New Product Trends: Driving Organic Growth

In its infancy 10 years ago, the organic foods area is experiencing record growth rates, more than any other food segment.

There is no doubt that natural and organic foods are here to stay. A recent survey conducted by the Natural Marketing Institute (Harleysville, Pa.) and the Organic Trade Association (OTA, Greenfield, Mass.) revealed that 43% of U.S. consumers purchase organic products.1 That is a very positive number, considering the National Organic Standards (NOS) were not in effect until October 2002.

The organic industry (food and non-food) reached $10.8 billion in consumer sales in 2003. Organic foods, the largest segment of the organic industry, grew 20% last year, reaching $10.4 billion. Sales of organics have grown between 17% and 21% each year since 1997, compared with total U.S. food sales, which grow at an average rate of 2% to 4% a year. By the end of 2005, retail sales of organics could reach up to $20 billion a year.2

As organic foods become mainstream items, they are being marketed in many different outlets. In the beginning, the organic industry was dominated by small, on-farm processors who grew and marketed fruits and vegetables at local farmers' markets and roadside stands. Today, organic foods are found in traditional supermarkets, grocery stores and club stores, as well as in many restaurants and college foodservice operations.

Growing Organic Brands

Large companies have taken notice of the huge growth potential of the organic market and are jumping in, often by purchasing small organic companies whose products align or complement their own. General Mills (Minneapolis) acquired Small Planet Foods (Sedro-Woolley, Wash.) and its Cascadian Farm brand in 1999. These two companies gave General Mills an immediate entry into the organic marketplace with products that complemented its own line (without having to develop its own organic products). Group Danone (Allentown, Pa.) purchased Stonyfield Farms (Londonberry, N.H.) in 2001 to expand its yogurt line. Dean Foods (Dallas) purchased Horizon Organic (Longmont, Colo.) and White Wave Inc. (Boulder, Colo.) to expand its existing dairy product lines.

Larger companies also are developing organic versions of their own products. Frito-Lay (Plano, Texas) introduced its Natural line in April 2003. It includes Tostitos Organic Yellow Corn Tortilla Chips, Organic Blue Corn Tortilla Chips, Tostitos Organic Salsa, Cheetos Natural White Cheddar Puffs, and Lay's Natural Country BBQ potato chips. In less than a year, the Natural line represents four of the top five natural or organic snack products sold in retail stores. Frito-Lay will undoubtedly try to continue to grow in this area with other new introductions in the Natural line.

Other major companies are changing the face of organic products by marketing recognizable brands that consumers already know and trust. H.J. Heinz (Pittsburgh) introduced Organic Ketchup, and Campbell Soup (Camden, N.J.) is marketing its Organic Tomato Juice. The Organic Tomato Juice, introduced in September of 2003, has increased the organic vegetable juice category by 300% within a short six months.

The industry continues to be fueled by consumers looking for more healthful choices. The 2003 Whole Foods Market Organic Trend Survey found that more than one-half of Americans (54%) have tried organic foods. Nearly one-third (29%) claim to eat more organic foods and beverages than they did one year ago. The survey, completed one year after the NOS went into effect, shows organic options, including snacks, ready-to-go items, and packaged goods, all have increased in the last year.

Keeping Its Integrity

The organic industry will face future challenges as the high growth rate continues. One of the major challenges ahead will be the ability to meet consumer demands for healthy, safe, and convenient food products while staying committed to all-natural and organic ingredients.

The definition of organic, as established by the National Organic Standard Board in 1995, is: “Organic agriculture is an ecological production management system that promotes and enhances biodiversity, biological cycles and soil biological activity. It is based on minimal use of off-farm inputs and on management practices that restore, maintain and enhance ecological harmony.” The OTA describes the primary goal of organic agriculture as “the optimization of the health and productivity of interdependent communities of soil life, plants, animals, and people.” New product developers must adhere to these standards to maintain the integrity of the organic industry, while assuring consumers that products are healthy and safe.

How will the organic industry maintain the integrity of the organic food system and keep up with consumers' demands for health, convenience and good taste? Here are some of the hottest trends in the industry and how the organic food companies are responding to these trends:

Health and Wellness. For many organic consumers, the issue of “What am I putting in my body?” drives this category. As aging Baby Boomers (there are 76 million Boomers over the age of 50) continue to look for the “fountain of youth,” more and more are looking to food as an answer to their health concerns. The increased interest in health consciousness is one of the major reasons for the growing interest in organic foods. Consumers want healthier, tastier and more sophisticated foods, and they are willing to pay for them.

