REPORT SHOWS ORGANIC/NATURAL CATEGORY TO HIT $47 BILLION

LONDON -- A new report from Datamonitor indicates the U.S. market for natural foods and beverages will more than double its current dollar volume, to $48 billion by 2007.Of that, the majority of the increase will come from sales of certified organic items. The market analysis firm predicted sales of such items will increase from $11.6 billion in 2002 to more than $30 billion within five years. Expansion

LONDON -- A new report from Datamonitor indicates the U.S. market for natural foods and beverages will more than double its current dollar volume, to $48 billion by 2007.

Of that, the majority of the increase will come from sales of certified organic items. The market analysis firm predicted sales of such items will increase from $11.6 billion in 2002 to more than $30 billion within five years. Expansion of the natural foods market in the United States will far surpass that in Europe, where sales are expected to hit only $16 billion by 2007.

Growth will be propelled primarily by a continuing loss of confidence in the consumer packaged goods industry, as well as increasing consumer consciousness of food safety, production methods, and the environmental impact of conventional production methods, Datamonitor found.

"Research indicates that more than 50% of consumers trust organic and natural products more than conventional food and drinks," said Daniel Bone, a Datamonitor consumer markets analyst and co-author of the report. "This provides a rationale for marketers to continue their efforts in this sector."

The majority of organic product consumers are between the ages of 25 and 55, peaking between 36 and 45. The report noted that key life events, such as childbirth, serious illness and aging, also spur organic food and beverage purchases.

Against this promising backdrop, however, looms the continuing threat of prices. According to Datamonitor, growth of the U.S. organic market is being tempered by high price points, which represent one of the most critical deterrents to purchases. While there may be great interest -- even desire -- to buy organic and natural foods, many consumers remain unwilling to pay current prices for them, Bone observed.

"This suggests that, while opportunities are open for manufacturers and retailers, educating consumers on the benefits of organic and natural food and drink is vital," he said. "Otherwise, marketers are going to find it increasingly difficult to justify the current premiums."

Datamonitor's researchers advised manufacturers and retailers to limit price premiums from 10% to 20% above conventional food and beverage counterparts. "Effective imagery and branding will become vital, especially in attracting new consumers," Bone added.

The study detailed other obstacles to market growth, such as consumer perceptions about taste and quality. The taste, texture and related elements of organic and natural foods have yet to be proven to consumers, the study found. Bone said this indicates the need for marketers and retailers to provide a clearer understanding of the nutritional and health benefits of these items, and appeal to higher purchase motivators.

"Consumers must be better educated about organic foods and their benefits to their health and the environment," he noted. "Only this will impact perception of, and attitudes toward, the current high prices, and may help argue the case that consumers are getting a good deal when their efforts toward human, animal and environmental health are factored in."

A Look Ahead

The future of the organic market looks promising, and is seen as the primary growth vehicle in the larger natural food and beverage category, particularly in the United States.

Country: 2002 sales ($B); 2007 sales ($B); % Growth (annual compound)

United States: 11.6; 30.7; 21.4

Spain: 0.3; 0.6; 19.3

Sweden: 0.3; 0.7; 17.3

Other Europe: 1.6; 2.8; 10.9

Germany: 3.5; 5.7; 10.3

United Kingdom: 1.7; 2.7; 10.2

Netherlands: 0.4; 0.7; 9.6

France: 1.3; 1.9; 8.6

Italy: 0.7; 0.9; 4.5

Total U.S. & Europe: 21.5; 46.7; 16.8

SOURCE: Datamonitor