Posted by: Mahdi Ebrahimi | April 13, 2008

Will organic shoppers stay loyal?

For the last 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 shakier.

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 Austin-based Whole Foods and the steep demand, many chains have been expanding their organic selections as fast as possible for years.

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

Safeway, which operates Tom Thumb stores in North Texas, expanded its O Organics private label brand to O Organics for Baby and Toddlers last year.

In early 2006, Wal-Mart began expanding its assortment of organic foods in some stores, and this month it launched a new organic coffee under its Sam’s Choice brand.

While organics remain a small piece of the U.S. grocery basket – 2 to 3 percent of food sales – nearly 60 percent of households buy some organic items, and stores say they are not expecting demand to slow down.

“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.”

Shopper 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, Ms. 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.

Devoted organics shoppers may not be enough, however, 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 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.”

Even harder

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

Organic farmers face a variety of factors, including higher demand and higher costs for things such as 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, Mr. Todd added. With food prices increasing overall, people might think twice before paying more for organics and may shift to other brands.

“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.

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



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