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July 18, 2023
Since the spring of 2021, dramatically rising inflation struck nearly every industry across the globe. In the United States, increases in the Consumer Price Index peaked at 9.1% in June 2022 but have slowed to an annual rate of 4.9% as of this April, according to the Bureau of Labor Statistics, which is part of the U.S. Department of Labor.
Overall, costs rose 16% between January 2021 and April of this year, according to the BLS inflation calculator, affecting pricing strategies, profit margins and more. Natural retailers faced myriad problems, as nearly all business-related costs—heating and cooling, purchasing inventory, paying employees and more—rose throughout the year.
According to the Market Overview survey, 70% of natural products retailers raised prices more than normal in 2022. Price hikes were less common in health food stores, with 48% raising prices, and supplement stores, where only 32% reported hiking prices more than normal. Nevertheless, profit margins remain tight.
Click download, below, for the charts related to this story.
Last year, slightly less than half of natural channel retailers reported lower margins, and 13% indicated that their expenses exceeded their revenue in 2022. This is in stark contrast to the 3% that reported losses the previous year.
As always, inflation plays a role in determining revenue growth during 2022. For example, according to SPINS data for the 52 weeks ending January 1, 2023, natural and organic food dollar sales increased 4.3% in 2022 for the stores reporting into their Natural Enhanced channel (a subset of NFM's natural & specialty channel), while unit sales fell by 3.7%.
The dynamic finds its most dramatic tension in natural and organic meat, fish and poultry sales—the only category to experience a volume increase in SPINS' Natural Enhanced channel last year. Consumer purchasing boosted unit transactions 0.6% in 2022, but total dollar sales increased 8.4%, SPINS reported.
While inflation rates detract from the overall growth picture, they also suggest new pricing standards. Brands and retailers are loathe to increase prices. But once they submit to financial pressures and mark up costs, prices generally don't sink again. If 2022's prices remain stable and consumer activity accelerates in 2023, year-over-year revenue for retailers
The 2023 edition of Natural Foods Merchandiser's Market Overview represents the 43rd year the magazine has presented statistics on store operations and the state of the natural products industry.
The primary vehicle for collecting data for the Market Overview is NFM's annual natural retail store survey. This survey was distributed to a representative segment of the natural products retail industry, including, but not limited to, natural products stores, health food stores and supplement stores. Approximately 230 respondents from various independent retailers reported the results of their calendar year 2022 operations. We are pleased that this is the strongest response we've had since the pandemic; however, the number of responses remains lower than historical averages because labor and supply shortages continue to disrupt the market and divert retailers' resources.
Total product category sales and organic sales figures were derived from statistical analysis of survey results across natural products retailer categories.
Data on mass-market sales and other sales channels are derived from several sources. In addition to the NFM survey, retail and consumer sales data is also compiled from Nutrition Business Journal market estimates, U.S. government sources, SPINS, IRI (now Circana), NielsenIQ, public company financial data, surveys published by other trade publications and other sources.
For charts and more data regarding inflation, profit margin and revenue growth, click download.
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