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Market Trends: Organic Lessons

November 21, 2003
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“Burgeoning consumer interest in organically grown foods has opened new market opportunities for producers and is leading to a transformation in the organic foods industry,” says a just-published report from the U.S. Department of Agriculture.

What can we learn from this category?

While conventional food sales have been increasing at a snail's pace, total organic food sales have been growing at a rate of about 20% per annum for more than a decade, according to estimates from the Organic Trade Association. Organic milk and dairy products have led the parade. During the decade of the 1990s, USDA says, organic dairy sales were up more than 500%.

Sales of organic milk and dairy products totaled about $600 million at retail during 2000. Sales of all organic foods during that year approached $9 billion. Organic sales should top $11 billion this year and $18 billion by 2005.

By the way, sales of nondairy beverages, i.e. juice and soy-based beverages, were the second fastest growing segment in the organic business during the last decade. Annual sales are now at about $1 billion.

After 10 years of percolating through the bureaucracy, a national system of organic labeling has become official. It will likely drive sales of organics higher and faster. All of the attendant publicity and the ever-present “USDA certified organic” label will capture the attention of more consumers.

Still, organic sales are a small piece of the market share pie in the dairy business. Organic dairy sales accounted for slightly less than 1% of total U.S. dairy sales during 2000, according to estimates published by the Nutrition Business Journal. Organic dairy isn't big business, but it is significant business. It's a segment of the dairy business well worth watching. As a rapidly emerging market, organic offers a glimpse of the current consumer mindset.

  • Organic dairy products command a 50% to 75% price premium. A big chunk of this premium is driven by $18 to $20 per hundredweight prices paid to producers, but manufacturers and retailers also get a share.
Lessons learned: Organic is a niche, but a very profitable niche. Give consumers what they truly want/need and they will dig deeply into their pockets. What else do they want?
  • Why are consumers paying these premiums? Many researchers have recently asked this question and almost always, the number one reason cited is health. Sixty-three percent of the respondents in one survey believed that organic food and beverages were more healthful than their conventional counterparts. This isn't necessarily true, but marketers should know: perception is reality.
Lessons learned: Even as the health police beat the drums about more obesity than ever, the screw has already turned. While the big are getting bigger, a growing segment of the population is counting calories and avoiding fat and dodging sugar and sidestepping “artificial.”
  • Organic dairy is mainstream. Two-thirds of the organic milk and cream is delivered to consumers via conventional supermarkets, not the “health food stores” frequently associated with the organic of days gone by. Half of the organic cheese and yogurt sold in this country passes through a conventional supermarket.
Further to the point of mainstream: Early on, organic could only be found in the 'organic' section of the grocery store. Now, it is completely integrated into the dairy case, the bakery, the meat counter and the vegetable aisle.

More than half (55%) of all households say they use “at least some” organic products. Six percent are regular users, according to study results just released by Whole Foods Market. Several other studies conducted in recent years showed similar trends. Lessons learned: Organic is here to stay, not a fad marching by in the night. Natural is a logical adjunct.

Several dairy companies have their arms around the organic segment of the business. Others will likely get involved. Whether you opt in or not, it certainly is a category worth watching. It gives us one more window into the minds of consumers.

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