Organic Products: Niche No More

Natural/organic food product sales seen rising 8% per year through 2020

Author: Andria Cheng

July 11, 2017

Organic and natural groceries have won more and more shelf space in recent years, with expanding product offerings at major retailers including Kroger, Walmart and Costco. New data shows just how widespread the taste for organic has become—and how much room for growth still remains.

Among consumers who identify themselves as their household’s grocery shopper, 56% said they have bought food and beverage products certified as organic in the past three months, up each year from 53% in 2016, and 44% in 2014, according to Morgan Stanley’s fourth annual food retail online survey of about 2,900 US consumers ages 18 and older. Meanwhile, the percentage who said they’ve never shopped organic groceries has declined each year to 22% this year from 34% in 2014.

In another positive sign for the organic growth trend, 46% of natural/organic consumers in the survey, conducted in April, said they’ve bought more of those products in the past year, compared to 4% of those who said they shopped less.

“Once consumers enter the category, they are far more likely to increase than decrease consumption,” said Morgan Stanley analyst Vincent Sinisi in a report. “Existing customers (as a group) have not reached saturation, and switching to these products represents a lasting shift in consumption behavior.”

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This segment of the market, which totaled about $75 billion in 2016 sales and 9% of the overall “food at home” market, still can grow an average of 8% a year through 2020 to more than $100 billion in sales, or 12% of the total food-at-home sales, according to the report.

Retailers and brands aren’t blind to that opportunity. Organic products are increasing in quantity across shelves and categories in stores, according to Nielsen. Its data showed US volume sales of products with an organic claim on packages jumped 13% in the year ended July 30, 2016.

Despite the growth, not all organic products are winners. The Morgan Stanley study published on Tuesday showed that organic grocery shopping remains primarily a fresh produce thing: about 60% of natural and organic shoppers said they bought organic fruits and vegetables in the past three months, followed by about 40% who cited organic meat and about 20% who mentioned organic packaged food products including breakfast cereals, nuts and frozen foods.

For non-food products, the study suggested penetration remains relatively low. For instance, about 30% of natural/organic consumers said they bought natural/organic cleaning and household products while less than 20% each shopped for organic clothes, baby products and toys.

“While we have not seen increasing purchase behavior in packaged and non-food categories, we continue to see these areas as long-term opportunities for natural/organic growth,” Sinisi noted in the report.

The study echoed other findings in crediting millennials as the leading driver of the trend: more than two-thirds of millennials in the Morgan Stanley survey said they bought natural/organic groceries the past three months compared to just 44% for Baby Boomers. That bodes well for the segment growth as millennials start their own families, the analyst noted.

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As natural/organic groceries become more affordable and stocked by discount retailers including Walmart and Target and retailers like Trader Joe’s or Germany’s Lidl that are known for their predominantly cheaper private label assortment, the study showed lower-income shoppers will increasingly become a bigger part of where demand comes from.

For instance, while households earning over $125,000 had the greatest penetration of natural/organic shoppers in prior-year surveys, this year’s study showed 70% of those earning $75,000 to $125,000 said they shopped organic groceries the past three months, right on par with 69% of those earning more than $125,000. Meanwhile, nearly three fifths of those making $50,000 to $74,999 said they bought organic/natural, followed by nearly half of those making less than $50,000.

“We see expansion opportunities across income levels,” Sinisi said.

For those who still aren’t organic food shoppers, about 70% of them cited price as the top barrier, far outweighing all other factors including skepticism that the products are better.

However, once consumers start to buy more of those items, the study said price becomes less of an issue: More than half of organic/natural food shoppers said they start to buy more natural/organic because of factors such as products being healthier or easier-to-find. That’s compared to 38% of shoppers who credited prices becoming lower as a purchasing decision.

Photo credit: Caroline Attwood on Unsplash