Private label offerings stand to gain
In the past, the organic category has been viewed as virtually recession-proof, growing at annual rates of up to 20 percent for more than a decade. That may begin to change as the effects of the current recession change consumer spending habits.
The organic sector may experience changes in the coming year, including a rebalancing of the supply-demand equation, slower growth and higher sales of private-label brands at the expense of national brands, as consumers seek to stretch their food dollars further.
"We've seen a shift toward newer house brands of organic products," said Rich Pirog, associate director of the Leopold Center for Sustainable Agriculture at Iowa State University in Ames, Iowa. "People are still buying organic products, but not that national brand name." In 2008, the largest organic product line in terms of total sales was Safeway's O Organics private label line.
In a national survey of consumers, the center found that 37 percent more consumers planned to purchase cheaper brands, and more than half planned to use more coupons and purchase more items on sale. Consumer perceptions also have an effect on shopping choices, and 55 percent of respondents said they expected organic food prices to increase more than conventional prices.
But that perception may not square with reality. The British organization Organic Monitor said falling manufacturer demand is already driving down organic commodities prices, according to FoodNavigator-USA.com, "Price trends are very cyclical," said Amarjit Sahota, director of Organic Monitor. "We do expect prices to stay down for a couple of years at least."
"Last summer, prices for non-organic goods were rising faster than organic prices, in part because of costs for synthetic pesticides and fertilizers on conventional crops," said Barbara Haumann, spokesperson for the Organic Trade Association, based in Greenfield, Mass. "I think we'll see sales continue at a healthy growth rate, though maybe down to single digits. People shouldn't see that as bad news, particularly when the economy itself isn't growing. Consumers may be shopping around, but they're definitely still buying organic."
If prices do go down, shoppers at traditional natural foods store may not see it. "You'll see more products and brands at the biggest retailers, and because of their commitment, there's likely to be downward pressure on single-ingredient products like milk, juice and eggs," Pirog said. "Will that show up at the natural foods store level? I'm not sure."