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Warning Signs for Organic/Natural in New Data?

Warning Signs for Organic/Natural in New Data?

The organic/natural sector is closely tracking the economy's lingering impact on its business, and a new survey offers some surprising findings.

First, it shouldn't be surprising why this sector is following the economy so carefully. Its products, particularly organics, tend to be higher-priced than average, a hurdle in these thrifty times.

The new survey is from the latest issue of Modern Baking, a sister B2B publication at Penton Media, which is also the parent of SN. MB's just-released in-store bakery survey, produced every other year, found a sharp drop in the percentage of in-store bakery operators that offer organic and natural items. In 2008, that percentage stood at 69%, while this year it had fallen to 33%. Moreover, only 10% of ISB operators reported sales gains from organic/natural, compared with 38% two years ago.

Granted, this survey reports on only a small piece of a supermarket's business, but these are big drops so the reasons must be analyzed to determine how broadly the bakery findings can be applied to organic/natural in general.

I conferred with two resident experts here at Penton for their input: Katie Martin, MB's chief editor, and Bob Vosburgh, editor of SN's Whole Health supplement and Refresh blog.

The most obvious explanation for the survey's finding is economic. Many ISBs abandoned the pricier organic segment during the long recession.

But there's another wrinkle to this. Increasingly commercial baking aisles are seen as cheaper destinations for these products than ISBs. Moreover, even those aisles are finding the need to juice up their organic/natural presentations. That's because these products aren't necessarily viewed in the same unique way as a few years ago. As a result, more value-added products are showing up that combine a feature like organic with one such as gluten free or added omega-3s.

The net result for many ISBs appears to be the loss of the organic/natural business segment. But is that really the primary result? In fact, ISBs are rethinking their overall draw and gravitating more to categories such as artisan breads, niches like gluten free, and indulgent products.

“They are coming to terms with the fact that bakery products are what they are — they must taste good,” Martin said.

Meanwhile, the lessons for organic and natural products overall are that price really matters (no surprise there), especially for shoppers in mainstream outlets, and that the business will find a new balance at retail. In some cases it's being redistributed among in-store departments. It's also relying on value-added components to improve sales. “The recession put a stop to uncontrolled expansion of natural and organic, and it's now being reset,” Vosburgh observed.

While long-term growth is still likely, the full picture won't be known until all the clues are pieced together from departments across the supermarket.

Meanwhile, the study produced findings for products beyond just the organic/natural realm. Here are some samples:

• Whole grain/whole wheat products held their share at ISBs, with 86% of respondents offering these items and 62% citing sales increases, in both cases almost identical to the findings of two years ago.

• Gluten free is providing a bigger boost to ISBs. Some 38% of respondents said their outlets carry these products, a couple of share points higher than in 2008. More importantly, 33% said these items provide a sales lift, significantly higher than the 20% from 2008.

• At least two other segments showed declines. The percentage of in-store bakery operators carrying low-carb items fell to 5% from 19%, while the percentage offering low fat/no fat products declined to 33% from 55%.