At times it felt as though 2002 was the year of organic foods in the United States. The government implemented federal standards and there was an onslaught of mainstream attention. But organics are a bigger trend worldwide, and consumer interest and business acumen in this country are still germinating by comparison.
"Taking a look at the U.K., for example, organics are far more mainstream in terms of where they're sold and how you choose them," says Lynn Dornblaser, editorial director for Mintel's Global New Products Database. "And consumers are far more accepting of the products and their value."
So with room to grow, 2003 should be another dynamic year in the organic foods marketplace. New product introductions will continue to come fast, as old players and new ones look to capture sales. Although the packaged grocery and refrigerated/frozen departments will witness broadened offerings, innovation seems focused on the fresh departments, which have become the calling card of many natural products retailers.
Inside The Box
Twenty years ago, mac and cheese, canned tomatoes and instant soup were an afterthought at natural foods stores, taking up little shelf space and providing few choices. The packaged foods category has come a long way since then, but it's been somewhat limited by the scale of its producers.
In 2003, this segment will continue to see a number of new product and brand launches, both from traditional natural foods companies and larger multinational food companies. As organics move mainstream, some companies will try to differentiate themselves with additional labeling to communicate core values to consumers.
Packaged products sold in natural foods stores are much less innovative than those in the fresh foods departments, Dornblaser says. "We took a colleague from our London office to a store in Chicago," she says. "And after looking around, he said, 'You know, this store doesn't make sense to me because on the one hand you've got this beautiful upscale, expensive produce, and on the other hand you have all these boxes of products that all look generic.'"
When it comes to the grocery aisles, natural foods companies have innovative products in ho-hum packaging, says Clark Driftmier, president of the Boulder Strategy Group, a Colorado consulting company. In part, this is because most companies are small and must use copacking facilities, where their business is a small portion of the plant's overall production.
"The big manufacturers that are doing the copacking don't like to stop [their plant] and change everything over for a small organic run," says David Gauger of Gauger and Santy, an advertising agency in San Francisco.
There may be some shifts in the coming year as consolidation continues industry wide. For example, Cascadian Farm's new cereal line is being made at a new, state-of-the-art facility. "The honey-nut cereal that Cascadian makes is superior in quality to any other similar product at natural foods stores," Driftmier says. "And the main reason is that they have access to General Mills' equipment."
Driftmier says the beneficial collaboration isn't immediately seen after natural foods companies are purchased because it can take years to work out the logistics between the parent companies and their new organic foods divisions. "That should be a future trend," Driftmier says. "When are these companies that are acquired going to start to show the processing and operations-side synergies that are usually promised in the acquisitions?"
Even as these relationships progress, don't expect to see organic peanut butter and jelly in a tube, or organic chips in portable containers that fit in car cup holders. Manufacturers must gauge the natural/organic foods customer's acceptance and demand for packaging convenience. "Some of the high-trash index consumer packaging out there is probably not acceptable to the industry," says Allan Routh, president and CEO of the Sunrich Food Group in Hope, Minn.
One innovation that could be driven by organic companies packing their own products or partnering with companies that provide them sufficient resources is more recyclable packaging, Routh says. Sunrich uses aseptic packages for its soymilk and polybags its vegetables, both of which are difficult to recycle because of their multiple layers, which improve shelf life. Companies could invest research and technology dollars into packaging that retains long shelf life but is more recyclable. "You would hope that since there's an organic component and some consciousness of the environment, more companies may make those tough choices," Routh says.
One example already evident is the packaging for Frito Lay's natural snacks. Instead of using high-gloss foil packaging, the product comes in paper bags, which can be easily recycled.
Packaging is essentially marketing, and as organic foods become more mainstream, marketers will be challenged to differentiate their products in the more and more diluted market. Organic used to provide a unique designation, but companies will have to look further for added-value attributes. Look for additional qualities being promoted along with organic to drive home a message of authenticity.
"Organic has become more of a category division as opposed to a highlighted feature," Gauger says. As the category "blows up," he speculates, the differentiated message is diffused. Heirloom, locally grown and specifically communicated and certifiable social benefits, such as fair trade, integrated pest management and free farmed, will be used to differentiate organic products.
"When companies like Frito-Lay decide to do an organic chip, the specialness, the authenticity, the fact that organic can be equated to finest quality is kind of undermined," Gauger says.