The Food Marketing Institute's (Washington) Shopping for Health 2003-Whole Health for the Whole Family found that 60% of shoppers agree with the statement “Organic foods are better for your health.” Despite the fact that research shows no evidence of organic foods being better or safer, or offering benefits that exceed those of conventionally produced foods, consumers continue to believe that organic foods are healthier. Organic processors of the future are going to need to protect the organic process to reinforce this consumer belief.

No-prep, Convenience Foods. Like consumers of traditional foods, consumers of organic foods are looking for easy-to-prepare and convenience food products. From overstuffed sandwiches, car-friendly cups, and drinkable lunches, one-dish dining has become a popular food trend. One in 10 meals is eaten on the run, and one-quarter of restaurant take-out is consumed in the car (22% is eaten at work). To stay competitive with traditional foods, organic processors will need to continue to expand the convenience of organic food products without jeopardizing the organic ideal.

Low Carbohydrates. The low-carb phenomenon has taken the food industry by storm, and that includes the natural and organic industry. Whether the product is reduced-carb or controlled-carb, this category remains a hot trend with an influx of new products. In response to consumers' requests for low-carb breads, Rudi's Organic Bakery (Boulder, Colo.) introduced organic low-carb bread that is made without artificial ingredients, preservatives or genetically modified organisms, and it has more natural and organic items. The bread meets consumers' requests for both low-carb and organic foods and is a very successful product for the company.

The market for certified organic meats that have no antibiotics and growth hormones and which promote safe animal treatment will continue to grow.

Specialty Foods. Organic foods and specialty foods are synonymous in many different ways. Both food categories provide consumers with quality and flavorful products that often command premium prices. Organic dessert sales were $38.5 million last year, with frozen desserts providing the bulk of those sales.

Many organic specialty foods are being sold today. Napa Valley Trading Company (Corte Madera, Calif.) provides olive oils, vinegars and pasta. Horizon Organics sells a line of organic puddings. Tiny Trapeze Confections (Hyde Park, Mass.), founded by the creators of Dancing Deer Baking Company (Boston), is marketing a family of sweets that are made with organic rice syrup, organic barley water and organic cane molasses.

Functional/Nutraceutical Foods. In this “phood” category, companies are developing food products that combine food with pharmaceuticals. Nutraceuticals are described as any substance that is a food or any part of a food that provides medical and/or health benefits, including the prevention and treatment of disease. Current products include infant formula, protein drinks, cholesterol-lowering margarines, heart-healthy breakfast cereals and breads. Sales continue to grow due to consumers' awareness of health and the desire to both prevent and treat diseases themselves.

Organic foods are a natural fit as the industry develops nutraceutical foods. Many consumers already feel that organic foods are better for them, and one of their reasons for purchasing organic foods is the perceived health benefits. Delaying the inevitable effects of aging is a top priority for the estimated 10,000 Baby Boomers turning 50 each day.

The Next Step

Where does the organic industry go from here? Ed O'Neill, associate director of the University of Nebraska's Food Processing Center (Lincoln), feels that formulators of organic products will need to adhere to strict ingredient sourcing guidelines in order to keep the integrity of organic products.

“Formulation of new-generation organic products will continue to be a challenge. The organic product developer does not have access to the same broad range of functional ingredients available for use in traditional products. Finding innovative organic ingredients or processing technologies that can effectively mimic the preservatives, emulsifiers, stabilizers, gums, leavening and conditioners used in traditional products will remain a challenge,” says O'Neill.

As we continue to address the formulation challenges and develop organic foods that meet consumer demand for convenience, and healthy and flavorful foods, the growth of organic processed foods will continue to grow. The future of organic foods looks very bright.

References:

1 Organic Trade Association, 2004 Manufacturer Survey, May 3, 2004

2 Organic Trade Association, 2004 Manufacturer Survey, May 2004

The Food Marketing Institute (FMI), Trends in the United States: Consumer Attitudes and the Supermarket, 2003

The Food Marketing Institute (FMI) Shopping for Health 2003 - Whole Health for the Whole Family, 2003