While the term “organic” often stirs images in our minds of gardenfresh fruits and vegetables, pasture-raised meats or fresh dairy products, the organic food and beverage industry has expanded exponentially since the implementation of the National Organic Program (NOP) in 2002, creating a wide range of organic foods and beverages in categories typically associated with conventional products.
U.S. organic food sales have grown four-fold in eight years, from $3.6 billion in 1997 to $13.8 billion in 2005, according to the 2006 Manufacturer’s Survey conducted by the Organic Trade Association (OTA), Greenfield, MA. The OTA survey shows that organic packaged and prepared foods grew 19.4% in 2005 from the previous year, representing a $1.7 billion market, or 13% of the total organic food market. And organic food annual growth rates have been hovering in the 15% to 21% range for years.
Fueling this growth is the fact that more and more consumers are turning to organic versions of the traditional foods they buy, including convenience and prepared foods, because they feel organic foods satisfy an important need, such as the avoidance of growth hormones, antibiotics or pesticides, or the core belief in the ethics and benefits of organic agriculture. “If a person goes to a grocery store at the last minute to find dinner, and if they can leave with something organic, it just makes them feel a little bit better about what they’re eating that evening,” says Laurie Demeritt, president and COO, The Hartman Group, Bellevue, WA. “Being organic just adds another halo that gives a different dimension to the product, and makes them feel they’re making a good choice.”
Changing organic consumers
A whole lot of people are experimenting with organic these days, with 73% of consumers incorporating at least some organic products into their diet, according to The Hartman Group’s 2006 study on consumer attitudes and behaviors toward organic foods. What’s driving this experimentation? According to Demeritt, consumers are becoming more articulate and more informed about their reasons for buying organic. Parents are talking to other parents. Bloggers and mom’s groups are sharing information about food, food processing and other interests. And when parents hear something through their social networks that resonates with their values, they tend to change their purchase behaviors.
Demeritt points to children’s packaged goods as an example of one area where many parents feel underserved, based on how increasingly intense they feel about what they serve their children. “There’s been a huge opportunity in children’s packaged foods for quite awhile to create organic versions of products in traditional key categories like snacks, on-the-go foods and frozen foods. Until recently, we haven’t seen a lot of entrants into children’s packaged foods that are doing a great job capitalizing on that,” she says. “If manufacturers really understood why consumers are entering organic, and what they’re using it for, I think we would see more entries into the organic children’s food space.”
New-product developers can gain an edge by understanding the transformative change that has been underway the past few years with regard to people’s grocery-buying habits. Demeritt says there is no longer a line between being an organic consumer and not being an organic consumer. Users of organic products fit all education levels, income levels and backgrounds. Many are driven to purchase organic because of issues personally important to them such as perception of better health and food safety for their families.
Today’s organic dabblers may start with one product that is important to them and slowly add organic foods to their grocery mix over time. Most tend to add organics in a continuum, rather than stopping at any point. This new behavior bodes well for developers who align their thinking and product development with changing consumer concerns and interests. “The number of consumers who use organic occasionally is growing, and on top of that we’re also finding that those folks who have been in the category for awhile are increasing both their frequency of usage and also exploring new product categories, including packaged goods and center-of-store items,” said Demeritt.
With ongoing experimentation and steady growth, there are substantial opportunities for the development of new, convenient organic foods and beverages, but with one caveat—these new food products need to make sense in the mind of the consumer. An organic high-fat, high-salt snack? Forget about it. Convenience foods may save time and preparation effort, but they often come with a bum rap among organic circles. Many manufacturers misunderstand the organic consumer and think they can compete by simply making organic analogues of their conventional products. “Mainstream organic consumers right now are primarily looking toward perishable items. There’s still a disconnect with some consumers and the idea of packaged organic foods,” offers Demeritt, who recommends manufacturers talk to consumers to learn what drives their purchase behavior. “Manufacturers should spend more time determining which of their product lines are important to consumers in terms of organic and what product characteristics are important in their minds.” She points out that many consumers tend to sacrifice other purchase desires so they can afford the products they truly care about. Connecting with those cares and concerns is key to creating a successful convenience product.
In today’s competitive climate, organic is starting to be seen by consumers as just another attribute, a prerequisite to a perceived better-quality food, but by no means the end-all decision driver, according to Demeritt. Taste, mouthfeel, appearance characteristics, convenience, packaging and ingredient declaration are as important in organic convenience foods as they are in conventional. As with conventional foods, an organic product has to taste good and provide a satisfying eating experience or it doesn’t stand a chance.
Food processors are faced with several challenges in creating appealing and satisfying organic convenience foods, including ingredient- sourcing issues, and sometimes formulation limitations and processing constraints. The good news, according to Bill Fenske, vice president of R&D, SunOpta Grains and Food Group, Hope, MN, is that “there’s often no difference between organic and conventional formulation and processing. Developers may just need to be a little more creative.”
Sourcing finite raw materials
Supply continues to be an issue with organic raw materials, which is a function of limited organic acreage and strong demand by multiple manufacturers for the same small amount of raw materials. Limited acreage is a timeworn issue, but as the demand for organic foods continues and as farmers see new market opportunities, more acreage is converted to organic farming. Farmers must weather a lag of three years conversion time before the crop grown on their land can bear the label organic, a major investment on the part of the grower and a main contributor to the slowly growing acreage. Even so, more farmers are diving in and making the commitment. And that means more supply in the near future. Fenske points to organic milk as an example. “Organic milk used to be hard to find,” he says, “but now farmers are starting to catch up.”In fact, one manufacturer, Stonyfield Farm, Londonderry, NH, will buy 48% more organic milk in 2007 than in 2006. “Thanks to careful planning with our partner Organic Valley/ CROPP, a Wisconsin dairy cooperative of 966 organic dairy farmers across the U.S., we will have enough organic milk to meet the growth in consumer demand in 2007, support new product launches, and position ourselves for long-term growth,” says Gary Hirshberg, president and CEO. The company cites higher farmer pay prices for organic milk, an unsustainably low pay price for milk to non-organic farmers, and growing consumer demand as several factors behind the increase in milk supply.
Organic farmers also face other challenges. Pollen from genetically modified organisms can contaminate organic crops, notes Prescott Bergh, sales and marketing, Ciranda Inc., Hudson, WI. Though rare, it does happen. Such contamination makes a limited supply even smaller, pinching supply and raising prices.
“Demand for certified organic products has increased dramatically in the last five years,” says Irv Dorn, sales manager, Van Drunen Farms, Momence, IL. “Processors want an increasing volume and wider range of organic ingredients with a consistently equivalent or higher quality than conventional goods, available all year round.”
To achieve that, processors have to realize the differences in purchasing organic raw materials compared to conventional materials. “Unlike the rest of the purchasing universe where higher volume equals greater discounts, within the organic segment sometimes the opposite can be true,” offers Rob Kirby, president, Nexcel Natural Ingredients, Springfield, IL. “Sometimes, increased demand can restrict supply to the point where the next available pound simply costs more to manufacture. This is hard for many to understand, because it’s counter to their experience curve.”
One option is to source ingredients from global suppliers. “In many instances, organic supplies can be found, but sources may be far from the processor’s back door,” says Dorn. “This equates to higher prices for raw material and freight.” And it can also play counter to the notion of local procurement and sustainability, a concept that is often found in tandem with organics.
