Whether fueled by Baby Boomers trying to enhance their lives or by consumers distrustful of certain additives, preservatives or pesticides, the market for organic and natural foods has blossomed over the past 10 years. Once the realm of small farmers, the booming organics category has gained the attention of major food processing companies.

Developing, of course, largely depends on the target consumer. Fran Lent, president and CEO of Fran's Healthy Helpings, knows this all too well after developing a natural line of children's meals. “Kids will only eat what they like, so we have always taken the philosophy of not trying to recreate the wheel and looked at McDonald's and our competitors. We are never going to taste like McDonald's, because we are healthier, are baked, not fried, and use all white meat. So, we have given that profile to product development and said try to make this taste as much like what kids already like as possible within the constraints of what we define as healthy and natural.

“Actually, kids like very basic tastes. They do not like spicy or really complicated foods. I think the key is to offer products that are very basic and not deviate from it—not to get complicated. We have a new product on the horizon, and once we simplified it, it became easier to comply and still meet our standards of healthy and natural.”

Some, in fact, say developing organic products may be less of a challenge than mainstream food product development. “The products being introduced are not brand-new items nobody has ever heard of,” according to Anthony Zolezzi, president/CEO of The New Organics Company. “These are products people utilize all the time—just reformulated for an organic consumer, making sure the integrity of that is in the product and maybe adjusting formulas a bit. You are not starting over. Now, we have done that in some regard with our Mr. Fixit dinners, but that is also a type of protein and noodle dinner, though tweaked to the flavor profile of kids. Still, it is a concept that has been there. So, I don't think it is that difficult. Only if you do not understand organics and sourcing, it could be a nightmare.”

The sourcing dilemma was a particular concern when Home Grown Natural Foods began making organic soy oil. As John O'Shaughnessy, president and CEO of Home Grown Natural Foods, recalls, “About six months ago, we transitioned to organic, non-GMO expeller-pressed soy oil. Literally, nothing is added to it. It is essentially just a pressure-driven process. We made the transition now because of an assured source of supply of these ingredients that we can rely on at a price economical to us. Now there is a slight price charge in our transition to doing this, but it is something that we felt was warranted and that we felt would be paid back through increased consumer demand for the products. The most important thing, however, more important than the price, was the assured source of supply. If you start making a product with an ingredient and then you go back a second time and it is not available, you are in a world of trouble.”

Where are the Opportunities?

Once the ingredients sources have been assured, organic developers also face the question of what to produce. Organics began in produce, but complex, processed organic foods hold much potential.

Willow Wind Organic Farms, for instance, began with organic produce but is considering other areas. “As we develop and enter into more complex foods,” Margaret Walser, vice president of marketing at Willow Wind, says, “we try to stay in a real complete organic and as simple as possible food. What we concentrate on a lot is great flavor and simple ingredients. So, when a consumer looks at an ingredient list, they know every single thing they are looking at. We try to stay very simple and very pure. As we develop new lines, and we are thinking about doing some fully prepared meals, we will do them very simply and focused on flavor.”

Other companies, however, are unsure of expanding organic foods too far. Glenn Schacher, president of Glenny's, believes, “Organic is more significant in produce than anywhere else, in brown rice, in commodities. When you are coming into other areas, such as cookies and snacks, it is less important to the consumer. I question the growth in the packaged goods area. The growth if anything will be in the commodity area, where people want produce that is not sprayed, eggs, basic commodities. Something like soymilk has exploded, but when produce becomes more competitive, then it could explode.”

“To the general public, price is going to play the biggest role,” says John Stocking, owner/founder of Endangered Species. “People who are going to buy organic are those who care about the environment and about what they put in their bodies and their children's bodies and kind of eat those extra cents, and then there will be those people who just can not afford it.”

Price played a role in Willow Wind's organic expansion. As Walser recalls, “We wanted to go mainstream. We are right on the shelf with the conventional brands and store brands, and we are offered at the same price as the conventional and store brands. A consumer can stand there and say, 'Here is Bird's Eye. Here is store brand. Here is some other kind. Here is organic.' They are all the same price and size.”

Cost to the consumer is a key element to organics' continued growth, and the general impression is that the prices of these products will continue to fall as the market matures.

“Prices are going to continue to come down on a broader number of product categories,” says O'Shaughnessy, “because supply is increasing. The consumer demand is there. Natural products have been growing in grocery stores at a rate of just under 20% annually for the last 10 years, and the grocery industry in general has only grown at about a 1-2% rate. Organic foods are growing even more aggressively. The suppliers of the raw materials that go into these products see the demand there, so they are devoting a larger proportion of acreage (in the case of agricultural products). That larger source of supply leads to a larger infrastructure for efficient distribution of the products. Getting ingredients from one place to another is just as important. The whole organic industry in a sense is growing up, fueled by consumer interest and demand.”

