Natural products industry leaders reveal their 2021 outlooksNatural products industry leaders reveal their 2021 outlooks
If hindsight is 2020, then it’s anybody’s guess what 2021 will bring. And yet, that’s exactly what we asked these natural and organic products business leaders. Because if we can’t learn anything from the tsunami of the year that was 2020, then what’s it all for, one might ask? Read on to help prepare for a coming year of challenge and opportunity.
January 4, 2021
Russ Forester, SVP, Analytics and Insights, Hain Celestial Group: 'The pandemic is driven by health concerns, and our industry is primed to serve that'
Russ Forester is an 18-year veteran at the Hain Celestial Group where, as SVP of Analytics and Insights, he provides category management expertise and consumer insights to help drive the company’s growth strategy. The publicly held company, with more than $2 billion in annual sales, owns a number of leading natural and organic brands, and has benefitted from the pandemic-driven shift to at-home eating and the consumer’s renewed focus on health and wellness.
“This past year, we’ve seen a shift to e-commerce, but where we’re really seeing the growth is not in ship-to-home from UPS or FedEx, for example. It’s coming from ordering from local grocers; sales are shifting 10-15% to this model, whether it’s curbside pickup or Instacart-style delivery, even to the point where certain retailers’ in-store sales may be down, but when you add in the online ordering channels, the overall sales are growing,” Forester observed.
“To paraphrase the CEO of Instacart, what we thought would take five years of adoption rates happened in five weeks. The pandemic, while creating a financial crisis, is driven by health concerns, and our industry is primed to serve that. Food is medicine, and products with a functional or immunity benefit, such as the wellness tea category, are doing very well,” he said.
Forester noted that premium brands are doing well across all income levels. “People are not traveling or dining out as much, so they are treating themselves to premium food at home. For those who are doing well, they’ve got more disposable income. We’re also seeing lower income shoppers are increasing their dollars in premium products. People are trying to find new ways to keep their families fed and healthy,” he added.
For smaller brands, the pandemic has created greater challenges for product discovery. “How do you use marketing tools today to create trials?” Forester asks. “Traditional methods of trade and promotions may not be as impactful, making it harder to break out. It may be best to reach consumers through digital outreach,” he advises.
“Our industry has always looked to the health and wellness of consumers and the planet. The pandemic has brought health and immunity to the forefront, and it’s mainstreaming the natural and organic industry more than ever before, in a good way,” Forester said.
Steve Hughes, co-founder and CEO, Sunrise Strategic Partners: 'People are going back to the future'
As co-founder and CEO of Sunrise Strategic Partners, Steve Hughes guides investments in such leading healthy lifestyles brands as Vital Farms, Maple Hill Organic, Coolhaus Ice Cream, Kodiak Cakes, Little Secrets, Teton Waters Ranch, Pact, Kill Cliff and Califlor. The unprecedented pandemic has created a portfolio-wide inflection point for the company.
“We sell eggs, milk, pancake mixes, comfortable clothing you buy online … we’ve seen some extraordinary acceleration in our portfolio–from growth of 50% over the past three years, the COVID-19 pandemic has added about 20 points of growth this past year,” Hughes said. “People are going back to the future, and that will have stickiness; our better-for-you brands in three months got 18 months' worth of trial,” he said.
“For many big-box retailers right now, it’s about in-stock, not innovation,” Hughes quipped. “We’re seeing cutbacks so they can spread out on the essentials. That will be a headwind for emerging brands in 2021,” he observed.
“With that said, the real game changer for the future is what’s happening with direct-to-consumer (DTC) sales. DTC gives the consumer the option to buy not just what they want, but also what they may have never heard about. It’s going to be triple or quadruple what the growth was last year,” Hughes predicted.
“It’s going to be harder for a brand to break into natural products retail the old-fashioned way in the next 12-18 months. However, the next generation of brands is more likely to happen online, and when they get to be $10-20 million online businesses, then they can go to Whole Foods Market or other grocers and say we have so many people buying in your respective markets. It’s a whole new innovation model,” Hughes said. “Brick and mortar used to be the channel that led. Now, people will order online, and brick and mortar will follow.”
