Organic’s crunch: Once high-flying firms face three big threats to growth
Once high-flying firms face three big threats to growth.
A plethora of vegetables are artfully displayed in the produce section at a Whole Foods Market in Boston. Organic food companies worry that fast-growing sales of 'natural' foods will confuse consumers into equating the two. Only organic products are government-certified.
John Nordell/The Christian Science Monitor
After posting 22 percent growth on record sales last year, Organic Valley Family of Farms entered 2009 with a thud.
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The recession played a part. It trimmed demand for premium-priced food. The organic milk market turned from dearth to glut. The LaForge, Wis., company that bills itself as America’s largest cooperative of organic farmers, had to cut its dairy farmers’ output by 7 percent to avoid dropping some farmers or reducing the payments they receive.
But something else is weighing down Organic Valley and the rest of the once high-flying organic-food industry. They face new competition as cheaper “natural” foods gain market share. They’re also battling a blow to their reputation from a British government report disputing the claim that organic products are more nutritious and offer more health benefits than conventionally produced food.
The threats are “the biggest challenges the industry has ever seen,” says Phil Howard, a food-system expert at Michigan State University in East Lansing.
Far from withering on the vine, however, the industry is cutting costs, rolling out new offerings, sending out coupons, and at times reducing prices by selling smaller-sized packages. Those who weather the storm could prosper if they create ever more appealing and healthy foods that can attract a wider audience.
YoBaby Meals, which debuted this year, is one example of the new push. The yogurt includes both fruit and a vegetable purée. It’s “a complete meal in a cup” and enables the company to “reach into the realm of baby food,” says a spokeswoman for Stonyfield Farm.
The Londonderry, N.H., company has also added to its line of Oikos Greek yogurt – “one of the greatest successes we’ve ever had,” says CEO and cofounder Gary Hirshberg – and completely changed its packaging. Now, containers show a photo of a farm that supplies Stonyfield with organic milk. “With all the artificial ingredients around,” the company says on some yogurt lids, “we thought we’d show you one of the real family farms.”
Stonyfield, which grew an average 19 percent a year between 1990 and 2008, has seen sales slow. Even so, “we are growing quite well,” Mr. Hirshberg says, with revenues reaching $335 million this year. Stonyfield has an incentive to keep growing. Groupe Danone of France, which owns 85 percent of the company, lets it operate independently as long as it meets certain (undisclosed) financial goals.
The industry is following a similar pattern. Organic food and beverage sales grew 17 percent in 2007, 12 percent in 2008, and will grow 7 percent this year to almost $22.8 billion, according to a forecast by Nutrition Business Journal.
Until last October, sales at Nature’s Path Organic Foods were soaring at an average 20 to 30 percent a year. While recession has curbed that winning streak, there are some renewed signs of growth for the Canadian company based in Richmond, British Columbia. June sales were 8 percent higher than a year ago, says Arran Stephens, the company’s founder and CEO. Nature’s Path continues to expand.
