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The Rise of Organics


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The mainstreaming of organic products
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The Rise of Organics

  1. 1. The Rise of OrganicsThe mainstreaming of organic productsWhite paper | August 2010
  2. 2. Shikatani Lacroix is a leading branding and design firm located inToronto, Canada. The company commissions assignments from allaround the world, across CPG, retail and service industries, helpingclients achieve success within their operating markets. It does this byenabling its clients’ brands to better connect with their consumersthrough a variety of core services including corporate identity andcommunication, brand experience design, packaging, naming andproduct design.About the AuthorJean-Pierre Lacroix, R.G.D., President and Founder ofShikatani LacroixJean-Pierre (JP) Lacroix provides leadership and direction to hisfirm, which was founded in 1990. He has spent the last 30 yearshelping organizations better connect their brands with consumersin ways that impact the overall performance of their business. Mr.Lacroix was the first to coin and trademark the statement “TheBlink Factor” in 1990, which today is a cornerstone principle to howbrands succeed in the marketplace. JP has authored several papers,has been quoted in numerous branding and design articles and, in2001 he co-authored the book “The Business of Graphic Design”which has sold over 10,000 copies. JP can be reached and you can follow his blog & Articles and BooksBelonging Experiences...Designing Engaged BrandsBusiness of Graphic DesignWhite paper | August 2010 | The Rise of Organics | 1
  3. 3. What is the future of organic products?Organic products have been available in supermarkets for the pasttwenty years, first catering to a unique group of consumers whowere concerned with the impact of conventional farming practiceson the health of their families. Today, the majority of supermarketsfrom around the world carry a range of organic products that havegained wider appeal among consumers. But are organics asustainable trend in light of the economic downturn and theemergence of “natural” and “local” product offerings? In 2010,Shikatani Lacroix was retained by Agriculture and Agri-FoodCanada to help position the organic industry to more effectivelycompete in the market place. Insights gained through the firm’smarket analysis and strategic process established a framework forinsights on where the industry is heading.This white paper will leverage some recent research and insights onthe industry, namely:1. What is organic?2. What is driving the need to support purchase of organicproducts?3. What is the future potential of this category?4. Who is doing it right?White paper | August 2010 | The Rise of Organics | 2“Now that Ive gotkids, its becomereally importantfor me on thehealth front to tryto buy as muchorganic produceas possible.”Jamie Oliver, UK celebrity chef, inBBC Good Food magazine
  4. 4. Eliminating the confusion around organicsOne of the clear indications that organic products have becomemainstream and an alternative offering for mainstream consumers isthe level of standards that have been created to safeguardconsumers from misleading product claims. In 2009 the Canadiangovernment, following U.S. and the European Union initiatives,established clearly defined standards for the farming and productionof organic products. The Canadian Food Inspection Agency wasmandated to oversee the certification bodies responsible forcertifying organic products, a structure very similar to the US Foodand Drug Administration’s established processes. In Canada, onlyproducts with 95% or more organic ingredients can claim beingorganic. However, in the US the guidelines that were established bythe United States Department of Agriculture’s (USDA) NationalOrganic Program (NOP) to assure consumers know the exactorganic content of the food they buy based on a tiered structure,namely:• 100% Organic - Foods bearing this label are made with 100%organic ingredients* and may display the USDA Organic seal. InCanada, this designation does not exist.• Organic - These products contain at least 95–99% organicingredients (by weight). The remaining ingredients are notavailable organically but have been approved by the NOP. Theseproducts may display the USDA Organic seal. The Canadianorganic certification follows similar guidelines.• Made With Organic Ingredients - Food packaging that reads“Made With Organic Ingredients” must contain 70–94% organicingredients. These products will not bear the USDA Organic seal;instead, they may list up to three ingredients on the front of thepackaging. The Canadian standards allow for similar claims onpackaging and products.White paper | August 2010 | The Rise of Organics | 3European Union Organic Seal