Gabe Nabors, CEO, Mustard Seed Market: 'At the end of the day, it's about being transparent'
“People are going to remember how they were treated in these times,” said Gabe Nabors, CEO of the two-store independent, family-owned natural products retailer Mustard Seed Market in Akron, Ohio. “It could be the simplest thing of talking with someone or thanking people. At the end of the day, it’s about being transparent with your staff and customers.”
Mustard Seed has had to continually pivot to serve its community while responding to the pandemic and safety and public health demands. Known for outstanding foodservice offerings, the retailer temporarily closed its restaurant when the county heightened safety restrictions, and converted the salad bar to a grab and go bakery set in its downtown location when nearby offices closed and lunch business dropped off.
The independent retailer also has had to contend with a lack of consistent product availability, Nabors shared. “We were getting an insane amount of out of stocks, so we reset aisles based on what’s selling well and what’s available. Out of stock items are still a problem, but we’ve mitigated it by changing up the sets and finding comparable products–and by communicating constantly with our partners. I would say communications with manufacturers and distributors are at an all-time high right now. And what worked last month doesn’t mean it will work next month–you have to monitor your own in-store trends faster than you ever had to before,” Nabors said.
Not one to stand still, Mustard Seed recently launched MustardSeedWellness.com to expand its ecommerce presence, plus plans are in the works to remodel its flagship store. “The focus will be on fresh new floors, redesigned prepared foods areas to allow for more grab and go, and an expanded meat department. We’re investing in some store improvements in 2021,” Nabors added.
John Raiche, EVP, Supplier Services, UNFI: 'The increased level of in-home demand will last well into 2021'
“Coming out of Thanksgiving week, consumers saw the grocery shelves were much more resilient than earlier in the year when the pandemic hit,” noted John Raiche, executive vice president of supplier services at leading natural products distributor UNFI.
“Consumers have maintained pantry loads since the early days, so that may be a reason why the effect is more subdued. However, when consumers see a fully stocked shelf, they feel better than if they see empty shelf space, which may prompt them to panic buy. Going into 2021, we are seeing suppliers doing a much better job of meeting elevated in-home consumer demand,” Raiche observed. “Beyond that, the critical questios for our retailers will be what happens when in-home demand returns to more normal levels.”
Raiche, who shared he is responsible at UNFI for “looking at all the what ifs,” noted that everyone–suppliers, distributors and retailers–is working at elevated levels, allowing much less room for day-to-day hiccoughs, such as weather and delays. He shared his concern that worker health could impact supplier production. “Manufacturers are doing everything they can, but if community spread of COVID-19 is widespread, they can’t control what happens outside their walls,” he said.
To better prepare, UNFI has altered its targeted safety stocks, bolstered inventory and is in close communication with its suppliers, Raiche said. “We stand ready at a moment’s notice to pivot and give suppliers the ability to deliver product. We host cross-functional team meetings focused on service level and how can we solve today’s challenge. Also, we are personally giving presentations to our retail customers to share what we’re seeing and projecting in the next week, month, six months, etc., so our customers understand what we’re seeing in the moment.”
Raiche predicts that demand will steady and service levels will continue to improve. “This week and last week have been the best service levels from suppliers we’ve seen since March–that’s a good sign. The good news for our country is that the vaccines are rolling out, but we don’t see it as a light switch. There is going to be a lengthy transition, and the increased level of in-home demand will last well into 2021,” Raiche predicted. “In the long run, if more consumers get comfortable with cooking from home, that’s great for our industry.”
Tracy Miedema, VP of Innovation and Brand Development, Presence Marketing: 'The system has been able to adjust'
“Even though we’re still in the midst of the pandemic, we know now that healthy food is critical to our health and wellness going forward,” said Tracy Miedema, vice president of innovation and brand development at leading independent natural products brokerage Presence Marketing.
