Natural and Organic Food and Beverage Trends: Current and Future Patterns in Production, Marketing, Retailing, and Consumer Usage, 2nd Edition

Natural and Organic Food and Beverage Trends: Current and Future Patterns in Production, Marketing, Retailing, and Consumer Usage, 2nd Edition

Once a reaction against large scale food processing and ever-larger supermarkets disconnected from the land, the natural/organic marketplace is now a key component of many divergent corporate interests. Investment bankers, consumer packaged goods giants and large retailers all are participating in, as well as changing the face of the marketplace for natural/organic food and beverage products.

Natural and Organic Food and Beverage Trends in the U.S.: Current and Future Patterns in Production Marketing, Retailing, and Consumer Usage, 2nd Edition begins by detailing the rise of the natural and organic producers and retailers. With this background, the report examines the market situation where a growing number of manufacturers, retailers and consumers seeking natural/organic food and beverages comprise a cultural shift, a ‘green’ mega-trend that is impacting every area of the food and beverage business.

In addition to establishing these facts, the report examines the market size for natural/organic food and beverages and through the research into retail distribution, manufacturer analysis and consumer trends, provides sales projections through 2013.

This report will serve as a scoreboard tracking the current flux in the natural/organic food and beverage marketplace as both established players and relative newcomers seek to either expand or enter the market. It looks at the various ways both conventional and natural manufacturers and retailers are gaining share as well as how the established natural/organic leaders are shaping the way for their conventional followers.

The current market leaves no doubt that these efforts will continue and sales will grow. However, as failures indicate, the road isn’t necessarily an easy one. From the March 2007 sale of the always struggling Wild Oats Market, to the September 2007 closing of Supervalu’s natural format Sunflower Markets, along with numerous losing ‘me-too’ efforts from manufacturers such as Nabisco, Ragu and Kellogg’s, lots of money has been lost in seeking to capture natural/organic consumers’ loyalties.

The varying degrees of success and failure indicate that current efforts from all players, whether the large CPGs, natural industry leaders, small owner-operated shopkeepers and even the world’s largest mass merchants, are far from static.

One lesson to be learned, that is both obvious and elusive, is that innovation and integrity are both critical to this market. This report shows how successful companies have created a mirror representing the values and demands of natural/organic consumers.

Report Methodology

The information presented in this report was obtained from primary and secondary research. Primary research included interviews with industry participants as well as on-site store examinations and reviews of websites, blogs and readers’ comments posted on these sites. Secondary research and data gathering included extensive examination of the trade, business and popular press, websites as well as company annual reports and various trade association publications.

Packaged Facts market size estimates are based on Information Resources, Inc. (IRI)

InfoScan Review and on SPINS data. New product introduction figures are published with permission of Datamonitor’s Productscan online service.

The analysis of consumer behavior and demographic data is based on two source: Simmons Market Research Bureau and BIGresearch.  
 

CHAPTER 1: EXECUTIVE SUMMARY

Scope of Report

Definition

Report Methodology

The Market

Dynamic Growth Has Transformed Both Shopping and Retailing

Natural and Organic Sales Just Under $33 Billion in 2008

While Organic Sales Projected to Reach Just Under $20 Billion in 2008

Table 1:1 Organic and Natural Food Sales 2005-2008 (in million $)

Strong Growth in FDM and Natural Channels

Market Outlook

Table 1:2 Packaged Facts Estimates Natural and Organic Products 2008-2013 (in Billion $)

