PL Buyer: Organic Store Brands Save the Day
By Denise Leathers
Through
a special arrangement, what follows is a summary of a current article
from Private
Label Buyer,
presented here for discussion.
After posting
double-digit gains during each of the past five years, the organic segment
appears to have run out of steam, thanks to an economic downturn that
left even eco-conscious consumers short on cash. According to The Nielsen
Co., unit sales of prepackaged UPC-coded organic foods and beverages
in U.S. food, drug and mass merchandise outlets, excluding Walmart, edged
up less than one percent over the 52 weeks ending July 11, while dollar
sales expanded 5.1 percent.
But the modest
gains didn’t come on the national brand side, where organic food and
beverage dollar sales actually decreased almost a whole percentage
point. Instead, the increases came courtesy
of store brands. According to Nielsen, dollar sales of store brand organics
jumped a whopping 32.6 percent over the past 52-weeks, pushing private
label’s dollar share of the $4.4 billion organic marketplace (prepackaged
only) to 22.6 percent — up from 17.9 percent a year ago and 13 percent
the year before.
While private
label’s growth during the recession has been well documented, such strong
gains among what are often the highest-priced store brand options have
come as a bit of a shock to some. But not “Chef Drew” Starkweather, CEO
of Drew’s All Natural.
“For people
who’ve eaten organic for the past five or 10 years, it’s a way of life,
and not something they’re willing to give up,” regardless of a financial
setback, he explained.
Sure, the “dabblers” might
return to conventional non-organic products, he continued, but core organic
consumers will find a way to keep eating organic. And for many, that
means less-expensive store brand alternatives.
Of course,
increased availability is one of the keys to private label’s growth over
the past year. The majority of large conventional retailers now offer
a natural and/or organic private label program.
“There’s been
a perception in the industry that you’re not a ‘full-service’ retailer
if you don’t have an organic private label offering,” especially over
the last year or so, said Doug Baker, vice president of sales at Federated
Group. This perception is prompting even unlikely sellers such as Houston-based
wholesaler Grocers Supply Co., which caters mostly to Hispanics, to add
Safeway’s O Organics program to its lineup.
“In some markets,” explained
Mike Hackbarth, director of private label at The Fremont Co., “offering
natural and organic store brands is a matter of survival. You have to
offer those kinds of products – and not just in a little specialty set
either – in order to keep certain consumers from abandoning your store
in favor of specialty retailers” (such as Whole Foods and Trader Joe’s).
“Organic may
not have hit ‘critical mass’ just yet,” added Nima Fotovat, general manager
at Shandiz Natural Foods, “but, clearly, it’s not a fad; it’s here to
stay… And retailers know it.”
Discussion Questions:
What’s driving the recent success of store brands in the organics/natural
opportunity? What can stores be doing to take their organic/natural
offerings to the next level? On the other hand, what should national
brands be doing to recapture the organic customer?
Store brand perishables (organic or not) aren’t really “private labeled” as much as they are “retailer controlled” and retail branding of perishables is getting high marks from consumers. Not really a surprise here, just another facet to a long-term change in consumer behavior toward brands.
I suppose the short answer is simple…lower prices give consumers the sense they can “have it all”–organics at a reasonable cost.
But there’s more to it, I think. Recent events have awakened consumers to the fact that whatever the brand label on the product, more often than not ingredients are sourced from similar places. The melamine pet food disaster comes immediately to mind–affecting ‘trusted’ brands like IAMS and store brands alike. And obvious pricing problems and ‘political missteps’ on the part of iconic Whole Foods Market has eroded consumer trust as well.
So I think the mind of the consumer is “if I can get something organic at a reasonable price, I will do it.” The national brands will have to price more sharply, or they will miss the trend they started in the first place. Store brands = commoditization, and there’s no reason we can’t have organic commodities.
Across the board, consumers appear to be willing to switch to store brands when the quality of the store brands is close to the quality of private label products. To see this switch in organic foods is not surprising. In fact, most produce is not private labeled so when purchasing apples or broccoli, most consumers trust the produce provided by the retailer. So, when the retailer provides quality organic products, it is not surprising that consumers purchase these items.
A good part of the disproportionate gains are due to the change in how store brands were distributed and merchandised in the last year. In short, they are now on every shelf in every aisle, instead of being relegated to unusual locations where they had to be searched out. “O” is a mainstream product line now, and is not associated only with Safeway in consumers’ minds.
