Selling Organics in Tough Times

IN NEW YORK STATE, AS THIS STORY IS BEING WRITTEN, THE COST OF CONVENTIONAL MILK IS WELL ABOVE $4 A GALLON AND ORGANIC MILK has been priced as high as $8 a gallon. And the price is expected to keep rising. In an April 18 New York Times’ article, “Sticker Shock in the Organic Aisles,” Andrew Martin and Kim Severson observe, “Shoppers have long been willing to pay a premium for organic food. But how much is too much?”

It’s a fair question. And the answer depends largely on the type of organic consumer. Beyond core shoppers who consider natural and organic products a lifestyle choice, there are periphery consumers whose fluctuating level of commitment to organic foods could impact sales. Additionally, future sales will depend on how the industry responds to challenges from high gas prices, natural disasters and other considerations that are driving up the cost of food.

Perhaps surprising for the moment, the organic category is holding steady. Late in April, Mambo Sprouts Marketing, a Collingswood, N.J.-based marketing/promotions company, released a survey showing that, “Even with the faltering economy and rising food and energy prices, about 9 in 10, or 88 percent, of consumers reported buying the same (52 percent) or more (36 percent) green environmentally friendly products as they did six months ago. About 7 in 10 consumers are still willing to spend up to 20 percent more for ‘green’ sustainable products. Only 1 in 6 (17 percent) of respondents reported buying fewer natural and organic foods, [suggesting] that short-term savings would have long-term costs to their family’s health and the environment.”

But, according to industry consultants and retailers, though the news is not yet dire there are defensive strategies and considerations that can help merchants prepare for a future downturn:

Jay Jacobowitz
Marketing Consultant;
Former Director of Sales for Distributor Stow Mills;
Retail Insights, Brattleboro, VT

Founder and president of Retail Insights, a Brattleboro, Vt.-based consulting firm, Jay Jacobowitz attributes steady sales to the dedicated organic consumer. He notes, “Among organic lifestyle users, the organic habit has become so deeply ingrained that they will keep buying the products even though prices are higher.” Jacobowitz bases his assessment on more than three decades of experience in the natural products industry, including a long run as director of sales for northeastern distributor Stow Mills, now part of the United Natural Foods, Inc.
(UNFI) network.

Jacobowitz also points out that generally the perceived price differential between mainstream and organics has been decreasing, opening the market to a broader base. “Since adoption of the federal organic rule, sales of all things organic have spurted, and supply has expanded to meet the demand,” he explains. “As a result, the price gap between organic and conventional foods has narrowed. That makes price less of a problem. Many more consumers are demonstrating that they can justify the added cost.”

Statistics support his claim. The 2007 Manufacturer Survey conducted by the Greenfield, Mass.-based Organic Trade Association (OTA) shows that organic food sales have soared from $3.6 billion and 0.8 percent of total food buying in 1997 to $16.7 billion and 2.8 percent in 2006. In other words, organic sales (in dollars) in 2006 were 4.6 times higher (364 percent) than they were ten years before. In the same decade, overall food purchases rose by less than 35 percent, not even one-tenth as much as organic foods. Where organic foods had been less than 1 percent of all foods consumed, they are now closing in on 3 percent.

Strategies for Remaining Strong: Jacobowitz divides organic foods shoppers into three major classes: core, occasional and uninvolved. Core organic customers may be described as “early adopters,” and make up no more than 10 percent to 15 percent of the market. The middle group, “followers,” are occasional organic customers who account for 45 percent of all organic shoppers. The remaining 35 percent to 40 percent are the uninvolved, he says, “and must be educated about the benefits of organic nutrition and persuaded to try the products.”

To accomplish this, he advises clients to stick with tried-and-true methods of promoting grocery business. These include demos, tastings, promotional activities and time-limited price-off specials. “Getting customers to try products is critical,” he notes.

Phil Nabors
Natural Supermarket Owner, Mustard Seed Market & Café,
Solon and Akron, OH

Phillip Nabors, owner of Mustard Seed Market & Café, two Ohio-based natural products supermarkets, says that through scrupulous management and aggressive marketing, “growth is as good as ever” at his 56,000-square-foot operation in Solon, as well as at the 31,000-square-foot store in Akron.

Estimating that the stores feature more than 50 percent organic foods, including almost 90 percent organic produce, Nabors says that consumer commitment is as strong as or stronger than in the past. But, he adds, his selling area has become geographically smaller as Trader Joe’s and Whole Foods Market opened nearby, not to mention the growing presence of organic foods in conventional groceries and even chains like Wal-Mart and other big-box stores. “People no longer have to drive 50 miles to get to us,” he explains.

Strategies for Remaining Strong: Mustard Seed is working to attract more shoppers from a narrower radius by offering classes in cooking and nutrition, staging promotional events and participating in community charities.

Nabors also notes, “We are paying strict attention to our value proposition. We are conducting more frequent price checks to make sure that key items like bread, butter, milk and fish are at an appropriate level. We also are trying to be more aggressive in seeking out high-quality closeouts from vendors—sometimes short-code items, but also products that are in manufacturer overstock or are undergoing some sort of label change. Our goal is to have each shopper encounter a clearly attractive price opportunity every 25 feet or so, as he or she goes through our aisles. This conveys a sense that our store provides not only healthful living choices, but does so at fair prices.”

Kerry Larson and Bill Fogerty opened their first Fresh & Natural store in St. Paul, Minn., in another uncertain economy, just three months after 9/11. Despite the timing, the store flourished and there are now three other locations ranging in size from 12,000 to 17,000 square feet. Located throughout the Twin Cities area, all specialize in products that are natural, organic and, to a large degree, free of allergens. Larson says gluten-free and wheat-free items are favored not only by shoppers with known sensitivities, but by parents trying to eliminate these ingredients from the diets of children with autism and behavioral problems.

During the area’s current economic woes—kicked off by the sub-prime mortgage crisis and fueled by the alarming rise in oil prices—Larson says, “Sales are holding steady. If there has been any slowdown, it is attributable to the season—people go away on vacation in the summer—or to the increased number of competitors that have come into this marketplace, not to the economy.”

Strategies for Remaining Strong: Although they’re experiencing a slowing of growth, not an actual downturn, Larson and Fogerty believe protective steps may be called for. “We’ve already re-bid our purchasing and reevaluated employee productivity,” he says. “We feature a frequent buyer card that allows 10 percent off the entire next purchase after shoppers have accumulated $450 in register receipts. And we’re thinking about doing some couponing. We see this as just being prudent, not panicked.”

Cheryl Hughes
Single-Unit Natural Food Store Owner,
The Whole Wheatery, Lancaster, CA

At The Whole Wheatery in Lancaster, Calif., Owner Cheryl Hughes reports that 2008 sales were up every month from January through April, about 10 percent over last year. However, according to Hughes, whose 10,000-square-foot store offers organic choices in every section, with all organic fresh produce and mostly organic dairy, in May the first signs of trouble began to appear.

“Our May sales slipped about 2 percent below the same month a year ago, and I am expecting a larger decline in June, July and August, perhaps up to 10 percent,” she says. “Homes are being abandoned, and customers are starting to look for ways to make their dollar go further.” On the plus side, Hughes notes, many of her customers are eating out less and spending more on groceries to prepare at home.

Alan Richman, former editor/associate publisher of Whole Foods Magazine, is a New Jersey-based freelance writer specializing in the food and beverage industry.

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