Speaking of the huge spikes in absolute dollar growth of such mature categories as produce, baked goods, meat and dairy (plant-based meat and dairy alternatives, too, enjoyed unprecedented growth in 2020), “It’s hard to overstate how massive these changes are–the taxing and pushing of the food system. But the system has been able to adjust, shift volume from other places and produce this much more. The feat involved to flex and adjust our grocery system at this scale to adapt to the pandemic should leave us all in a state of awe,” Miedema said.
“How people think about groceries has radically changed since the pre-pandemic days when 50% of our food dollars were spent away from home. People have plowed that money into grocery shopping, and it has changed their minds about what food is worth. To me, that’s more than a little bit of upside–it points the way toward a growing consciousness of food that is vital,” she said.
“In the past, food was dominated by a small number of conglomerates and we were forced to eat middling food with simple carbs and processed oils. However, there’s been a massive fragmentation in food types and brands that’s been part of a 20-year trajectory. That fragmentation has led to the creation of nutritionally dense foods with features and benefits tailored to the consumer. Some of these upstart brand are less resilient and are being severely challenged during the pandemic. They should take heart that long-term wellness trends are on their side.”
Miedema also said that smaller and emerging brands that can learn to navigate change–and that can adapt to become “digitally native brands” may find new ways to succeed. “If you’re a small brand, you’re hoping that the right person finds you on the shelf, but if you’re also online, that person is searching for you. It can flip the ‘foot traffic’ in your favor,” she advised.
Jeremy Adams, Director of Category Management, KeHE Distributors: 'People want contactless options'
“As a distributor our goal is to service retailers and suppliers. Even with unprecedented demand, we were able to stabilize service levels in the summer and fall. As our industry spiked in demand, we were able to develop partnerships with food service distributors. As our demand increased and theirs declined, those partnerships to help with transport were key in helping us meet demand,” said Jeremy Adams, director of category management for KeHE Distributors.
“Also, as we got more into the quarantine phase we witnessed the emergence of the home chef and home baristas. With restaurants and travel shut down, the only indulgence was things people could prepare at home. As such, we saw a huge spike in high-end foods, international cuisine, spices, premium coffee and more,” Adams said.
With a heightened winter demand for soup and broth and other pantry basics, Adams noted that suppliers are doing everything they can to catch up with demand. “Some were able to ramp up, depending on how they source, if they manufacture themselves, or work with a co-packer,” he said. Also, while interest in home cooking has grown, “there is a need for quick and convenient meal solutions. From research we’ve seen, 40% of shoppers are interested in trying meal kits sold in stores. In the fresh aisle, in particular, there was a major shift from salad and olive bars to pre-packaged. The biggest trend is that people want contactless options,” Adams observed.
Adams also noted, with an increase in pet ownership in 2020, the pet products category has seen a lift in sales. “The jump in pet ownership will bolster demand in 2021 not just for pet food, but for all related products, such as supplements and toys,” he said.
“We were already seeing growth in healthy products; the pandemic just accelerated that. In some cases consumers may have been forced to try new products due to out of stocks, the good news is they’re becoming repeat customers. Like never before, shoppers are looking at brands in terms of their mission and vision–are they sustainable, woman or minority owned, do they give back, etc. That will continue in the future,” he said.
Jerry Stroobosscher, Director of Data Services and Analytics, Presence Marketing: 'People are staying at home more'
After the initial panic buying peaks in March and April, both conventional and natural grocery stores have seen sustained growth averaging 10-15%, “and we are continuing to see this growth in both channels weekly as we compare year-over-year growth,” said Jerry Stroobosscher, director of data services and analytics for leading independent natural and organic products brokerage Presence Marketing. “As we know, people are staying at home more, cooking at home more, and while it is conversely affecting the restaurants, realistically, we are going to see this continue through the winter,” he said.
As a data analyst, Stroobosscher and his SPINS cohort Michael Murphy are warning decision makers not to “freak out when we see negative growth numbers as we cycle against this past year’s numbers come March and April.”