  5. 5. • Other—Products with less than 70% organic ingredients mayonly list organic ingredients on the information panel of thepackaging. These products will not bear the USDA Organic seal.The Canadian standards follow similar guidelines for productsthat contain organic ingredients.The emergence of “natural” and “local” food have created confusionamong consumers between these categories and products that aretruly “organic”. In 2010, the Shelton Group asked 1,006 USconsumers how they know if a product is green, and the topresponse was: “don’t know/not sure” (22%) followed by “says so onthe package/label” (20%). Despite well-defined certificationstandards, organic products have failed to win consumers’ trust: 31%said “100 percent natural” is the most desirable eco-friendly productlabel claim, compared to 14% picking “100 percent organic.” Thestudy concluded that shoppers think of the organic category as lessregulated and more expensive than “natural”.This consumer confusion was further validated by a recent nationalsurvey of U.S. consumers who shop at “natural food” stores when thefollowing question was posed to them (Natural Foods Merchandiser,2008): “If you were purchasing a particular ingredient or a recipeand you had a choice of either a local product or a non-local organicone, which would you choose, assuming equivalent price andquality”? 35 percent of respondents chose local and 22 percentchose organic (41 percent chose both equally). A study conductedin 2009 by the Ontario Ministry of Agriculture, Food and RuralAffairs may shed some light on one of the fundamental reasons forthe confusion. The study found that the cost of organic foods was abig barrier, with 83 percent indicating that they would buy moreorganics if they were cheaper. A key reason for the price barrier issueis that most consumers do not believe that organic foods are thatmuch healthier than conventional foods.White paper | August 2010 | The Rise of Organics | 4In a recentconsumer study, itseems Americanconsumers haveconfused “natural”as a betterindicator of an eco-friendly productthan “organic.”2010 Study, The Shelton Group
  6. 6. New OrganicExperienced OrganicSeasoned OrganicNon-buyers1 10 10027212032Organic Segments2009 U.S. Families’ Organic Attitudes & Beliefsstudy sponsored by Kiwi Magazine and theOrganic Trade AssociationAttributes such as freshness (91% rating) and price (74% rating)topped the study list of factors determining purchase decisions. Thestudy does support the importance of promoting the certification oforganic products, with 16% of the respondents strongly agreeing and39% somewhat agreeing that they would buy organic food if it wasclearly labelled with an organically-produced certification. Creating astrong unified certification program that has consumer credibility isone of the key factors that will help the organic sector overcomeconfusion and consumers’ lack of commitment.What are the key drivers in the category?Although there is potential for confusion about organic, a study onU.S. Families’ Organic Attitudes & Beliefs sponsored by KiwiMagazine and the Organic Trade Association identified thatconsumers are committed to the category, with nearly three-quarters (73 percent) of families buying organic products at leastoccasionally, chiefly for health reasons. The study identifies that thelargest group of organic buyers are “Newly Organic” parents(representing 32% of parents overall), are younger than otherorganic buyer groups with younger children. The other groupsconsist of Experienced Organic parents (20%), with between 2 and 5years’ experience purchasing organic products, who are slightlymore educated, wealthier and racially-diverse compared to theNewly Organic segment. Seasoned Organic parents (21%) are themost experienced organic buyers with a range of 5 to 15 yearsexperience in the category and follow the stereo-typical profile ofthe Caucasian, highly educated, wealthy organic consumer. Non-buyers of organic represent 27% of consumers who have neverpurchased organic products. Finally, an overarching category termed“Organic Influencers”, comprised of parents who are extremely wellinformed about organic products and likely to influence others intothe category, represent 13% of U.S. parents.White paper | August 2010 | The Rise of Organics | 5