The Retail Arena

Huge Retail Expansion—From Grass Roots to Mass Market

Whole Foods Consolidates Leadership as Trader Joe’s Grows

Trader Joe’s Leading Competition

Emergence of Second-Generation Natural Supermarkets

Record Number of Private-Label Organic Products in 2007

Table 1:3 Private Label Organic Food and Beverage Product Introductions Surge

Target Expands Shabby Chic to Food Aisle

The Marketers

Consumers Want More than Just Organic and Natural

Corporate Buyouts and Consolidation Continue

Hain Celestial Leading Natural and Organic Mfr in the United States

Table 1:4 Total Reported Sales Hain Celestial Foods, 2003-07

Kashi emerges as natural leader in FDM

Table 1:5 IRI Reported FDM Sales of Kellogg’s Kashi Foods, 2003-07

Dean Foods Dominates Organic Dairy and Non-Dairy Beverages

Other CPG Owned Natural/Organic Brands Mostly Sluggish in FDM

Innovation and Entrepreneurial Spirit Still Drive Natural Leaders

Future Trends

Record Number of Organic Product Introductions in 2007

Table 1:6 New Product Introductions Organic, 1997-2007

Natural Claims Get Increasingly “Fuzzy”

Commodity Prices Growing, Supply Shortages To Emerge

Values Other than Price Also Driving Sales

Stevia the All-Natural, No-Calorie Sweetener

Organic Wine, Beer and Spirits

The Consumer

Table 1:7 Percent of Adults Who Shop for Organic Products: By Frequency of Shopping

Concern Over Artificial Ingredients Stronger than Interest in Organic/Natural

Presence of Children Not Indicative of Greater Natural and Organic Interest

Purchase Habits by Outlet

Age Not Consistent with Shopping Habits

Asian and Hispanic Shoppers Seek out Organic and Natural Foods Most Often

Table 1:8 “When I Shop for Foods, I Look for Organic/Natural Products”: By Ethnicity

Higher Education and Higher Income Associated with More Natural/Organic

Table 1:9 “When I Shop for Foods, I Look for Organic/Natural Products”: By HH Income

Pacific and Northeast Respondents Buy More Natural and Organic

CHAPTER 2: MARKET SIZE AND GROWTH

Highlights

INTRODUCTION

Scope of Report

Report Methodology

Background

Various Factors Spur Entry into Marketplace

Response to Post-World War Innovations in Food and Farming

Return to Smaller Scale Production and Less Processed Foods

Definition and Rules for Natural and Organic Foods

Rise of the Cooperative Grocery and Organic Manufacturers

Corporate Buyouts in 1980s and Early 1990s Failed; New Wave of Consolidation Continues

Conventional Products Grow Slowly in FDM While Natural Product Surge In FDM

Organic/Natural Items Surging While Conventional Items Struggle

Table 2:1 IRI Reported Growth of FDM Segments vs. IRI Reported FDM Sales of Natural/Organic SKUs

Baby Food Sales Boom

Tea Sluggish Due to Celestial Seasonings Travails

Natural/Organic Cold Cereal Sales in FDM Surge

Yogurt Surprise—Conventional Items Show Growth Alongside Natural/Organic Ones

Leading IRI Segments with Natural/Organic Penetration

Table 2:2 IRI Reported Share of FDM Segments by Natural/Organic Brands 2003-2007

Natural/Organic Perform While Most CPG Owned Natural/Organic Brands Perform Poorly

MARKET SIZE

Table 2:3 Organic and Natural Food Sales 2005-2008 (in million $)

Produce Lead Organic Sales

Organic Bread Sales Grow

Table 2:4 SPINS Reported Sales of Rudi’s Organic and Food For Life Brands in Natural

Organic Liquid Dairy

Table 2:5 IRI Reported Sales of Organic Liquid Dairy in FDM Outlets

Non-Dairy Beverages

SPINS Data and the Natural Supermarket Channel

Table 2:6 SPINS Reported Sales of Total Packaged Food & Beverages in Natural Products Supermarkets

Market Outlook

Are Natural and Organic Foods No Longer Recession Proof?

