Natural and organic foods and beverages full steam ahead

Are Kroger and its Simple Truth store brand the next big thing in natural and organic foods retailing?  One of them, it very much appears.  The marketplace for natural and organic foods and beverages is undergoing tremendous expansion and change. At the retail level, while Whole Foods Market remains the dominant natural foods supermarket chain, it is being challenged by Trader Joe’s and by No. 1 supermarket operator Kroger Co. Kroger—which maintains almost 2,800 stores across the country under regional banners including Kroger, Ralph’s, and Harris Teeter—now sells about $11 billion in natural and organic products annually, making it the third-largest player in the market after Whole Foods and Trader Joe’s.

Meanwhile, major food companies and private equity firms are buying or making large investments in natural and organic food and beverage companies, drawn by attractive consumer demographics, a higher growth rate than conventional foods, and a healthier aura. In July 2016, Danone SA of France announced that it will acquire WhiteWave Foods Co. in a $10 billion deal, doubling the size of Danone’s U.S. business and making it the world leader in organic foods. General Mills claims it is now the third largest natural and organic food maker in the United States, its largest natural and organic brand being Annie’s, acquired in 2014. In addition, responding to consumer demand for more company transparency and cleaner formulation, big brands are overhauling products and portfolios in hopes of winning over natural-leaning consumers.

A steadily growing agricultural component is also helping to make organic foods and beverages more widely available to consumers, with several major companies now helping farmers switch to organic. Since 2009, General Mills has increased the organic acreage it supports by 120%, and in June 2016 the company announced a partnership with Organic Valley, the nation’s largest dairy co-op, to help 20 dairy farms add approximately 3,000 acres to organic animal feed production.  Kellogg is working with third-party certification company Quality Assurance International (QAI) to support a new program called Certified Transitional, which is designed to provide a market for products from farmers who are transitioning their farmland and crops from conventional to organic; the first Certified Transitional product to come to market is a breakfast cereal from Kellogg’s Kashi subsidiary. Nature’s Path purchased 6,600 acres of land in Saskatchewan and Montana to grow organic grains for its cereals, and Clif Bar recently contracted a conventional fig grower for seven years to change to producing organic figs.  Major retailers, too, are doing their part to boost organic supply.  Kroger and Costco have each taken the extraordinary step of investing in farms to ensure long-term supply of organic products. Kroger is helping to convert a dairy farm to organic milk production, and Costco has purchased cattle and contracted with owners of organic fields in Nebraska to have ranchers raise the livestock for its organic ground beef program, and lent money to a fresh produce supplier to buy equipment and 1,200 acres of land in Mexico.

At the same time, today’s core consumer values center increasingly around what the natural/organic foods and beverages market has been offering for years—freshness; wholesome, healthful ingredients an foods; clean labels; transparency of ingredient sourcing, manufacturing, and labor practices; and eco-conscious/sustainable practices, packaging, and business models. Packaged Facts’ July-August National Consumer Survey reveals that over two-thirds (36%) of U.S. shoppers go organic and over two-fifths (42%) opt for natural foods and beverages (42%) when shopping for food. Nearly half (48%) of those polled agree with the statement, “A good selection of organic fruits and vegetables is an important factor in where I choose to shop for groceries,” and 43% want stores to have a good selection of organic packaged foods and beverages.  In other words, when it comes to determining where consumers grocery shop, organic foods and beverages can be a game-changer.

Learn more about this burgeoning industry in our completely revised report, Natural and Organic Foods in the U.S., Fifth Edition.

-- by Susan Porjes