As consumers demand healthier options, supermarkets are responding by adding more organic foods to their shelves in a trend that may change the way the food industry does business.
Goldman Sachs analyst Steven T. Kron said “we believe that the recent surge that organic foods have experienced is not transient, but rather a sustainable shift in food consumption patterns with ramifications up and down the food chain.”
In the food industry – where fads come and go as fast as the latest celebrity diet – demand for an organic version of everything from milk to produce seemed at first like just another flash-in-the-pan trend.
But Kron sees a parallel between organic and non-carbonated beverages, which have significantly changed the soda market as consumers switch from sugar-laden soft drinks to water and juice options.
The shift away from soft drinks has been so significant that traditional pop companies like Coca-Cola Co. and PepsiCo Inc. have been forced to diversify into juice and water to add to their sales and earnings. Last month, for example, Coca-Cola completed its $4.1 billion purchase of Glaceau, the maker of Vitaminwater, and is now considering buying Cadbury Schweppes PLC’s Snapple iced tea brand.
Kron said the shift to organic foods may be even more pronounced since consumers don’t need to sacrifice taste for health.
“We believe organic foods may ultimately prove to take a larger share of its respective pie as taste profiles do not change as dramatically when transitioning from traditional to organic foods versus the drastic difference from carbonated to non-carbonated,” he said in an analyst note.
Already, food companies and grocery stores are responding to the demand in ways that show the significance of the movement. Wal-Mart Stores Inc., the world’s biggest retailer, recently expanded its organic offerings – a move that pushes the trend well into the mainstream for consumers that may not be able to afford the higher-priced products at stores like those run by Whole Foods Market Inc.
“The prospects of having a retailer the size of Wal-Mart embrace organics provides a significant platform for organics to extend beyond certain affluent pockets of consumption,” Kron said.
Whole Foods, known as the largest organic food supermarket, has had its share of doubters recently, particularly as the Federal Trade Commission attempts to block its acquisition of smaller rival Wild Oats Markets Inc. Sales growth at the former star has slowed as well.
But Canaccord Adams analyst Scott Van Winkle said the slower growth and high-profile status of the chain only reinforces the strength of organics and their popularity with more typical food shoppers.
“We believe that the growth comparisons became so difficult that slower growth was inevitable, and that the acceleration attracted an equal acceleration in the availability of natural and organic foods in the mass market,” Van Winkle said in note to investors.
With a larger audience, more food companies are also rushing to make organic versions of their products to stock the added shelf-space. Organic milk remains the biggest organic category, according to AC Nielsen data from January 2007.
But organic cereals are also growing, with Kellogg Co.’s Kashi brand leading the way, Kron said.
Copyright 2007 Associated Press