Packaged Facts Projects Slower But Steady Growth Through 2013

Table 2:7 Packaged Facts Estimates Natural and Organic Products 2008-2013

CASE STUDIES

Introduction to Manufacturer Case Studies

Case Study: Tea

Table 2:8 IRI Reported Sales of Bag/Loose Tea in FDM Outlets 2003-07

Celestial Losing Ground to Smaller Brands

Health and Wellness Drive Innovation

Case Study: Yogurt

Table 2:9 IRI Reported Sales of Selected Yogurt in FDM Outlets 2003-07

Stonyfield, Doing it Right

Not Doing it Right: Horizon Organic

Case Study: Ready to Eat Cold Cereal

Table 2:10 IRI Reported Sales of Selected Ready to Eat Cold Cereal in FDM Outlets

Kellogg’s Cereal Star Kashi

Nature’s Path Sells More than Just Product

Case Study: Cookies

Table 2:11 IRI Reported Sales of Selected Cookies in FDM Outlets 2003-07

Newman’s Own Organics Leads

Back to Nature Flounders While Kashi Racks up Sales

Diet-Specific Natural Cookies

Case Study: Meat and Poultry Substitutes

Table 2:12 IRI Reported Sales of Meat and Poultry Substitutes in FDM Outlets

Revolutionary Gardenburger

Quorn and Franklin Mushroom as Innovators

Case Study: Premium Refrigerated Juices

Table 2:13 IRI Reported Sales of Refrigerated Juices in FDM Outlets

Coca-Cola’s Odwalla as Leader

Pepsico’s Naked Juice

Pom Wonderful-Vertically Integrated Processor Creating Demand

Case Study: Spaghetti/Italian Sauces

Table 2:14 IRI Reported Sales of Refrigerated Juices in FDM Outlets

Rao, a Gourmet Brand is the Leader

Case Study: Millenium Product’s GT’s Kombucha

Table 2:15 Sales of GT’s Kombucha By Channel

Case Study: Nutrition Bars

Table 2:16 IRI Reported Sales of Nutrition/Intrinsic Health Bars in FDM Outlets

Clif Bar Dominates

Nestlé’s Powerbar

Abbott Lab’s Zone Perfect Also Flat

SPINS Reported Natural Channel Leading Categories & Brands

Table 2:17 SPINS Reported Sales of Natural and Organic Food & Beverages in Natural Supermarkets, Excluding Private Label

Baked Goods Lead in Natural Channel’s Frozen & Refrigerated

Table 2:18 SPINS Reported Sales of Leading Frozen and Refrigerated Categories in Natural Supermarkets

Dairy and Non-dairy Beverages Do Not Lead in Natural Channel

Table 2:19 SPINS Reported Sales of Leading Grocery Categories in Natural Supermarkets

Smucker’s and Nature’s Path Lead as Grocery Brands in the Natural Channel

Table 2:20 SPINS Reported Sales of Leading Natural Supermarket Grocery Brands

Amy’s Kitchen the Clear Leader in Frozen/Refrigerated of Natural Channel

Table 2:21 SPINS Reported Sales of Leading Natural Supermarket Frozen/Refrigerated

CHAPTER 3: THE RETAIL ARENA

Highlights

INTRODUCTION

From Grass Roots to Mass Market

Emergence of Natural Supermarkets

Expanding Natural and Organic Distribution in All Outlets

Conventional Markets Offer Greatest Opportunity for Growth

Conventional Retailers Seeking “Right” Formula For Better Results

Store Within A Store versus Super-Integration

Increased Efforts to Teach Conventional Markets How to Sell Natural & Organic

Conventional Private Label Offerings Items ‘Explode’

Store Brands of Natural and Organic are Becoming Recognizable Brands

Table 3:1 Private Label Organic Food and Beverage Product Introductions Surge

Pricing

Whole Food’s Consolidation of Super Naturals and the Continued Growth of Trader Joe’s

While Some Call it Whole Paycheck, Others Can’t Wait to Have A Whole Foods in Their Town

The Whole Foods Trader Joe’s Two-Step

Regional Outlets and Specialty Markets Seek to Be the Anti-Whole Foods

Conventional Retailers Develop Natural Format Stores

Central Market in Whole Foods’ Backyard

Publix Supermarkets

Supervalu Fails with Sunflower Markets

Look to Safeway’s Dedication and Creativity

Natural Coops Continue To Thrive

Wal-Mart’s Organic Offerings Scaled Back

Target Expands Shabby Chic to Food Aisle Seeking to Capture Natural & Organic Shoppers