Beyond the dollars-and-cents issue, O'Shaughnessy sees other elements vital to organics' development. “Certainly the functionality of ingredients have to stand up to scrutiny and expectations. The majority of consumers assess food products on taste first and foremost. They look for many other attributes, but taste is always at the top of the list. So is the functionality of the product. If these are items that are being cooked with, they have to perform just as well or at the highest level of expectation, in the case of oils for instance.

“Then, price. Even if there is a source of supply, with a very significant price increase, it is going to be passed on at least partially to consumers, and it is going to affect their interest in buying the product.”

Organics Rule

Consumers face price pressures, but other elements are in place to at least give some structure to the organic food items on store shelves. The USDA's new rule may, in fact, be a boon to the organic industry.

“The organic rule will absolutely improve consumer willingness to try these products,” says O'Shaughnessy. “Because there has been a certain amount of justifiable skepticism or at least confusion on the part of consumers about what organic means from place to place, product to product. Standardization and acceptance of those rules industry-wide is certainly going to help the credibility of the claims that are made.”

Still, the natural and organics industry has not wholeheartedly embraced the new rule. Walser sees the rule as “kind of a general organic standard not really as comprehensive as we would like to see. They allow a lot of different ingredients not really considered purely organic to be added to foods to make them look better packaged, to make them congeal better or to make them function more like a conventional food.”

Stocking agrees, “Half of me wants to say it is either organic or it is not. You should not have something that says, 'Well, this is sort of organic.' I think it should be organic or not organic. I think the 70% is misleading. I would like to see it either 100% organic or organic, and then, everything else is no organic ingredients.”

Nonetheless, Walser believes the rule has its uses. “It could be beneficial in consumer comfort level more than actual helpfulness from the actual food itself. It will affect their perception. They will feel more comfortable having the USDA seal on their products.”

Distribution Problems

The rule may hold the promise of a brighter future, but organics face problems—most notably distribution. However, O'Shaughnessy believes there may be a light at the end of the supply-chain tunnel. “As demand increases, and supply and distribution of organic ingredients improves, it is a natural progression that mid- to small-sized companies up to larger companies, like General Mills, are going to service that demand and make more products available that qualify as organic products.”

“Ingredient acquisition is getting easier,” says Ron Martell, vice president of marketing with Pacific Foods of Oregon, “and I think that will continue. With the USDA organic standards, now there is a standard for organic products. I do not think the consumer will see the results right away, but there will be a lot of changes now that we have standards that give a stable base on which to plan. So people are going to be looking for new supplies, new product formulations, and with that standard, everybody has a road map to follow. I think that sets the stage for more products and ingredients available.”

According to Walser, “The distribution is really difficult, not only distribution but also processing. When dealing with very small farms and you want to do frozen foods like we do, to run a processing facility where they sometimes do the harvest and take the product in, wash it, grade it, freeze it. You have to be able to utilize that facility to its maximum in order to keep the cost at the same level as conventional foods. So we try to grow near to the processor, which is typical in the conventional frozen product pipeline, and grow enough to use their plant entirely.”

To be organic, the plant must be certified, which requires the use of specific cleaners. Only after a thorough clean-out can the products be handled as required by the organic certification. They use only organically certified cleansers, and they use clear water for washing rather than that with any additives. It is all certified, and if not utilized entirely, the plant loses money, which is charged to the smaller producers.

Repeat Success

“To move further mainstream,” says Schacher, “I think the issue is cost. Companies must have the ability to work on a lower margin or have competitive pricing. That is one major factor in the growth of natural and organic foods. The other major factor is going to be the attractiveness in packaging and the taste. Packaging is coming along rather nicely. There are some really good natural packages out there, and they are professionally done. The bigger issue is taste. Natural foods have to able to taste good enough so that people will keep buying them.”

As Walser notes, “Repeat sales are a lot more difficult. When we introduce a new product that is a little more complex, it will have the flavor and be the quality the consumer is expecting. The flavor and quality are what will bring that customer back. Repeat sales keep our volumes high, which keeps our processing volumes high. Every one of these situations keep the product at a price.”

“Organics began with fresh produce and dairy,” O'Shaughnessy recalls, “and is moving into more highly processed foods. That is where this industry sub-segment will pick up steam and develop much faster than it has the last 10 years. As organic ingredients become available to be put into prepared foods that are more convenient, it will be like a snowball that gets bigger and rolls down the hill faster as it goes.”

Martell sees an even wider possible future for organics. “Baby Boomers want to live forever. Look at what they are buying in supplements. Our society is buying products to prevent health problems. The key way to do that is by the food we eat, so something is going on there. Not only are Boomers watching to keep 'bad' things out, but they are adding things to their diet. Without question, functionals and nutritionals are where the true growth may lie for organic foods.” PF