PLBuyer: Choose Your Categories Wisely

I've noticed some of the focus shifting away from organic category expansion to the more value and discount oriented SKUs. Obviously a result of the shaky economic conditions. It is hard for consumers to feel like they are getting good value with organics. Smaller packages with higher prices don't usually fare too well when everyone is trying to squeeze out the most mileage from their grocery dollar.

Doron Levy, President, TheMortgageMachine.ca

The American consumer is all about helping with causes and good health too, as long as it's not inconvenient or more expensive. Organic will slow down in a poor economy if the cost for organic is directly or indirectly more expensive in regards to faster spoilage, higher pricing, etc.

David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

We will definitely see a leveling off in the organic market in the coming months--especially with the holidays around the corner, and many mouths to feed.

However, in a rough economy, prioritization of spending is paramount. For many families who can afford it, buying hormone-free meat and dairy for children is a priority. We've seen that, with the exception of hard-core greenies, many parents place less emphasis on buying organic foods for themselves.

Liz Crawford, President, Crawford Consulting

I see a slowing in the rate of growth, but the growth is still ahead of the mainstream. So I'd look at individual category behavior, and proceed accordingly. Clearly, some areas are still growing well, and others are relatively flat. Most recent Nielsen numbers I could find, for 52 weeks ended July 12, 2008, (food/drug/mass except Walmart) show organics up by 23.6% in dollars, 21.0% in units and 20.0% in equivalized volume. That's a bit down from the 2007 period (dollars up 26.5%, units up 20.5% and equivalized volume up 16.5%), but some of this perhaps could be explained by Walmart's entry into organics. Just for point of reference, the 2006 numbers were, respectively, 29.2%, 23.7% and 19.1%. And, in 2005, 20.2%, 14.2% and 16.1%.

I've heard everywhere that people drop "sustainability" like a hot potato when the economy gets bad, and I think that's true. But I think it is less true for organics, where I remain cautiously bullish, given the Nielsen data.

Warren Thayer, Editor & Managing Partner, Frozen & Dairy Buyer

There seems to be a sense that Certified Organic products are losing ground in some categories, more so in the grocery sections. Shoppers intuitively understand the value of organics in many of the fresh items--no residual pesticides in fruits and vegetables, natural fruit juices, the hormone and additive free dairy and meat products described by Warren Thayer. To many shoppers, organic may mean no preservatives or artificial colors and flavors are used in preparation. When it comes to shelf stable products, which consumers understand are processed in large volume, the perception of greater value for organics is not as well received.

There can be a tremendous difference between a Certified Organic product, and something similar marketed as "natural," in terms of content, cost, manufacturing, shelf life and marketing. Shoppers are attracted to the "natural" halo in some categories, like personal care, pastas, snacks, soups and sauces, etc. Some retail marketers have done well with their line of "healthier foods" which focus on better for you: lower in fat and sugar, but many also promise that only natural ingredients are used, not "chemical" stabilizers and additives. This is a very fine line from a regulatory and food science standpoint, but the trust in the brand will make the difference. Do consumers want healthier products? Definitely--but they are quick to examine the labels closely to determine value for money depending on the category.

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

As has been said recently, "a recession is a terrible thing to waste," and a good merchant's upcoming actions on organics may best exemplify that. As price is obviously critical to consumers, wouldn't this be the best time for retailers to drive growers and manufacturers at every turn and make organics affordable and subsequently, high value?

Look at what Safeway's done with their O-organics line. Now, ad affordable to that (slow down the margin machine a bit) and you've got a new high value category. And when this type of economic mindset subsides, which it will, you could possibly be sitting on top of the organic hill (visuals needed), vs. just giving it back to Whole Foods.

Lee Peterson, EVP Creative Services, WD Partners

It should come as no surprise that organic sales have hit a bump in the road. Food at home inflation was 7.6% in September, year over year, and, for September vs. July 2008, food at home prices were up 1.3%. And although gas prices have declined sharply in the past month or so, they are still 39% over those of a year ago (as of mid-October). Consumer pocketbooks are seriously stretched.

In addition, the economic news of the past three weeks has cast a pall over almost everyone, and careful spending to stretch available dollars has become a consumer trend. Organic products are vulnerable to cutbacks in consumer spending because they are generally more expensive. For example, in a northern New Jersey supermarket, organic fat free milk is $4.49/64 oz. The comparable regular fat free milk is $2.89. Organic baby cut carrots are $2.49/1 lb., while the non-organic is $1.79/1 lb. Not all the differentials are as dramatic as these, but in most cases, the organic product will be more expensive.

Although organic purchasers want to do right by their families, rising food and fuel prices and horrendous economic news are forcing consumers to address a budgetary reality. The result will likely be a cutback on organic purchasing; indeed many retailers have noted just such a development. Organic sales won’t go away because this is product type that has attracted a very dedicated core of consumers who will continue to buy organic no matter what, but sales of such products overall will likely be taking a hit for some time to come.

Roy White, Business Development Executive, RetailWire

Fresh Markets laying off workers. Wild Oates had to be rescued by Whole Foods. Now Whole Foods appears to be in deep trouble, canceling new stores, stock crashed, and dividend eliminated. Yes, I'd say its more than leveled off. Safeway is pushing their "O" label but Safeway has either arrived late for the dance once again, or very early for the next one. The economic fears are one factor. Another factor is consumers haven't magically become healthy overnight by eating organics.

David Livingston, Principal, DJL Research

As an ad guy, I watch the advertising. When is the last time you saw an image/brand ad (not a retail ad) for any food product that positioned "organic" as the unique selling proposition or attribute? Ever? Is it because the term is so meaningless?

M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Organics are being slammed by the world's economic troubles and they'll be slammed again when scandals about organic fraud get more publicity. But the long-term trend is clearly established. For those with the bucks, that's what they want. Especially for children.

Ironically, the organic movement won't slow down their opposites. People also love the stuff that's "bad." In the past 12 months, McDonald's stock is down less than 10% compared to the S&P's 40% drop.

Mark Lilien, Consultant, Retail Technology Group

The Hartman report showed that "fear factors" motivate consumers to purchase organics. This group of consumers is looking to avoid pesticides, antibiotics, preservatives and hormones in highly processed and fresh foods and beverages. So there's plenty of room to market organics to consumers, even with a leveling off since 2006.

For retailers, combining "local and organic" components are key to future product growth along with good pricing and good sales.

Odonna Mathews, President, Odonna Mathews Consulting