Private label “organics” could well end up boosting brands of “organic” products down the road, as they serve to build the category.
Organic products have become increasingly available, lower in price, and more readily accepted by a broader group of consumers. However, “price,” “selection,” “location,” and “quality” still trump other key reasons that consumers choose their grocery/mass merchant grocery shopping experiences. Those factors are likely accountable for the decline of brand organics.
In the Consumer Intentions & Actions (CIA) Surveys of August, 2008 and 2009, the 8,500+ Adults questioned about organics stated:
— Buy organics regularly, 8.2% in ’09 vs. 9.9% in ’08
— Buy organics occasionally, 52.6% in ’09 vs. 54.0% in ’08
— Never buy organics, 39.5% in ’09 vs. 36.0% in ’08
Of Adults who buy organics regularly, 51% said they are buying more in ’09, while 55.4% said they were buying more in ’08.
Of those who buy organics regularly, fully 39% said it was a key reason that they shop a particular store most often. That, however, is down 3 percentage points from 2008. In the meantime, “price,” “selection,” “location,” and “quality” are moved up in importance by 3 to 5 percentage points.
For some consumers, “organic” still has a premium to it, whether they consider it “better” or “healthier” or “greener.” Being able to have these things–and at a perceived lower price–is a quick and attractive value proposition.
So it makes sense that the growth has been there.
We should also consider that there is no mainstream national organics brand that stands out. Private label organics brands help consumers navigate the way any other brand does and offers unique opportunities for retailers and consumers alike.
I think we need to be careful of definitions here.
There are several ways that products can be described according FDA regulations:
– A product can be labeled “organic” if 95% of its ingredients are organic. (i.e coming from a farm that is certified by the Department of Agriculture–a certification the farmer has to pay for.)
– A product can be labeled “made with organic ingredients” if at least 70% of its contents are organic. (The other 30% could be anything.)
– Products can also be labeled “All Natural” which is a term that is completely unregulated and therefore pretty meaningless.
In order to really evaluate the effectiveness of store branded “organic” foods, one would need to know precisely what foods and how they’re being labeled.
If in fact true organic sales are suffering at the hands of products that are “made with organic ingredients” or “all natural” then it’s not a fair comparison. Pardon the analogy but it would be like comparing apples and oranges.
For the organic shopper, more important than the words “Cascadian Farms,” “Amy’s,” “Horizon,” et al, is the word ORGANIC. For the shopper, organic is organic. The brands are not considered “more organic” than the private label.
One of the possible reasons that store brand organics are increasing is that they have been better at positioning the products. Shoppers know they cost more, but also have had mixed experiences with product consistency and and taste.
Retailers like Safeway, Publix, Loblaws, and others understand their core shoppers and develop product to fit their profiles. They also have targeted well with separate tiers, e.g., several organic brands for children have been introduced–resonating with loyal PL shoppers who believe organics are better for their children.
I agree with many of the comments. Specifically that to the consumer, “USDA certified organic” is what is intended to become a standardized means of growing/processing with little variation, i.e. a commodity. So why wouldn’t the consumer buy on price? I mentioned this very point in a recent article in Organic Processing magazine.
Organic brands cannot rely on the fact that they are organic as a differentiator any longer. To survive, each must leverage more traditional branding strategies that cultivate a relationship with consumers promoting loyalty. The fact that organic has expanded beyond the shelves of the “health-food” store reaching a much larger audience of buyers is great for the organic industry. But these brands must be vigilant to support their message and the significance of what organic stands for.
The confusion surrounding “all natural” is very significant to this point, the meat industry co-opted the key benefits of organic (free of anti-biotics and hormones) and ultimately displaced organic meat even in Whole Foods where you can only find organic beef outside the butcher case in the pre-packed section. This same trend can and will occur in other categories as consumers begin to equate organic with a few attributes rather than the greater principles the organic industry was founded on.
Retailers need help, and further elevation of store brands is the key to their future. One reason retailer brands have not yet taken their full share of the pie is that retailers have not yet optimized in-store brand development and have not yet “told the story” about their brands as fully as possible.
Retailers have done a wonderful job with packaging and quality but most have not used the power of their own real estate as a medium to build brand equity. They have the final say over in-store communications and environmental experience; it’s time for them to use those assets to a greater degree to drive their own brand sales. It’s especially valuable when the audience is searching for alternatives as demonstrated by the commitment of the organic buyer to stay loyal to the product despite the brand.