Given all the unprecedented growth in 2020, comparing year over year growth in 2021 may be negatively impacted in both channels as the markets stabilize, they cautioned. “Once we start matching against a year ago, we are going to see some challenging numbers. The published growth rates may be worrisome to some, but understand that the channels themselves have expanded over this time frame, and we envision this to continue for a long time,” Stroobosscher said.
“The pandemic has broadened the definition of better for you products and how consumers look at the natural space in terms of building health and immunity,” said Michael Murphy, SPINS Onsite Manager with Presence Marketing. “We’ve seen a progression of consumers moving toward supplements, herbs and homeopathy.”
Of note, while data indicates that dietary supplement sales have dipped since March in the natural retail channel, conventional grocers have expanded their sales of vitamins and supplements. “Natural retailers may need to reevaluate their approach to dietary supplement sales as conventional grocers become a stronger player,” they advised.
Pat Sheridan, Interim President and CEO, INFRA: 'Regionally, things are different every day'
“One of the core reasons independent retail associations like INFRA (Independent Natural Food Retailers Association) and NCG (National Cooperative Grocers) exist is consolidating buying power. Our combined buying power certainly has been a differentiator during the pandemic,” said Pat Sheridan, interim president and CEO of INFRA.
With 280 independent retail members across the country, “supply chain disruption has been one of the largest issues for members,” Sheridan said. “Regionally, things are different every day. It eased in the summer, but has been picking up again this fall and winter,” he shared.
INFRA has helped its members find product and alternatives to replace what’s missing. “We’re rounding out the year successfully, but there are still a lot of challenges. There’s light at the end of the tunnel, but realism and science say we have a ways to go, which means we’ll continue to see disruptions in the supply chain,” said Sheridan.
Sheridan shared that INFRA has a national supply agreement with KeHE Distributors for center store categories, “and we have other supplementary national agreements specifically in wellness, and we also have some regional relationships in place that allow us to negotiate and manage supply chain on behalf of a larger group. Most of our members would have little leverage otherwise,” he noted.
INFRA also focused on increased communications with members, including education, webinars and updates. “Our communications allowed us to hear which regions the pandemic was hitting early on to help our members better prepare.” In addition, the consumer’s focus on wellness presents an opportunity for independent retailers.
“Before the pandemic, we identified a number of stores that were at risk, and now they are still in business. My hope is that the pandemic provided a lifeline to these retailers where they have been able to adjust and grow and hopefully have a longer life span. Our job as a cooperative of independents is to provide the relationships and tools for our members not just to survive, but to thrive,” Sheridan said.
Robert Agnew, SVP, Sales, Bob’s Red Mill: 'The demand was so great that it has been a challenge to keep up'
At Bob’s Red Mill, one of the nation’s leading providers of natural and organic pantry staples from baking flours to hot cereals, since the pandemic began, the company has been balancing 25-30% sales growth with worker safety and morale, said senior vice president of sales Robert Agnew. “By February, we will have added six new production lines. While we are at an 80% fill rate, we plan to be back up in the 90-95% fill rate range by then,” he said. “Fortunately, we had been planning to get ahead of capacity; however, the demand was so great that it has been a challenge to keep up,” he said.
Regarding worker safety, “We take it very seriously and do everything we can to keep our workers safe. It does affect your efficiency; everything slows down with social distancing,” he said. However, Agnew pointed out that the entire factory has been retooled over the last six years and the company is designing its production lines to be more efficient. “With 400 SKUs, we paused some items to be more efficient, including slow movers and duplications in size,” he shared.
Anticipating that the in-home cooking trend will continue, “We are very transparent with our customers and distributor partners,” Agnew noted. “Our company is able to get through this because of the relationships we’ve built over the years. That comes from founder Bob Moore all the way through the organization. I manage the sales team and it’s important to keep morale high and be in close communications with my team and the entire company, reminding them that everything does pass and we’ll get through this together. It sounds trite, but it’s true,” he said.
