TO HAVE AND TO HAVE NOT
The recession is forcing consumers to make tough choices at the grocery, with many deciding that pricey organics can be left on the shelf. The industry is saying goodbye to its rapid growth years.
BY ROBIN DOUSSARD
On a mid-week night in late November at the Whole Foods in Tigard, there is none of the usual bustle of post-work shoppers, well-heeled suburbanites or time-stressed parents picking up deli food. It’s quiet, so quiet a checkout clerk confides he is worried about layoffs.
This national retailer of high-end organics isn’t the only organics player feeling the pinch of consumers tightening their money belts. Industry experts are reporting a slowdown in organics purchases nationally, and even Oregon’s devotion to organics hasn’t kept the downturn at bay locally.
“It was very robust through September, but at the beginning of November, we saw a serious softening in the market,” says Josh Hinerfeld, CEO of Eugene-based Organically Grown, the largest wholesaler of organic produce in the region. Hinerfeld says sales were up more than 10% year over year through September, but in November they started dropping and he expects they will be down compared to the previous year.
Annie Hoy, the outreach manager for the Ashland Food Co-op, the largest certified organics retailer in the area, says growth next year will come from price increases, not increased sales. “Overall, we’ve seen a slowdown in sales. Our growth for 2008 will be in single digits, instead of the double digits of before. It’s the same number of customers, but they aren’t buying as much.”
“Two years ago we were already finding that consumers were making tradeoffs,” says Laurie Demeritt, president of the Hartman Group, a Seattle-based research firm that tracks consumer habits. “The glory days of [organics consumers] experimenting across all categories are falling off. The downturn has crystallized what they value, and that is primarily in the perishables and dairy and meat.”
Americans spent $16.7 billion on organic food and beverages in 2006, a 126% increase in just five years, according to the Organic Trade Association, an industry trade group. But with organic food typically 20% to 100% more expensive than conventional food and with overall food prices expected to rise 3.5% to 4.5% this year, the organics shopper is thinking twice. In response, the OTA in late November announced an “extraordinary” consumer marketing and PR campaign aimed at more than 25 million consumers to educate them about the benefits of organics.
For an industry that has seen about 20% growth year over year, it’s a sobering change. A late 2008 report by the Nielsen Company, a national independent research company, says the sales drop that started this past fall could be the start of an “organics growth plateau” and that many analysts think organics sales will slow to about 5% to 10% yearly growth. The Natural Marketing Institute estimates organics will taper off to 10% growth this year and be at 5% by 2020. And while neither the state nor the OTA breaks out figures just for Oregon, major retailers and wholesalers here report a significant drop in sales that started in November, with growth projections — and downturns — mirroring the national figures.
ORGANICS CONSUMER PROFILE
Consumers with household incomes of $70,000 or more are more likely than other consumers to be organics users. But 52% of all organics users have a household income of less than $50,000.
The organics consumer spends an average of $127 on their weekly household grocery bill – 10% higher than the national norm of $115.
These shoppers are 19% more likely than the national average to be ages 18-34 and 13% more likely to have two or more children at home.
SOURCES: Nielsen Company, Hartman Group
Lisa Sedlar, president of Portland-based New Seasons Markets, says shoppers in her nine stores are definitely making choices. “We are seeing some people say organic is a luxury and not a necessity. As they look at their grocery budget, some are saying they can’t shop organically.” According to the Hartman Group, about 60% of consumers cite organics being “too expensive” as the reason they don’t buy them.
“It’s not organic that’s hurting, it’s overpriced organic that’s hurting,” says Charles Redell, a writer with Sustainable Industries magazine. On the supply side, what this means to Redell is that “we’re going to see more industrial organics flourishing. Some of the more specialized organics that cost more are going to hurt.”
Chuck Eggert, founder of Tualatin-based Pacific Natural Foods, agrees.
“Organic by nature isn’t more expensive. In some of the core commodity items, they are competitive.” Eggert says his volume and customers were up for 2008, but he’s also not sure what growth will be like this year.
“You can’t charge huge premiums,” he says. “We’re always trying to be price competitive with mainstream groceries. If you do that, the industry will be fine.”
Organic Valley’s chief marketing executive, Theresa Marquez, says sales in the Pacific Northwest have slowed. She says the Wisconsin-based Organic Valley, the nation’s largest organics co-operative, projected 26% growth in the Pacific Northwest for the last quarter of 2008, but will hit only 8%. “For sure, every business and food sector is hurting,” she says. “It isn’t just that people don’t have disposable income, there’s a fear pulsating through the country.”
The West Coast has been a stronghold for organics buying. Scarborough Research in 2007 ranked San Francisco, Seattle and Portland as the top three cities for organics purchases. In Portland, the study showed that 27% of adults bought organic foods vs. 17% nationwide.
An October 2008 report by the Hartman Group on consumerism and sustainability noted that individual responses to the economic downturn largely depend on how committed a consumer is to sustainability as they balance their budgets against their values. Consumers more committed to sustainability are less likely to decrease their spending on those products, making cutbacks instead on other things, like recreation. Tradeoffs that occur in response to the economic downturn are more likely to be items viewed as less essential. Food, personal care products and household cleaners remain consistent purchases, according to Hartman.
Lisa Sedlar says at New Seasons organic milk is still a strong buy, but not organic cereal. Sales of perishables remain high and she says shoppers are buying more bulk items, ground beef and cheaper wine. Annie Hoy from the Ashland Food Co-op also says bulk sales are “through the roof,” along with a spike in deli sales. She reasons that if people can’t afford to go to a restaurant, the deli is a cheaper treat.
One way those committed to buying organic save money is to buy private label, or store brand, goods. Those private label organics have exploded and are an increasingly large threat to branded organics lines. According to Nielsen, 20% of all organic sales are private label. Fred Meyer spokeswoman Judi Swift says their new line of private organics launched this year is doing well and that when organics are on sale, they sell briskly. Whole Foods produce specialist Dave Snider reports that the store has seen more shoppers buying the 365 Everyday Value items, such as organic bagged apples and bagged potatoes.
For retailers such as the Ashland Food Co-op and New Seasons, it means trying to help their customers cope with a tighter pocketbook and not abandon the organic choice. New Seasons in October launched classes on how to stretch grocery dollars and the co-op is teaching people how to cook.
“It’s going to be kind of like it was post 9-11,” says Hoy about the economic hardships to come in the year ahead. “You want to nest and be with your community. In times of trouble we turn to the things that are comforting: comfort food and the comforts of home and family and community.”
No one expects organics to go away, especially in Oregon where the past decade has seen the explosion of organic farming, farmer’s markets, and strong connections between growers and schools, restaurants and consumers. Nielsen estimates that by 2020 organics will comprise 13% to 27% of U.S. pantries and 68% of U.S. food companies will have one or more organic products, and that by 2025, “organics will be sold anywhere and everywhere.”
“The thing that is so interesting to me is that some people are looking at this bad economy as a short-term thing,” says Lisa Sedlar. “So they are making decisions on a short-term basis. But we have to take the long view. There is more to organics than just the price point.”
“Are we seeing people bail from organics? The core base is still strong,” says Theresa Marquez. “Organics is not a craze; it’s a lifestyle, especially in the Pacific Northwest.”
But there are no guarantees that a prolonged recession won’t further hurt the organics industry.
“If this goes into the next year, the behaviors will affect the whole supply chain,” says Josh Hinerfeld from Organically Grown. “The large growers will do fine. The small to midsize grower faces more risk.”
Have an opinion? E-mail