Natural Foods Merchandiser

Convenience and health drive natural food sales

Everything old is new again. Some long-established categories in natural foods are growing at rates usually reserved for products that are just starting to get distribution.

Produce does the industry particularly proud this year. Even though it's had considerable market penetration for several years, it continues to produce astronomical growth rates. In 2004, sales of packaged produce skyrocketed more than 35 percent, with 47 percent growth for organic. But in '05, the category continued to post double-digit growth, racing ahead 26 percent for more than $222 million in sales. That secured it the No. 1 sales spot among food items in natural foods stores. In mainstream stores, shoppers spent $1.4 billion on packaged produce, a 22 percent increase over the previous year.

Tonya Antle, vice president of organic sales for San Juan Batista, Calif.-based Earthbound Farm, easily explained the popularity of packaged produce. "The overarching theme to this would be convenience. When you look at the time-pressed shopper … that value-added section really adds a lot of immediate satisfaction for the consumer. It's convenient and it's healthy."

But to explain growth in an established category, Antle turned to a 2004 report by Bellevue, Wash.-based market research firm The Hartman Group, which showed that people who are buying organics are doing so more often. According to the report, from 2000 to 2003, the number of people who said they "occasionally" purchased organics declined from 34 percent to 28 percent. But those who said they purchased organic products monthly or weekly at least doubled. "More consumers entered the category and started buying more often," Antle said. "Some are new customers; some are buying more often and deeper in the category."

Breaking bread
Other top sellers included bread and baked goods, which feasted on the crumbs of the low-carb craze. The category posted a 12.5 percent increase in 2005 sales in natural supermarkets, for a total of nearly $199 million.

"I think there's a combination of factors [contributing to the renewed popularity]," said Victoria Hartman, vice president of sales at Boulder, Colo.-based Rudi's Organic Bakery, whose overall sales increased 42 percent last year. "The new food pyramid with the guidelines that … recommended Americans eat three or more servings of whole grains each day—I think that was a real driving force." Hartman said breads labeled wheat, whole wheat or whole grain are having particularly strong showings. "People are learning they can be satiated [with heartier breads]."

Food sensitivities are also helping breads rise. "Our whole grain variety and also alternative grains—for us that's our spelt products—are also gaining ground," up 44 percent last year, Hartman said. "Rye flours and rice flour breads and those types of things, because of gluten-free, are also starting to drive some of the category growth."

Hartman said low-carb diets, which caused bread sales to temporarily plummet, actually had a silver lining: "The low-carb craze … got people to start reading ingredient panels. People began to understand sugar and carbohydrates and protein, and as they were learning about that, they learned the difference between a whole grain versus white flour." Rudi's best-selling item, Honey Sweet Whole Wheat bread, has been on the market for more than a quarter-century, but "even that grew 44 percent last year," Hartman said.

Hartman acknowledged that, at least in conventional stores, part of Rudi's growth has been due to new distribution. In naturals, she said, same-store sales are growing. That's backed by SPINS numbers, which shows bread and baked goods as one of the few categories where naturals stores dominated sales, grabbing 62 percent of market share. "As we've tried to drive Rudi's business over the last few years, our goal was to really get strong in natural foods supermarkets and then circle around to mainstream stores that do very well in natural foods and organics," she said.

"I think a lot of [the growth in bread sales] has to do with organics as well. People may enter through dairy or produce but they evolve—wheats or grains are a third or fourth entry point," Hartman said.

The best of the rest
Other popular items in 2005 included yogurt and kefir. These fermented products sold $156 million in naturals' dairy aisles in 2005. Food supplements gained traction, too. This category—consisting of aloe, bee and cartilage products, as well as green food and soy supplements, supplement oils, yeast products, and miscellaneous fruit, vegetable and grain supplements—grew nearly 22 percent in '05, to $192 million in sales.

Water, water everywhere
In conventional stores, however, last year consumers spent more on bottled water—a concept once considered absurd—than on any other natural food, for a total of more than $2 billion.

The gushing sales force of water may appear a little stronger than it actually is, though. SPINS only tracks "natural" SKUs within a given category. "Since water is inherently natural, we track it all in conventional," said Sonia Caltvedt, a spokeswoman at SPINS. Still, even though rankings might change with different methodology, it's hard to argue with $2 billion.

"Consumers are choosing bottled water … as an alternative to drinks that may contain calories, caffeine, sugar, artificial colors, alcohol or other ingredients they may wish to moderate or avoid," said Stephen Kay, a spokesman for the International Bottled Water Association. Small sizes (1.5 liters or less) account for more than 50 percent of sales—further evidence, Kay said, that consumers are choosing bottled water over soda and other soft drinks.

There's no shortage of water varieties, either. There's water with electrolytes, water with allegedly smaller molecules, water with flavoring, even water infused with the vibration of Earth's rotation around the sun. Life's most basic element, it turns out, can be endlessly transformed.

And in naturals supermarkets, water revenue streams are also flowing nicely, with 2005 sales of $98.5 million.

Coffee, pet foods wake up
When it comes to pure growth in naturals stores, coffee and coffee substitutes are buzzing. Along with cocoa, these brews posted 27.8 percent growth, followed closely by candy and individual snacks, with 27.1 percent growth.

But for retailers selling organic products, nothing compared to the 141 percent growth last year in organic pet food and pet care products. Seems Max's and Mittens' guardians shelled out $476,000 on organics for their little furry friends last year, compared with less than $200 grand the previous year.

Pet food's nearest competitor in organics, crackers and crispbreads, posted a 103 percent sales increase last year. Organic energy bars also proved their popularity, growing by 76 percent and showing up in many incarnations, from those made with only raw ingredients to those based on green foods to those meant for niche populations, such as vegans, kids or pregnant women.

Steve Grossman, vice president of Berkeley, Calif.-based Clif Bar, said that's a reflection of increased consumer awareness of organic foods in general. "I would also say there are more and more outlets for organic food." Those two factors feed off each other, he said. Clif added its first organic ingredients in 2003. "Now," said Grossman, "virtually every one of our products is either organic or made with organic ingredients."

Click here to order a copy of Market Overview 2005.

Editor's note: All data is from market research firm SPINScan Natural or SPINScan Conventional.

Natural Foods Merchandiser volume XXVII/number 6/p. 36, 38-39

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