  7. 7. The study identified that healthwas the primary motivator forconsumers who currently buyorganic products (55% of parents),presenting a logical platform forthe industry to build market shareand category loyalty. Parents ofvery young children in particular(under 3 years) are more likely toincorporate organic into theirchildren’s lives over a growingconcern regarding the use ofpesticides, hormone growth, andartificial flavors and colors inconventional foods.The study identifies that cost, low interest in healthier foods and astrong understanding of organic are they key barriers for “Non-Buyers,” or parents who have never purchased organic products. Webelieve that the rise of “cheap foods” that provide very littlenutritional values have allowed this segment of the marketplace todisengage in striving for a healthier lifestyle. However, the rise ofdiabetes, cancer and heart problems among the young has startedto shift the perception of this group towards more sustainable andhealthier needs, all of which points well in supporting the organicsegment.White paper | August 2010 | The Rise of Organics | 6
  8. 8. Supporting these key research findings, we can derive that anincrease in health and wellness are the principal drivers behind theorganic movement. With the aging population in the markets withsome of the largest and fastest growing organic segments (Europeand Australia) and the increase in this segment’s discretionaryspending, the level of education and increased sophistication ofyoung families, these regions clearly understand that organic andnatural foods are healthier, better for the environment, and moresustainable, than conventionally-grown foods.Our review of trade publications and research support the belief thatorganic industry should leverage the following benefits to ensurerelevance and a clear point-of-difference:1. Safer: Natural and organic foods are produced without thechemical pesticides and additives commonly used inconventional foods. The elimination of the use of pesticideshas been the cornerstone of the promotion andunderstanding of the value of organic farming.2. Better-tasting: A study at Washington State University in2001 found that organic apples were sweeter and had bettertexture and firmness than conventionally grown apples.Leveraging taste and freshness supports some of the keydrivers for the selection of food products.3. Environmentally-friendly: Organic farms have been shown touse less energy and produce less waste than conventionalfarms. In addition, the elimination of pesticides andherbicides have a positive impact on the quality of the soiland water in the surrounding areas.4. Farmer-friendly: Farmers who grow crops in the conventionalmethod generally use pesticides, which studies have linkedto various health problems.White paper | August 2010 | The Rise of Organics | 7Health and wellnessdriven by a care forthe sustainablefarming practicesand a fear ofpesticides arebecoming the keyreasons peoplepurchase organicproducts in theworld”Investopedia, 2010
  9. 9. Finally, the organic sector needs to better leverage the recent foodquality scares and product recalls as a key point of the high level ofstandards for the industry. For example, the recent recall of cat anddog food by a leading manufacturer of private label pet food inNorth America - made from wheat gluten imported from China - hasraised some questions about conventional farming methods.What countries have embraced organic?The European organic markets are the oldest and have traditionallybeen one of the leaders in the growth of organic products and,often, learning from this market are precursors to attitudes andbehaviors in North America.White paper | August 2010 | The Rise of Organics | 8
  10. 10. In Europe, the growth of organic has been driven by the increase inconsumer buying sophistication as it relates to the following factors:• Growing concern about the environment• Rising demand for chemically-clean products• Growing scrutiny of product origins• Increasing regionalism / buy local• Questions about carbon footprint of productsThe European Organic Trade Association have identified the need fororganic growers and marketers to go beyond “organic” asconsumers become more sophisticated and markets mature,evolving towards a sustainable value that is linked to environmentaland community needs.When you explore the hectares allocated to organic agriculture, it isimportant to note that North America lags behind other regions,with slightly more hectares allocated to organic crops than Africa.The lack of allocated hectares for organic agriculture has twosignificant implications for North American markets.White paper | August 2010 | The Rise of Organics | 9
