Consumers' taste for organic is tapering off

[Guest guest]

/* " Whole Foods Market, a showcase for the natural and organic

industries, is struggling through the toughest stretch in its history.

And the organic industry is starting to show signs that a decadelong

sales boom may be ending. " */

Consumers' taste for organic is tapering off

By ANDREW MARTIN

Sunday, November 2, 2008

The New York Times

Once upon a time, sales of organic and natural products were growing in

double digits most years. Enthusiastic grocers and venture capitalists

prowled the halls of trade shows looking for the next big thing.

Grass-fed beef? Organic baby food? Gluten-free energy bars?

But now, shaky consumer spending is dampening the mood. It turns out

that when times are tough, consumers may be less interested in what type

of feed a cow ate before it was chopped up for dinner or whether carrots

were grown without chemical fertilizers, particularly if those products

cost twice as much as the conventional stuff.

Whole Foods Market, a showcase for the natural and organic industries,

is struggling through the toughest stretch in its history. And the

organic industry is starting to show signs that a decadelong sales boom

may be ending.

The sales volume of organic products, which had been growing at 20

percent a year in recent years, slowed to a much lower growth rate in

the past few months, according to Nielsen, a market-research firm. For

the four weeks that ended Oct. 4, the volume of organic products sold

rose just 4 percent compared with the same period a year earlier.

" Organics continue to grow and outpace many categories, " Nielsen

concluded in an October report. " However, recent weeks are showing

slower growths, possibly a start of an organics growth plateau. "

If the slowdown continues, it could have broad implications beyond the

organic industry, whose success spawned a growing number of products

with values-based marketing claims, from fair-trade coffee to

hormone-free beef to humanely raised chickens. Nearly all command a

premium price.

Still a priority for some

While a group of core customers considers organic or locally produced

products a top priority, the growth of recent years was driven by a far

larger group of less-committed customers. The weak economy is prompting

many of them to choose which marketing claim, if any, is important to them.

Among organic products, those marketed to children will probably

continue to thrive because they appeal to parents' concerns about

health, said Laurie Demeritt, president and chief operating officer of

the Hartman Group, a market-research firm for the health and wellness

industry. But products that do not have as much perceived benefit, such

as processed foods for adults, may struggle.

The economy has " crystallized the trade-offs that consumers are willing

to make, " she said. " Fair trade is nice, but fair trade may fall off the

shopping list where organic milk may not. "

Blischok, president of consulting and innovation for Information

Resources, a market-research firm, said shoppers are not moving entirely

away from organic products at the grocery. But they are becoming more

selective, buying four or five products instead of seven or eight, he said.

Blischok surveyed 1,000 consumers in the first half of the year and

found that nearly two-thirds said they were cutting back on nonessential

groceries and nearly half said they were buying fewer organic products

because they were too expensive.

Such consumer attitudes have compounded problems for Whole Foods Market,

the Austin, Texas-based chain that served as a launching pad for many

organic and natural brands.

The company's stock has dropped by more than 70 percent since the first

of the year, and analysts expect more grim news when fourth-quarter

earnings are announced this week.

Economic malaise

Recently in Boston, on the convention floor of the Natural Products Expo

East, some vendors said they had been hurt by the economic malaise and

others said they had not yet felt the impact.

Several noted that Whole Foods Market faces a broad array of problems,

including increased competition from traditional grocers, and should not

be viewed as a proxy for the industry. But many also worried that if the

economy continues to weaken, consumers may decide they can no longer

afford to let their conscience dictate their shopping list.

Theresa Marquez, chief marketing executive for Organic Valley, which

sells primarily dairy products, said she was not worried about core

customers because they are so committed to buying organic.

" I'm not sure the periphery — those that purchase perhaps only four or

so times a month — will break the industry, " she said, in an e-mail.

" But I am concerned that those periphery customers are important to the

growth of the industry and without them, organic growth is sure to go flat. "

Organic Valley's sales have slowed in the past four months, in part

because of price increases, company officials said.

Atallah, owner of Cedarlane Foods, which makes organic and

natural frozen meals, said his business has slowed for the past 18

months, a problem he attributed to increased competition and the

economy. He said he believed a newly developed line of products could

spark sales but cannot convince buyers for grocery chains to commit.

" The morale of buyers is so low, they don't want to buy anything, " he said.

But others said they had not noticed a slowdown and were optimistic

sales would remain steady — or improve.

Some store-brand manufacturers said they were thriving as consumers

looked for cheaper alternatives to branded products.

" People aren't going on vacation, they aren't going to buy a car, so

maybe they'll buy a luxury item that is affordable, " said Dary Goodrich,

chocolate-products manager for Equal Exchange, a worker-owned fair-trade

organization offering tea, coffee and chocolate from small-scale

farmers. " Right now, we aren't seeing a slowdown, but it's a concern. "

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