Posted by: Mahdi Ebrahimi | April 4, 2008

Americans Still Crazy for Organic Foods

For the past few years, one of the few certain trends for American grocers has been the growing popularity of organic food.

In just one decade, from 1997 to 2006, sales of organic food have grown by nearly 80 percent to $17.7 billion.

The boost has been driven by an ever-growing chunk of the population that considers organic food healthier, safer and better for the environment.

For now, those reasons are still spurring shoppers to move toward organics.

But with the economy slowing down and household budgets tightening, the once-sure bet for stores may be a bit more shaky.

A slowdown in organic purchasing would be particularly troublesome for grocery chains, which have been pumping millions of dollars into improving their organic selections and developing their own store-brand organic lines.

There are no estimates on how much the industry has invested in organics. But spurred by the success of chains such as Whole Foods and the steep demand, many chains have been expanding their organic selections as fast as possible for years.

Harris Teeter introduced its HT Naturals products in April 2002, with 26 products. Now there are 188 HT Naturals items, with more items such as organic frozen waffles and salad dressings under development.

Kroger expanded its Naturally Preferred product line to 270 items and boasts more than 60 products in its premium Private Selection organics line.

“The way that supermarkets have beefed up their organics — it’s definitely made them more vulnerable,” said Jeff Wells, a reporter who covers health and wellness for industry publication Supermarket News.

“There are core consumers of organics like the people who do a lot of their shopping at Whole Foods and co-ops and things like that,” Wells said. “They believe in it, they’re loyal to it, and they’ll give up a lot of things before they give up organic. The people on the periphery are the question mark.”

Staying the course

Nearly 60 percent of U.S. households buy some organic items, and stores say they are not expecting demand to slow down.

So far, sales of organic items have not decreased at BJ’s Wholesale Club, said spokeswoman Stephanie LaCroix. BJ’s is another chain that has added more organic products over the past year.

“People placing a premium on maintaining a nutritious lifestyle seems to be the main reason why we have not seen a decrease,” she said.

Other stores are even expecting a small increase in organic sales.

“Generally, in the past when we’ve had a weaker economy, we do not see a downturn in our sales,” said Whole Foods Market spokeswoman Teresa Jones. “We see if anything, it might even be going up a little bit because people are actually eating out less and cooking more at home.”

Kate Stone said she sees her investment in organic food as a big-picture approach to life.

“In the long term, I’m saving money because I’ll stay healthy,” she said. “That would be one of the last things I’d cut back on.”

Still, Stone said, staying committed to organics is getting harder.

She has started driving her Mini Cooper instead of her truck to conserve gas and has cut back on other items such as clothes and going to the movies. But she refuses to cut back on organic food.

Last week, Stone was at the Fresh Market store on Falls of Neuse Road in Raleigh with a cart full of wild-caught salmon, asparagus and peppers. She figures she spends $20 more a week plus the cost of gas each time she shops for organics in Raleigh instead of buying the nonorganic produce offerings near her home in Warren County.

“It’s still almost always less than eating out,” she said.

Staying on the shelves

Devoted shoppers like Stone may not be enough to keep stores stocking tons of organics.

If enough shoppers cut back, stores will be forced to either try to find an inventive way to get organic items selling or simply cut back on the space allotted for organics, said Brian Todd, president of the Food Marketing Institute, a New Jersey group that studies food prices.

“Shelf space is at a premium,” he said. “At many supermarkets, they charge slotting allowances where they charge companies fees when they have a new product. It is costly. It is very valuable space.”

Staying committed to organics may become even harder this year for shoppers.

Organic farmers are facing a variety of factors, including higher demand and higher costs for things like feed that could push prices up, said Holly Givens, spokeswoman for the Organic Trade Association.

Grocery stores are likely to raise prices across the board this year, too, Todd added. With food prices increasing overall, people might think twice before paying more for organics.

“For all of 2007, wholesale prices were increasing much faster than retail prices, so supermarkets were absorbing a lot,” he said. “They’ve kind of held the line as much as they could, and then we’ll see prices probably go up even more at the retail level this year than last year.”

The Food Marketing Institute is predicting a 5 percent increase in overall retail food prices this year, up from 4.2 percent last year.

Still, organic items only make up 2 to 3 percent of food sales, said Wells of Supermarket News.

If people stopped buying organics altogether, “it definitely wouldn’t bankrupt the store,” he said.

The outcome hinges on shoppers like Edy Striebel of Raleigh.

“I would love to buy all organic, but I kind of do half and half,” Striebel said.

The Raleigh mother of three — two of whom are in college — has to balance healthy eating with expenses.

“I try to get things that are grown in the United States,” she said. “But it’s kind of like a bonus if something’s organic.”



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