RETAILER PROFILES

Introduction

Whole Foods Market

Overview: Ethics Driven Capitalism with Business & Marketing Savvy

Mission Driven Values with Aggressive PR Images

Value Driven Initiatives Grow—Local, Humanely Raised and Fair Trade

John Mackey, an Innovative and Unusual CEO

Employee Relations Key to Success

Combating the Stigma of Whole Foods as ‘Whole Paycheck’

No Slotting Fees and Working with Vendors

Regional Efforts with Increasing Corporate Oversight to meet ‘Numbers’

Whole Foods becomes Whole Lifestyle, Expands to Offer Spa Services, Gourmet Dining and Free Wi-Fi

Future Expansion and Wild Oats Transitions

Retailer Profile: Trader Joe’s Market

Convenience price and quality

Customer Service Drive Sales

Retailer Profile: Earth Fare

Retailer Profile: Sunflower Farmers Market

Retailer Profile: Sprout’s Farmers Market

Retailer Profile: Canadian Planet Organic Mrs. Green’s and New Leaf Community Markets

Retailer Profile: Natural Grocers by Vitamin Cottage

Retailer Profile: Henry’s Farmers Market

Specialty and Conventional Outlets

Retailer Profile : Wegmans

Retailer Profile: Safeway

Retailer Profile: Fresh Market

Retailer Profile: Tesco’s Fresh & Easy

CHAPTER 4: PRODUCER/MARKETER ARENA

Highlights

Look We’re Organic — Product Launches, Product Failures Illustrate Consumers Want More than Just Organic

Consumers Look for More than Just Organic or Green

Corporate Buyouts and Consolidation Continue at a Rapid Pace

Acquisitions as An Alternative to Creativity Within; The Salsa Rule Revealed

Early Buyouts in the 1980s and 1990s Were Failures

But Kellogg’s and Hain Seem to Be Doing It Right

Innovation and Entrepreneurial Spirit Still Drive Natural Leaders

Natural and Organic Leaders Create Social Networks via Website

Kellogg’s Kashi’s Division as a Corporate Role Model

MANUFACTURER PROFILES

Hain Celestial Foods

Table 4:1 Total Reported Sales Hain Celestial Foods, 2003-07

Kellogg’s

Kashi emerges as natural leader in FDM

Table 4:2 IRI Reported FDM Sales of Kellogg’s Kashi Foods, 2003-07

Table 4:3 SPINS Reported FDM Sales of Kellogg’s Kashi Foods, Grocery Items, 2005-07

Morningstar Farms Ready for Revitalizing

Wholesome and Hearty’s Gardenburger

Table 4:4 IRI Reported Sales of Kellogg’s Morningstar Farms in FDM Outlets, 2003-07

Table 4:5 IRI Reported Sales of Kellogg’s Gardenburger in FDM Outlets, 2003-07

General Mills

Cascadian Farms

Muir Glen

Humm Foods’ LaraBars

Table 4:6 IRI Reported Sales of General Mills Small Planet Foods Brands in FDM Outlets, 2003-07

Table 4:7 SPINS Reported Sales of Cascadian Farms Frozen Items in Natural Supermarkets, 2005-07

Dean Foods White Wave Division

Table 4:8 IRI Reported FDM Sales of Dean Foods Brands, 2003-07

PepsiCo

Table 4:9 IRI Reported Sales of PepsiCo Brands in FDM Outlets, 2003-07

Frito-Lay Naturals Moribund

Table 4:10 IRI Reported Sales of Frito-Lay Naturals in FDM Outlets, 2003-07

Flat Earth is Just the Opposite

Kraft Altria

The Back to Nature Foods Company

Table 4:11 IRI Reported Sales of Kraft Altria Natural Brands in FDM Outlets, 2003-07

