Lower prices around bend as organic goes mainstream
Target and Wal-Mart are leading the charge to more affordable products, as both announced an expansion of more than 100 organic and natural products.
Star Tribune (Minneapolis)
MINNEAPOLIS — For many consumers, the obstacle to buying organic food has always been the price.
“I would buy a lot more organic if it were cheaper,” said Eden Prairie, Minn., resident Brandi Erlendsson. “Now I buy organic fruits and vegetables just for my kids.”
But as mainstream grocers and food companies push more aggressively into organics, Erlendsson and other consumers who buy only a select number may soon get what they want — organic products at or near the price of conventional products.
Target and Wal-Mart are leading the charge. Both announced last month an expansion of more than 100 organic and natural products.
Wal-Mart said 91 percent of its shoppers would choose organic over nonorganic products if they were priced closer to conventional food.
Later this year, it will introduce the organic Wild Oats line as its exclusive private label at prices comparable to conventional foods. Customers will save 25 percent against comparable organic products, Wal-Mart says.
Even Whole Foods realized it can no longer lead the market with its high prices and profits.
“Competition is more intense right now than we’ve ever possibly experienced before,” said Whole Foods co-CEO John Mackey on an investor conference call.
The company has had to lower prices, although it has done so quietly to avoid any perceived decline in quality.
Supermarkets are enhancing their organic selections because, in addition to being more profitable, shoppers are paying more attention to health, said Tom Johnson, principal at PricewaterhouseCoopers in Minneapolis. “It will grow exponentially in the coming years. Organic is now becoming part of retailers’ commitment to wellness,” he said.
Sales of products labeled natural and organic grew 7.5 percent in 2012, twice the overall growth rate of conventional food and nonfood products, according to the Organic Trade Association.
Large food producers and manufacturers have been quick to hop aboard. Smaller brands such as Silk, Horizon, Cascadian Farm and Knutson have been gobbled up by larger companies such as General Mills, Smucker’s and Dean Foods.
A retail field that used to be dominated by smallish co-ops (and Whole Foods) is being integrated in supermarkets from high-end to low-end.
Experts attribute the buying shift mostly to kids.
Having children continues to be a principal trigger for buying organics, said CEO Laurie Demeritt of the Hartman Group market-research firm in Bellevue.
“Some consumers begin using organics while they are pregnant, while others enter the category once their child has transitioned to baby food or dairy products,” Demeritt said.
They’re primarily concerned with perceived negative health effects of growth hormones and antibiotics in meat and dairy, and pesticides in fresh produce and grains. Buying organics makes parents feel like they are protecting their children and acting responsibly, she said.
As organics go mainstream and prices drop, some insiders and consumers worry whether large companies are committed to doing organic “right,” Demeritt said.
Now that food companies have released organic versions of processed foods such as Oreos and mac-n-cheese, organic food is no longer tied as closely to good health in consumers’ minds. Organic foods with added sugar, corn syrup and unidentified ingredients dilute the appeal.
Others distrust the purity of organic food as it becomes more widely available. Some worry that big companies are trying to water down the U.S. Department of Agriculture’s (USDA) organic-labeling criteria. “Trust is a major issue with organics,” Demerritt said.
Cornucopia Institute in Wisconsin, an advocacy group that promotes economic justice for family farms, thinks Wal-Mart’s claim that it will have organic prices on parity with standard ones is dubious.
“Wal-Mart tried a similar program in 2006 where they sold organics at 10 percent more than conventional,” said Mark Kastel, director at Cornucopia. “They failed miserably.”
Kastel found that Wal-Mart was using organic factory farms, including using some sourcing of produce from China. Some of the products labeled “organic” were not organic, he wrote in a 2006 report about Wal-Mart organics, “Wal-Mart: Market Expansion or Market Delusion?”
He hopes Wal-Mart will use its logistical prowess to do things right this time and make everyone in the grocery industry more efficient, but he cautions consumers that private-label organic products (sold by Wal-Mart, Target, Trader Joe’s and others) are not in the spirit of the organic movement.
“People who buy organic want to know the story behind their food — who’s producing it and where, or how the animals are treated,” Kastel said. “The nature of private labels is anonymous.”
Despite its success over the past decade, no one expects organics to overtake conventional soon.
U.S. organic-food sales were $35 billion in 2013 according to the USDA, but it represented less than 5 percent of total at-home food sales. Organic sales are expected to grow 14 percent annually through 2018, according to a TechSci Research Report.