This time, are organics really going mainstream?
After slowing down during the recession, the organics business is booming again with Americans gravitating toward healthier foods. With Walmart, Kroger and others expanding organic assortments, and McDonald’s entering the fray, the category appears set to reach another gear.
According to Bloomberg News, Walmart is not only expanding its selection of organic foods with the launch of the Wild Oats label, but seeking to sell it at the same prices as non-organics. Market estimates currently place most organic products about 20 percent higher than non-organic options.
On its second-quarter conference call, Kroger officials raved that its Simple True organics and naturals label will reach $1 billion in sales only two years after its launch and expected to double over the next few years. CEO Rodney McMullen said, "When you think about a brand reaching that level in its second full year, not many companies can say that."
Meanwhile, McDonald’s, suffering its fourth straight quarter of declining same-store sales, said last month it was looking to sell more organic food as part of an upgrade to its offerings.
According to the Organic Trade Association, organic food and nonfood in the U.S. sales jumped 11.5 percent in 2013 after slowing to a 4.6 percent gain in 2009 amid the recession.
Wall Street continues to fixate on how organic’s broadening popularity affects Whole Foods, which faces heightened competition from mainstream retailers and niche chains like Sprouts and Fresh Market.
Claiming its efforts to lower prices and emphasize value are paying off, Whole Foods last week reported a better-than-expected fiscal fourth-quarter, leading to its strongest one-day share gain since July 2012. On its conference call, Whole Foods officials stated they believe the company is uniquely positioned.
"It’s true that natural and organic products are increasingly available in stores and online, yet no one does what we do," said John Mackey, co-CEO. "We hold the idea of food to a higher standard, banning more than 75 ingredients commonly found in other stores, and we believe our unparalleled quality standards and selection are a large part of why we maintain a broad base of loyal customers and attract new customers aspiring to a natural and organic lifestyle."
- Whole Foods Market’s Q4 Earnings Call Transcript – Seeking Alpha
- McDonald’s Q3 Earnings Call Transcript – Seeking Alpha
- Kroger’s Q2 Earnings Call Transcript – Seeking Alpha
- Wal-Mart Promises Organic Food for Everyone – Bloomberg Businessweek
- McDonald’s May Sell More Organic Foods to Boost Sales – Bloomberg Businessweek
- The growing popularity of organics is both good and bad news for Whole Foods – The Washington Post
- Whole Foods Gains Most Since 2012: Are Investors Too Optimistic? – Barron’s (sub. required)
- Kroger CEO sees organics as ‘billion dollar brand’ – Cincinnati Business Journal
Is the organic pie growing fast enough for the many competitors going after the market? What factors will likely drive the next phase of growth for the organics category?