Growth of natural frozen foods will always be tethered by the available retail space for those products. Companies are therefore cautious about rolling out new line extensions or innovative product segments.
"Basically, you're going to be allotted a certain amount of shelf space, and you want to make sure the products you put there will have good general appeal and movement," Routh says. The refrigerated/frozen foods segment sees fewer new products than packaged foods, he says. "There's so little space allocated [at retail] that you really have to put out new products that you can project movement on; you don't have the opportunity to do fun items."
Although the number of products destined for the natural channel may lack in quantity compared with conventional offerings, they more than make up for it in variety. "There are so many interesting frozen vegetarian products in natural foods stores, with Amy's and Cascadian Farm leading the way, but it's a far smaller department than in mainstream stores," Mintel's Dornblaser says.
Whether it's natural or conventional, frozen category growth has been steady and will continue. Consumer demand for convenience products hasn't slowed. Frozen entrees, pizzas and convenience foods was one of the top 10 growth categories last year, increasing by more than 15 percent.
Manufacturers and marketers to this category understand this, and many continue to move their products closer to consumables than meal-prep ingredients, Routh says. For example, companies now offer meat alternative meal kits and edamame shelled instead of in the pod.
Other trends already evident in the frozen natural department will continue as well. Expect more ethnic entrees and soy products, such as soy ice creams and frozen soy yogurts.
Getting Fresh With Foods
During the last several years, fresh foods have become the signature departments for most natural foods retailers. The produce departments are now routinely placed close to the entrance. Dairy cases, meat and seafood departments, as well as coffee and specialty cheese sections have witnessed more organic product proliferation and corresponding consumer interest than anywhere else in the store.
Organic produce constituted 40 percent of organic food sales in 2001. It's hardly an emerging area, but you can expect more variety to be available. Off-season produce will be increasingly more accessible because of the now-global nature of the business, says Joe Smilie, president of the San Diego-based organic certifier Quality Assurance Int'l. In addition to Latin American locales, look for exotic organic produce items from Southeast Asia to become available.
With Mother Nature as its boundary, it would seem that new product introductions would be scarce in the produce department, but conventional produce purveyors are pushing the envelope. Los Alamitos, Calif.-based Frieda's has introduced a number of new items and should continue to do so in the coming year. Star-spangled squash, South African baby pineapple and spritemelon are unique and offer some of the convenience characteristics sought by so many consumers because they are single-serve varieties of traditionally larger fruit.
Organic fresh-cut fruit and bagged vegetables will be more available. The conventional produce industry has focused on convenience for years, but as organic becomes more mainstream, purveyors will look to mimic conventional offerings. Earthbound Farm's offerings have been ahead of the curve.
Maybe the biggest thing going in the organic fresh foods arena is the meat category. Held back during the organic boom of the 1990s, many organic meat companies have repackaged and reoriented their businesses. "The category is very dynamic; several companies have repositioned for a push, like the old Sunnyside Farms, which is now Green Circle," Driftmier says.
Green Circle Organics, as a rancher, processor and marketer, is one of a few meat companies able to provide certified organic products. The Washington, Va.-based company handles the meat from birth to retail and has taken the challenge of secondary cuts and created a new line of branded products. Many natural and organic ranchers operate on slim margins—premium prime cuts move well, but most of the cow isn't filet mignon. Green Circle took its lesser cuts and made added-value convenience items, like Bourbon Pot Roast and Italian Meat Loaf, with recipes from well-known organic chef Nora Pouillon, who is featured prominently on the package.
The dairy case in conventional retail is filled with commodity items that have little product differentiation. That's not true at natural foods retail. From European-style, sweet cream butter to eggs with added supplements and from goat's milk yogurt to single-serve, flavored soymilk, added value abounds in the fresh department, a trend that should continue.
Although the U.S. organics market may still have a way to go to catch international markets in organic prevalence and consumer acceptance, 2003 should be an active year for most segments of the U.S. organic foods industry and retail departments. "It hasn't been an easy process by any means," says Bruce Nierenberg, president of Mediterranean Organics, a new company based in New York that has itself filled in some open SKUs in the organic repertoire, sourcing organic capers, artichoke hearts and roasted red and yellow peppers. "But there's not much anymore that a consumer can't find organic."
Natural Foods Merchandiser volume XXIV/number 1/p. 28, 30