Boca Foods

J.M. Smucker Company

Table 4:12 IRI Reported Sales of Smucker’s Quality Beverage Brands in FDM Outlets

Table 4:13 SPINS Reported Sales of Cascadian Farms Frozen Items in Natural Supermarkets, 2005-07

Nature’s Path Foods

Table 4:14 IRI Reported Sales of Nature’s Path Cold Cereal and Snack/Granola Bars in FDM

Not Just Organic but Also Eco-friendly and Great Tasting Too

Table 4:15 SPINS Reported Sales of Nature’s Path Grocery Items in Natural Supermarkets, 2005-07

Amy’s Kitchen

Table 4:16 IRI Reported Sales of Nature’s Path Cold Cereal and Snack/Granola Bars in FDM Outlets, 2003-07

Table 4:17 SPINS Reported Sales of Amy’s Kitchen Frozen Foods Items in Natural Supermarkets, 2005-07

Organic Valley of Farms 155 Table 4:18 IRI Reported Sales of Organic Valley in FDM Outlets, 2003-07

Other Marketers

Natural Selection Foods: Earthbound Farms

Newman’s Own Organics

Table 4:19 IRI Reported Sales of Newman’s Own Organic in FDM Outlets, 2003-07

Kettle Foods

Table 4:20 IRI Reported Sales of Kettle Foods in FDM Outlets, 2003-07

Safeway

Con-Agra Foods

Table 4:21 IRI Reported Sales of Con-Agra Brands in FDM Outlets, 2003-07

Other Producer Trends

Imports Likely to Get Scarce While Falling Dollar May Increase Export Opportunities

Food Service Seeks More Organic and Natural

Local is the New Organic

CHAPTER 5 NEW PRODUCT TRENDS

Highlights

Values Other than Price Drive Sales

Innovation and Creativity Are Key for Success

Record Number of Organic Product Introductions Reported and Likely to Continue

Figure 5:1 New Product Introductions Organic, 1997-2007

Table 5:2 Organic Food and Beverage Product Introductions, 1998-2002

Private-Label Introductions Up in Organic and Natural

Table 5:3 Private-Label Organic Food and Beverage Product Introductions

Organic Food Introductions Outpace Beverage Ones

Table 5:4 Organic Food Product Introductions, 1997-2007

Table 5:5 Organic Beverage Product Introductions, 1997-2007

Table 5:6 Leading Organic Product Introductions, by Category, 1997-2007

Natural Product Claims Get Increasingly ‘Fuzzy’ as Manufacturers Seek to Differentiate Products

All Natural High Fructose Corn Syrup

Hormone-Free Milk Claims Get Heated

My Poultry is Better than Your Poultry.