  11. 11. The first represents the vast growth still available for North Americanmarketers and growers and may explain why this region is seeingsuch a rapid growth in organic farming. The second, which is morealarming, is the fact that North America cannot sustain the currentlevel of organic consumption without the reliance of more expensiveimports that have a larger carbon foot print impact due to thegreater distances the product needs to travel.Compared to 2007, there has been an increase of almost 3 millionhectares or a 9 percent increase in organic farming hectares with thehighest increase occurring in 2008 in Latin America (1.65 millionhectares and Europe with 0.5 hectares). It was interesting to notethat Argentina, Falklands Islands, Spain and China had the highestincrease in organic agricultural lands in 2008.Is “organic” sales sustainable?Findings from the 2009 U.S. Families’ Organic Attitudes and BeliefsStudy, jointly sponsored by the Organic Trade Association (OTA) andKIWI Magazine, also show that three in ten U.S. families (31 percent)are actually buying more organic foods compared to a year ago, withmany parents preferring to reduce their spending in other areasbefore targeting organic product cuts. In fact, 17 percent of U.S.families said their largest increases in spending in the past year werefor organic products.White paper | August 2010 | The Rise of Organics | 10
  12. 12. Statistics found on the Organic Trade Association research (Source:Organic Trade Association’s 2010 Organic Industry Survey) supportsthe growth of the “organic” segment, namely:• U.S. sales of organic food and beverages have grown from $1billion in 1990 to $24.8 billion in 2009. Sales in 2009 represented5.1 percent growth over 2008 sales. Experiencing the highestgrowth in sales during 2009 were organic fruits and vegetables,up 11.4 percent over 2008 sales.• Organic food and beverage sales represented approximately 3.7percent of overall food and beverage sales in 2009. Leadingwere organic fruits and vegetables, now representing 11.4 percentof all U.S. fruit and vegetable sales.• Organic non-food sales grew 9.1 percent in 2009, to reach $1.8billion.• Total U.S. organic sales, including food and non-food products,were $26.6 billion in 2009, up 5.3 percent from 2008.White paper | August 2010 | The Rise of Organics | 11
  13. 13. • Mass market retailers (mainstream supermarkets, club/warehouse stores, and mass merchandisers) in 2009 sold 54percent of organic food. Natural retailers were next, selling 38percent of total organic food sales. In 2008, mass marketretailers represented 45 percent of sales, while natural foodchannels represented 43 percent of sales. Other sales occur viaexport, the Internet, farmers’ markets/community-supportedagriculture, mail order, boutique and specialty stores.• Certified organic acreage in the United States reached more than4.8 million acres in 2008, according to updated data posted byUSDA. U.S. total organic cropland reached 2,655,382 acres in2008, while land devoted to organic pasture totaled 2,160,577acres. California leads with the most certified organic cropland,with over 430,000 acres, largely used for fruit and vegetableproduction. Other states with the most certified organic croplandinclude Wisconsin, North Dakota, Minnesota and Montana. Forty-five states also had some certified organic rangeland and pasturein 2008; of those, 13 states had more than 100,000 acres each,reflecting the growth in the U.S. organic dairy sector between2005 and 2008. Certified organic cropland acreage between2002 and 2008 averaged 15 percent annual growth. However, itstill only represented about 0.7 percent of all U.S. cropland, whilecertified organic pasture only represented 0.5 percent of all U.S.pasture in 2008. Overall, certified organic cropland and pastureaccounted for about 0.6 percent of U.S. total farmland in 2008.Although a small percentage of major U.S. field crops are grownorganically, organic carrots represented 25 percent of total U.S.carrot acreage, while organic lettuce represented 8 percent of alllettuce acreage. Fresh produce is still the top-selling organiccategory in retail sales.White paper | August 2010 | The Rise of Organics | 12
