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Boom in Organic Food Sales Expected to Continue

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Orlando, FL—Retail sales of organic dairy products grew 24 percent last year to “a little over $2 billion,” according to Katherine DiMatteo, executive director of the Organic Trade Association (OTA).

That category includes milk, cream, cheese, butter, eggs, yogurt and ice cream, DiMatteo explained at the International Dairy-Deli-Bakery Association’s (IDDBA) annual seminar and expo here this week.

While the “penetration” of organic foods is about 2.5 percent of all US food sales DiMatteo said the penetration for dairy is higher, at about 3.5 percent of all dairy products sold.

Organic dairy products are strongest in the mass market channels; some 54 percent of organic dairy products are sold through this channel. Another 37 percent of organic dairy products are sold through the natural channel, both natural food chains as well as independents.

Organic milk and cream make up about half of the total sales of organic dairy products, or a little over $1 billion. That segment grew about 25 percent last year. Yogurt and ice cream also grew at about that 25 percent rate, while cheese grew at about 26 percent.

Organic egg sales increased by about 15 percent last year, while butter, cottage cheese and sour cream (lumped together in OTA’s statistics) grew at about 18 percent.

OTA is projecting that organic dairy product sales will rise 20 percent this year, and at about a 15 percent annual growth rate from 2007 through 2010, DiMatteo said.

Overall retail organic food sales  also continue to grow, rising about 16 percent last year across all food categories, DiMatteo said. That’s almost $14 billion in consumer sales.

“We expect that kind of growth to continue this year,” at about a 14 percent growth rate, DiMatteo continued.

And over the long haul, between 2007 and 2010, OTA expects an average annual growth rate of 11 percent, to $26 billion total in consumer sales.

Over 55 percent of the people who responded to Organic Trade Association ’s manufacturers’ market survey said they expect that between 6 and 20 percent of their business in the coming years will be coming from customers that are new to the organic category.

There are about 900 companies that sell organic at the wholesale level, and they account for about 90 percent of total organic food sales. The other 10 percent is direct-to-customer sales through farmers’ markets, the Internet or other venues.

Of those 900 companies, there are only 10 that make over $100 million in sales of organic products, DiMatteo noted. So the range of companies involved “really varies, with most of the companies being very small.”

About half of OTA’s survey respondents said that their products were in the 95 percent-plus category; that’s the category where a product is labeled as “organic” and may use the USDA seal.

Some 32 percent of respondents said that they sell products that are 100 percent organic, and only 19 percent said they sell products that are 70 percent or more organic ingredients. Those are the ones labeled “made with organic,” DiMatteo explained, and they cannot use the USDA organic seal.

Fruits and vegetables continue to account for the largest portion of overall organic sales, about 38 percent in this year’s survey, down slightly from previous years. Dairy has “picked up”; it’s about 15 percent of overall organic food sales, compared with 10 percent two years ago.

After that, it’s non-dairy beverages, primarily soy beverages; then packaged foods and breads and grains, followed by meat/poultry and sauces/condiments, which are small segments but growing rapidly.

When consumers decide to purchase organic foods, the first area of adoption is produce; about 96 percent of all consumers who buy organic foods are buying fresh fruits and vegetables. Next is dairy, particularly milk and yogurt.

The future is “very bright for organic,” DiMatteo said. At a 2.5 percent penetration rate, “we’ve got a long way to grow.”

Signs that organics have a bright future include that organic consumers are embracing all types of foods and non-food products; all marketing channels are now participating; niche markets are proliferating; new consumers are coming in; and there is a growing awareness of food production and a desire for alternative choices.

Consumer Segments Aiding Growth

While the marketplace is experiencing many new organic introductions from mainstream brands, finding the balance of price and benefits will be the determining factor in consumer choice between natural and organic products, according to Maryellen Molyneaux, president of the National Marketing Institute (NMI).

She was the other featured speaker during a session on organic and natural products at the IDDBA seminar.

The first thing to understand about the growth of organic foods is that it’s being pushed by growth in two “very healthy” consumer segments.

NMI segments the general population into five groups, with the two segments driving organic growth being the “Well Beings,” the most health-active, representing 25 percent of the population; and the “Food Actives,” the second most health-active, representing 19 percent of the population.

These two population segments, particularly the “Well Beings,” have had very high compound annual growth in the last five years. “Well Beings” alone are growing at about 12 percent per year.

“Our population is much more interested in health,” and that’s one of the things that’s driving interest in organic foods, Molyneaux noted.

As far as household penetration is concerned, across six organic categories, one of which is milk, 56 percent of households used some type of organic product in the past year. That doesn’t mean they use them regularly or often.

What differentiates organic food and beverage users? They’re “thought leaders,” they’re early adopters, they’re influencers, and they have “very deep” concern for not only their own personal health but also for the health of their families, their communities and the planet itself, Molyneaux said.

What Organic Consumers Want

As organics continue to grow, as they penetrate mainstream accounts “much more,” one of the differentiating factors for brands will be values. Consumers want to relate to the brand that they buy, and they want to know what these companies are doing, Molyneaux noted.

There’s a “disconnect” between the the actual definition of organic, and the value of the terminology for organically grown foods, Molyneaux continued.

Foods that are grown without pesticides are important to 63 percent of consumers, while foods that are natural are important to 57 percent, foods that are free from artificial colors , flavors and preservatives are important to 53 percent, and foods grown on farms that practice sustainable agriculture are important to 48 percent.

But foods that are organically grown are important to only 39 percent of consumers. So the National Marketing Institute tells its clients that organic by itself is not enough of a position. “It’s about more than that.”

And as the market expands with Walmart and Costco and others coming in, “the ‘more than that’ is going to be even more important,” Molyneaux added.

Companies will have to talk to consumers about their brand values, and about other things within their product production, she explained. The core, devoted consumers that are committed to organics “will not be attracted to a brand that just slaps ‘organic’ on the label.”

Among the other differentiating factors, Molyneaux said the National Marketing Institute is seeing increases in the general population that will, when given the choice, choose products that are environmentally friendly, buy from companies whose values are like their own, and make their decisions with an understanding of the effect they will have on the health and sustainability of the world.

Consumers appear increasingly willing to pay extra for organic foods and beverages, Molyneaux noted. The percentage of consumers willing to pay a 20 percent premium for organic foods rose from 17 percent in 2002 to 32 percent last year.

NMI did some recent research for USDA on organic dairy, and found that almost one-fourth of US adults have used organic dairy in the past six months. Organic dairy users are  also high users of other organic categories, such as fresh fruits and vegetables, packaged foods, and non-dairy beverages.

When organic dairy users were asked what was important to them as they thought about organic dairy products and why they use them, 87 percent said “contain no hormones” was most important to them, while 86 percent said “contain no artificial flavors, colors, preservatives” was most important. After those two factors came organic feed, no antibiotics, and humane treatment of animals.

The percentage of organic dairy users who felt it was important that cows graze in a pasture was “significantly lower,” at 72 percent, Molyneaux said, as was that cows get regular exercise. •