Corporate Organic Continues to Fuel Controversy and Drives Buy Local Movement

Non-GMO Labeling is Up

Table 5:7 New Product Reports For Food and Beverages with Non-GMO Claims

Commodity Prices and Organic Supply

Increased Interest in Organic Farm Methods from Conventional Growers

Increasing Efforts at Educating Conventional Consumers About Organic

Educating Players

Kids Products Grow

How To Do It Right

Table 5:8 New Product Reports For Kids Foods & Beverages Kids with Organic Tags

Connection Between Food, Nutrition and Well Being

Hemp Foods

Table 5:9 New Product Reports Foods & Beverages with Hemp Tags, 1997-2007

Flax, Omegas and Essential Fatty Acids

Table 5:10 New Product Reports Foods & Beverages with Flax Tags, 1997-2007

Raw Foods

High Protein Foods and Low Glycemic Index

Table 5:11 New Product Reports For Low Glycemic Foods, 1997-2007

Other Food Trends

Food Allergies and Food Sensitivities

Table 5:12 New Product Reports For No Gluten Items, 1997-2007

Autism and ADHD Drive Parents to Seek All Natural Choices

Sustainable Seafood

Stevia All Natural No Calorie Sweetener

Frozen Baby Foods

Functional Foods, the Natural Way

Organic Wine, Beer and Spirits

Organic Beer Less Challenged than Organic Wine

Organic Sprits the Latest Trend in Spirits

Cause Related Marking Continues to Grow

Fair Trade

Table 5:13 U.S. Imports of Fair Trade Certified Products, In Pounds, 2002-2007

Table 5:14 New Product Reports For Fair Trade, 2004-2008

Green, Green the Grass Is Green

Other Trends

Organic and Natural Television

Organic Fast Casual and Fast Food Grows

Food Distribution Business to Heat up

CHAPTER 6: THE CONSUMER

Highlights

Methodology

Notes on Simmons Data

Introduction

With $4.00 Gas and $5.25 Heating Oil, will any money be left for Organic Milk?

A Large Number of Disinterested Consumers Remain

Concern Over Artificial Ingredients Stronger than Interest in Organic/Natural

Surprising Data Reveals Presence of Children Not Indicative of Greater Natural and Organic Interest

63% Report Regular or Occasional Organic Purchasing

Table 6:1 Organic Shopping Pattern for U.S. Adults Overall, 2008

Produce is Most Commonly Reported Organic Purchase

Table 6:2 Percent of Adults Who Shop for Organic Products: By Product Category, 2008

Organic Products by Location Shoppers

Table 6:3 Retail Channel Most Often Shopped for Organic Products, 2008

Publix in the Top Five for Organic Purchases

Table 6:4 Retail Chain Most Often Shopped for Organic Products, 2008

Walmart Leads Among Regular Organic Shoppers

Table 6:5 Retail Chains for Groceries Most Frequently Shopped by Organic Shoppers, 2008

Shopping for Organic Products by Category

Organic Shopping Patterns Consistent by Category and Channel

Table 6:6 Organic Shopper Patterns by Product Category and Retail Channel, 2008

Respondents Report Slight Variations For Key Categories Among Retail Chains Shopped

Table 6:7 Organic Shopper Patterns by Product Category and Retail Chain, 2008

Nearly Twenty Percent of Adults Report Spending Less on Groceries

Table 6:8 Retail Chain Most Often Shopped for Organic Products: Adults Overall vs. Adults Who Are Spending Less on Groceries, 2008

Shopping Organic Correlates with Income

Table 6:9 Organic Shopping Patterns by Household Income Level and Average Income

New England, Mountain and Pacific Regions Report Buying More Organic Foods

Table 6:10 Regional Patterns: Adults Overall vs. Adults Who Are Buying More Organic Foods, 2008

Simmons Shows that Most Shoppers Do not Look for Organic/Natural Products

Table 6:11 “When I Shop for Foods, I Look for Organic/Natural Products”

Preference Among Consumers Not Consistent with Age

Table 6:12 “When I Shop for Foods, I Look for Organic/Natural Products”: By Age Bracket

Women Shoppers Look For Organic/Natural More than Men

Table 6:13 “When I Shop for Foods, I Look for Organic/Natural Products”: By Gender

Asian and Hispanic Shoppers Seek out Organic and Natural Foods Most Often

Table 6:14 “When I Shop for Foods, I Look for Organic/Natural Products”: By Ethnicity, 2008 (percent of U.S. adults)

Higher Education Associated with Greater Preference for Natural and Organic

Table 6:15 “When I Shop for Foods, I Look for Organic/Natural Products”: By Higher Education, 2008 (percent of U.S. adults)

Higher Income Leads to Greater Preference for Natural and Organic

Table 6:16 “When I Shop for Foods, I Look for Organic/Natural Products”: By HH Income, 2008 (percent of U.S. adults)

Pacific and Northeast Respondents Buy More Natural and Organic

Table 6:17 “When I Shop for Foods, I Look for Organic/Natural Products”: By Region, 2008 (percent of U.S. adults)

Children in Household not Indicative of Increased Natural and Organic Preferences

Table 6:18 Percent of Adults Who Agree a Lot That They Seek Out Organic/Natural Foods: By Child-Influenced and Family-Centered Psychographic Scales

APPENDIX

Marketers I

Retailers IV