  14. 14. • Meanwhile, the organic livestock sector has seen growth, with 2.7percent of U.S. dairy cows and 1.5 percent of layer hens managedunder certified organic systems.Source: U.S. Department of Agriculture’s Economic ResearchService,• Acreage managed organically in 2008 in the world totaled 35million hectares farmed by almost 1.4 million producers in 154countries, according to data from The World of OrganicAgriculture 2010. Organic agricultural land area increased in allregions, and was up nearly three million hectares, or ninepercent, compared to 2007 data. Of the total area managedorganically, 22 million hectares were grassland.In addition, 8.2 million hectares were used for cropland. Theregions with the largest area of organically managed land areOceania (12.1 million hectares in Australia, New Zealand, andsurrounding island states), Europe (8.2 million hectares), andLatin America (8.1 million hectares), according to statistics in achapter by Dr. Helga Willer. The report also recorded 31 millionhectares that are organic wild collection areas and land for beekeeping. The majority of this land is in developing countries.Source: The World of Organic Agriculture: Statistics & EmergingTrends 2010.• Meanwhile, according to Organic Monitor estimates, globalorganic sales reached $50.9 billion in 2008, double the $25billion recorded in 2003.Source: The World of Organic Agriculture: Statistics & EmergingTrends 2010White paper | August 2010 | The Rise of Organics | 13
  15. 15. • In Canada, approximately 3,700 producers working on 612,000hectares of land produce certified organic products in Canada:• Certified organic farms account for approximately 1.5% of thetotal number of farms in Canada. Organic fruit and vegetablefarms lead the way at about 2.3%.• Organic livestock is one of the fastest growing sectors.• There are more than 1,200 certified organic processors andhandlers in Canada, producing a wide variety of ingredientsand consumer-ready products.• Total annual retail sales of certified organic products inCanada are approximately $2 billion, with about 45% movingthrough mainstream supermarkets.• Fresh vegetables account for 25% of all supermarket organicfood sales.• Canada exports a wide selection of certified organicproducts, ranging from bulk grains to pre-packagedconsumer-ready products in every category.• The largest share of our exports goes to the United States,the European Union and Japan.• As can be expected from the breadbasket of the world,organic wheat is our most popular export. However, exportsof oats, flax, barley, lentils, peas, spelt, hemp, soybeans, corn,sunflowers, and other grains and oilseeds are also significant.White paper | August 2010 | The Rise of Organics | 14
  16. 16. Who is doing it right?The organic industry evolved from a wide range of small players to aconsolidated industry where ten of the top manufacturers accountfor a significant portion of market share. The market has also seenthe addition of new organic products being marketed by mainstreamcompanies such as Kraft, Unilever, and Nestle, to name just a few.The following chart outlines the key players in the organic segmentillustrated by Philip H. Howard, Assistant Professor, Michigan StateUniversity.White paper | August 2010 | The Rise of Organics | 15
  17. 17. The Hain Celestial GroupHeadquartered in Melville, NY, is a leading natural and organic foodand personal care products company in North America and Europe.Hain Celestial participates in almost all natural food categories withwell-known brands that include Celestial Seasonings®, Terra®,Garden of Eatin’®, Health Valley®, WestSoy®, Earth’s Best®,Arrowhead Mills®, DeBoles®, Hain Pure Foods®, FreeBird™,Hollywood®, Spectrum Naturals®, Spectrum Essentials®, WalnutAcres Organic™, Imagine Foods™, Rice Dream®, Soy Dream®,Rosetto®, Ethnic Gourmet®, Yves Veggie Cuisine®, LindaMcCartney®, Realeat®, Lima®, Grains Noirs®, Natumi®, JASON®,Zia® Natural Skincare, Avalon Organics®, Alba Botanica® andQueen Helene® The Hain Celestial Group common stock trades onThe NASDAQ® Global Select Market.Earths BestThe company has led the organic baby food market for 25 years.Their products are made from organic ingredients grown withoutharmful pesticides. The company adds no salt, modified starches orrefined sugars to their products and uses no artificial flavors, colorsor preservatives. Earths Best does not use genetically engineeredingredients (GEI), either, so parents can rest assured that they aregiving their babies healthy, natural and delicious food.White paper | August 2010 | The Rise of Organics | 16
