, Mintel notes.
“From traditional supermarkets to warehouse clubs, the growing mainstream presence of natural and organic products has introduced new audiences to brands they may previously have not been exposed to,” Mintel states.
The organic customer
While only a tiny segment of adults exclusively seek organic and natural selections, according to Mintel, almost half of all consumers purchase a mix of conventional and organic/natural items, and the majority of consumers purchase organic/natural products at least some of the time, “which bodes well for the future of the market.”
Shoppers most likely to buy organic are heads of households between the ages of 36 and 45, are highly educated, digitally savvy, and have incomes of $125,000 or higher, Parker reports. “It’s important to learn what those shoppers are buying and insure there are organic options in those categories,” she notes.
There also is greater interest in organics from millennials and Generation Z as such persons “have lived with organics their whole life,” Parker states. “The teenage and early 20s generation can be the next organic growth pocket. They are interested in snacking, small meals, epicurean experiences and spicy, hot and unique flavors, and there are many opportunities to combine organics with those attributes as well.”
Yet, wellness-focused shoppers from all income and education levels and ethnicities are increasingly choosing organic products, says Carl Jorgensen, executive vice president with Linkage Research & Consulting Inc. He adds that older consumers also have a growing awareness of organic.
A 2019 Linkage study found that 78% of baby boomers report familiarity with the term “organic,” versus 75% for Generation X, 65% for millennials and 59% for Generation Z.
In addition, a 2018 Lifestyles and Attitudes survey of 500 U.S. respondents by market researcher Innova Market Insights found that 35.6% would be willing to pay more for selections produced via organic farming.
Innova’s 2018 Diet Trends survey of 1,000 U.S. consumers reveals that 51.6% agree that organic food and beverage items are healthier than non-organic options.
“That is good news for supermarket retailers planning on increasing space for organic products,” says Tom Vierhile, Innova vice president of strategic insights for North America.
Among categories, vegetables, seasonings, and plain pasta and noodles had the largest number of organic private label new product launches from Jan. 1, 2016, to Aug. 26, 2019, Innova reports.
Fruit-based snacks and cheese (semi-hard and hard), meanwhile, were the fastest-growing organic store brand categories with compound annual growth rates of 107% and 106.2%, respectively, a four-fold increase from 2016 to 2018.
In addition, the bread products and juices/nectars categories had compound annual growth rates of 98.4% and 85.9% as organic store brands, which were more than a three-fold increase.
On the flip side, the slowest growing of the top 30 private label organic launch categories include baby meals, with a 6.5% contraction, tea with a 6.3% decline and spoonable yogurt with a 5.4% contraction.
“When consumers think of organic, they tend to think of categories like vegetables as a jumping off point, which may explain why it is the top category in the U.S. for private label organic,” Vierhile says. He adds that the fastest-growing categories for private label and organic tend to be more value-added and in some cases are more likely to appeal to children.
“Having children, in fact, is often the trigger event that encourages consumers to go organic so it may not be surprising to see more child-oriented categories posting healthy growth numbers for private label organic,” Vierhile notes.
Jorgensen adds that produce, eggs and chicken are the leading organic store brand categories in the fresh section, and that snacks, condiments and dressings “are where the hot growth action is” in the center store.
Because it also is important that consumers seeking organic products are able to easily locate the selections in stores, Parker says it is preferable for retailers to integrate organic items with conventional options instead of having a separate organic section.
“Consumers don’t want to have to run all over the store to find organic products,” agrees Angela Jagiello, director of education and insights for the Washington, D.C.-based Organic Trade Association. “Merchandising by category not only eliminates the scavenger hunt, but makes comparing labels and prices much less of a chore for shoppers.”
The organic status of products “also should be apparent at a glance,” Jorgensen adds. “The more categories that are covered by an organic private brand, the more opportunities there will be for retailers to develop loyalty and basket size.”
Mitchell is a contributing writer to Store Brands.