Agnew also looks forward to a return to trade shows in the future. “I’m looking forward to sore feet and knees, and interacting with my customers, colleagues and industry friends again.”
Blair Kellison, CEO, Traditional Medicinals: 'People care about their health and are willing to spend money on it'
Looking back at 2020, Blair Kellison, CEO of wellness tea brand Traditional Medicinals, referred to a quote in a holiday card he received from KeHE CEO Brandon Barnholt: “2020 was the year we learned our business is essential and our people are heroes.” “That quote summarizes the year for me,” Kellison said.
“If you’re a manufacturer, you were on the front line. Manufacturing businesses had to come to work every day–many of us could not work from home, we took no time off, and sales were skyrocketing. Whether it’s an economic downturn or the pandemic, when these things happen, people gravitate toward health and wellness products. When push comes to shove, people care about their health and are willing to spend money on it. That has supported our industry all these years, and when times are tough, it drives it faster,” Kellison said.
Kellison admits top brands are getting disproportionate attention from retailers right now. “Fill rates are important; retailers don’t have time and they seek reliability.” However, he also noted that for many companies, including Traditional Medicinals, it’s getting harder to introduce new products as retailers focus on best sellers and category leaders during the pandemic. “The hallmark of our industry is small companies, and yet it’s a hard time to launch innovation.” What Traditional Medicinals is doing is investing in IT and improving infrastructure. “You can’t get complacent; things will change back and you have to be ready,” he advised.
While Kellison anticipates that companies should prepare for more remote working in the future, he and Traditional Medicinals founder Drake Sadler have spent much more time connected and in the factory. “As the CEO, I began to work at the plant again, like the old days. Also, Drake and I were communicating much more, and being at the plant helped reinforce the connection with the front line workers,” he noted.
Kellison also predicted, “In-person appointments aren’t going away. They may be less often, but they’ll be more meaningful. As CEO, I would go on a lot of sales calls. I’ve flown, sat in lobbies for a 30-minute meeting. Now, with the digital tools at hand, I’m going on more sales calls than ever.”
Robyn O’Brien, Co-founder, RePlant Capital: 'There's a bottleneck in the supply chain'
“COVID-19 exposed vulnerability in the system and it is forcing us to build a better one. That starts with capital and how you deploy it,” said Robyn O’Brien, author of "The Unhealthy Truth" and co-founder of RePlant Capital. Launched with co-founders David Haynes and Don Shaffer, the $250 million fund is focused on providing loans direct to farmers and incentivizing adoption of regenerative agricultural practices that rebuild healthy soils and help mitigate climate change.
“Initially, we thought we’d create a fund to invest in projects from soil to shelf, but the more we understood the crisis in agriculture, not only can we provide financing for farmers transitioning to organic and regenerative methods, we can have a positive impact on financial, climate and human health. If, for example, a farmer transitions 7,000 acres in Indiana from chemical agriculture to regenerative, that farmer can save up to half a million dollars a year. Currently, we are working on an almond project in California’s Central Valley that will generate significant water savings. We need to do this at scale and with alacrity,” O’Brien said.
O’Brien pointed out that while 80% of consumers are trying organic products, only 1% of U.S. farmland is organic. “It became clear there’s a bottleneck in the supply chain, leading to manufacturers importing organic grains from such countries as Romania and Bulgaria. The majority of our farmland is chemically grown; the organic supply chain in America barely exists,” she said.
O’Brien shared that the lead investors in the RePlant fund are women–“From the food industry and the tech industry, most are mothers; also, some early investors, both male and female, are CEOs from the food industry. In addition, according to O’Brien’s research, “Five times more women than men are moving into regenerative farming. Also, parents are realizing that if they want their kids to come back to the farm, regenerative, organic agriculture and financial resiliency are ways to attract them. There hasn’t been a financial services firm focused on climate solutions through soil health. We want to focus on progress, not perfection, and meet the farmers where they are,” she said.
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