  18. 18. Amys KitchenAmys Kitchen is a family business… with every member of the familytaking part. The company was started in 1987, when Amy was born.Her mom and dad, Rachel and Andy Berliner, carefully nurtured thecompany as well as the child, paying constant attention to everyaspect of its day to day activities and providing the vision that hasmade Amys so successful. Amys organic offerings include frozenwhole meals such as organic enchilada verde and kids meals such asbaked ziti, as well as salsas and pasta sauces, soups, burritos andeven desserts.Green & BlacksGreen & Blacks is a manufacturer of the worlds most decadentorganic chocolate. It all started back in London in 1991 when CraigSams, founder of Whole Earth – the pioneering organic foodcompany – was sent a sample of dark 70% chocolate made fromorganic cocoa beans. His wife, environment columnist for The Timesand confirmed chocoholic, Josephine Fairley, found the half eatenbar on Craigs desk and sampled some for herself. The intense flavorwas unique and unlike anything she had tasted before. Jo wasconvinced other chocolate lovers would appreciate it in the sameway she had and the couple set about making the worlds mostpioneering Organic chocolate brand. The final product was a high-quality, bittersweet dark chocolate bar, packed with 70% cocoasolids - enough to make chocolate fans sit up and take notice.White paper | August 2010 | The Rise of Organics | 17
  19. 19. 365 Everyday Value/Whole FoodsOur 365 Everyday Value® and 365 Organic Everyday Value®products are the leading value organic offering from Whole Foods.With value prices 365 days a year, these organic products areformulated to meet all our quality standards and were developed tobuild brand loyalty at Whole Foods Market. The line covers prettymuch every categories in the store. From flour. Whole Foods iscertified by CCOF, an independent, USDA-accredited, third-partycertifier. CCOFs Organic Certification Program ensures that thecompany abides by strict USDA guidelines for handling organicgoods. Organic ValleyOrganic Valley is a cooperative of 1,326 farm families who producepremium, market-certified organic food products. The vision of thecooperative is to reflect the organic growers in each of its regions -regional, organic, and sustainable. When you buy Organic Valleyproducts, the company promotes that you are enjoying the work of1652  farmer-owners cooperating across the country, and at thesame time supporting farm families near you. In the past few years,farmers have joined their production routes in several new states,which means they have strong regional production in more of thecountry. The company reinforce that, the more their cooperativegrows, the smaller and more local -- more "close to home" -- theybecome.White paper | August 2010 | The Rise of Organics | 18
  20. 20. Nature’s PathThe road to success for this company is paved with organicproducts. Natures Path Foods is a leading organic food makerknown for its flagship brand of hot and cold cereals. The companyalso markets snacks and energy bars under the Natures Path banner.Under the EnviroKidz name it makes such kid-friendly products asKoala Crisp and Panda Puffs cereals, and it sells organic ingredientsunder the LifeStream label. Natures Path has four productionfacilities in Canada and the US; the company sells its productsthrough specialty food stores and other retail outlets in about 40countries. Arran Stephens started the family-owned business in 1985.ConclusionAs consumers demographics in the leading markets are getting olderand looking for healthier alternatives while younger families heightenneed for foods with no pesticides or artificial ingredients, organicproducts will continue to grow as a mainstream alternative toconventional foods. With the organic sector maturing and becomingmore sophisticated, and through the support of governments in thepromotion, standardization and conversion of conventional farmingto organics, the industry will maintain, if not exceed the past twoyears’ growth. We have already seen mainstream retailers embracingthis emerging segment with the introduction of organic lines ofprivate label sold at a reasonable value proposition. The truechallenge for this sector will be the ability to optimize agri-outputand better margins while remaining true to the principles thatfounded the sector.White paper | August 2010 | The Rise of Organics | 19
  21. 21. We have also witnessed an increase in the marketing sophisticationof organic growers and manufacturers due to a consolidation of theindustry and an emergence of this category as a mainstream, everyday product. Organic brands have evolved from niche players withlimited brand awareness and loyalty to national and internationalcontenders vying for market share from established brands. Thechallenge will be for the manufacturers and growers to unite behinda common standard versus creating further confusion by supportingregional or local accreditation standards.For more information, contact:Jean-Pierre Lacroix, PresidentShikatani Lacroix387 Richmond Street EastToronto, OntarioM5A 1P6Telephone: 416-367-1999Email: jplacroix@sld.comWhite paper | August 2010 | The Rise of Organics | 20