On the face of it, there is some pretty grim reading around for organic companies at the moment. In the year to April 19, organic sales at supermarkets were down by 9.7 per cent, according to data from TNS Worldpanel.
Meanwhile, Organic Monitor predicts that although global organic food sales have been increasing by more than $5 billion (£3bn) a year - exceeding $50bn in 2008 - single-digit growth could occur for the first time this year, as a result of the global economy. The organics-focused marketing and information services company blames a reduction in consumer spending power and declining investment levels for the falling sales.
“Consumers are curbing expenditure on food products because of rising price sensitivity, whereas investment from new entrants and financers has dwindled,” says the analyst. “The UK market has been the most adversely affected, with just two per cent growth reported in 2008.”
Organic Monitor also reports that another factor affecting market growth is increasing consumer sophistication. “Consumers are demanding more from organic food products; they are increasingly looking at ethical sourcing, traceability, the carbon footprint, sustainability and corporate social responsibility. Thus, the organic production method only partially meets rising consumer expectations,” continues the analyst.
But the organics category is nothing if not resilient and despite a slip in sales, leading figures from the industry are adamant that the recession could have impacted business a lot harder.
Soil Association policy director Peter Melchett was in an optimistic frame of mind last week, telling Reuters in an interview that despite the knock to sales, organic companies are coping with the recession better than anticipated.
He told the news agency: “We’ve been through, as with nearly every other business in this country and globally, a really difficult period. Some businesses have suffered significant falls in sales, but overall organic food and farming are coming through the recession better than we might have expected.”
The Organic Trade Board (OTB) is in a similarly optimistic frame of mind, making its first senior appointment at the start of this month as part of its plan to double the value of organic trade in five years. Finn Cottle, previously of Sainsbury’s, Somerfield and the Noble Foods Group, has joined the OTB at a time when many outside observers are predicting its demise due to economic pressures. Her role as consultant to the OTB includes that of establishing the status of organic businesses throughout the UK, and working with them to knock down those barriers that are hampering growth.
So how will this five-year development plan pan out in reality? Cottle tells FPJ: “The organic market has been growing at an extremely healthy rate for many years and, despite the impact of recessionary pressures on all customers, there is still strong demand for organic foods. The wider market has been focusing more predominantly on value messages through retailer advertising, yet there are many customers who are more concerned about the quality, provenance and production methods used in the production of their food. Organic is a hero category for produce, offering consumers a solution - it is the right time to be reiterating this message and building on sales. Organic produce has to make sure it gets a fair share of the opportunity.”
At this stage, Cottle explains, the groundwork is being done to fully understand the current organic customer within the produce fixture. “Have their motivation and purchasing habits changed in any way due to economic pressures?” she asks. “Also, what is happening to the amount of space allocated to organic produce within the fixture and how does this impact the consumer’s choice? Box schemes are now much more prevalent and are driving growth within the produce sector, answering the need for convenience.
“It is too early to predict the long term given the volatility of the economic climate. However, the fundamentals have to be right for products in the fruit and veg category. Pricing differentials between conventional and organic produce need to be considered and the perception of organics as ‘being expensive’ needs to be addressed.”
Recognising changes in consumer behaviour, leading organic food companies are adopting ‘organic-plus’ strategies, according to Organic Monitor. “Such companies are going beyond organic and adopting highly ethical, ecological and sustainable business practices. Increasingly, these companies are marketing their organic products on these values,” says the analyst, which is organising the Sustainable Foods Summit in Amsterdam on June 25-27. This is the first-ever conference to look at the impact of eco-labels such as organic and Fairtrade on sustainability.
“In the UK, some leading organic food brands are positioned on such non-organic attributes,” continues Organic Monitor. “Ethical sourcing is a key strategy for many organic food companies. Other organic food companies are strengthening their environmental credentials by offsetting carbon emissions.
“The global organic products industry faces fresh challenges in 2009. The financial crisis, coupled with changes in consumer behaviour, is affecting organic food sales. Organic Monitor recommends organic food companies meet these challenges by adopting organic-plus strategies.”
But Cottle firmly believes that the key to boosting organic sales at this time is to focus on the basics. “Growth will be dependent on communicating simple and effective messages on the benefits of organic produce - consumers still need to be educated on why to buy organic,” she says. “The value of organic has to be firmly embedded in consumers’ minds - organic as a healthy choice, focused on animal welfare and being kinder to the environment in which we live.
“The market for produce and other primary agricultural products is becoming overcrowded with consumer messages, making it more difficult for all consumers to make choices about what they buy. We will be aiming to be clear on why organic is good for you, animals and the world in which we live... the strategy will be based on simplifying this communication.”
So will organics consumers stick to their choice? Cottle believes they will. “There is no doubt that loyal organics consumers will stay loyal and are doing so,” she says. “However, those consumers who purchased less frequently need to be reminded of organics and the strategy will target these individuals... We are very aware that the right promotional messages will help maintain and grow the organic consumer base. We will be learning from categories where organic is still buoyant. Box schemes are performing well, which could suggest that recessionary pressures are forcing consumers to re-evaluate how and where they purchase their fruit and vegetables.”
WATSON BOXES CLEVER ON QUALITY
Riverford Organic Vegetables has seen sales increase by six per cent compared to last year, says Guy Watson, founder of the organic box scheme. I gather that we are outperforming the organic fresh produce sector as a whole at the moment.
There are two reasons for this growth. First, Riverford vegetable boxes are affordably priced - we are cheaper than other similar schemes and significantly cheaper than buying organic produce from a supermarket. In some cases, we even compete with supermarket prices for non-organic produce. We have good long-term relationships with our growers, which helps keep prices down.
Second, we have good customer retention and our existing clients say that flavour is the key motivating factor in their purchase of our boxes.
These are the two key reasons why we are doing better than the general organic market - however, I hope that we can do better. This time next year, I would be satisfied with the growth levels we are currently experiencing, but the year after that I would hope we can target growth in the area of 10-15 per cent.
I have been an organic grower since 1986. When I started the box scheme in 1993, the growth was astronomical and that continued for years. Of course, when that growth slows, it takes any business time to adjust.
In 1993, I had 30 customers and the business was very small scale. In 1999, we decided to take the box scheme side of the business more seriously - at that time we were still supplying wholesalers, Waitrose, etc. In 2004, we decided the box scheme business was big enough to focus all our efforts on. Today, we are a regionalised, farm-based box scheme, with 45,000 deliveries a week, packing and growing from regional farms in Devon, Hampshire, Peterborough, Yorkshire and Cheshire. We work with 50 grower
co-operatives - 40 in the UK and the rest in the south of Spain, France and Morocco.
I think the quality and value of what Riverford offers is better than ever, but we have to work harder to reach new customers now. However, recently there does seem to have been a renewed interest in organics.
A lot of our clients are quite anti-supermarkets. For our existing customers and the potential customers we meet at consumer shows, flavour is the top priority. But for potential customers, value is also important - people assume that organic means expensive and we have to overcome that hurdle.
There is a big element of trust among our consumers. They know that we trade ethically, are socially responsible and are committed to becoming employee-owned. It also helps that we are growers ourselves and look at the environmental impact of our produce by, for example, making sure we use minimal packaging. These elements show customers that we are trustworthy.
Local food was a big concept 12 months ago but today, there are far broader trends to take into consideration over a whole basket of issues. The provenance of a product is now as important as its geographical distance to its destination. Around 80-85 per cent of the fruit and vegetables that Riverford sells are UK-grown.
We are hoping to establish a restaurant in London to accompany the one on our Devon farm, and we are also looking to establish partnerships with other cooks. We are working with cookery schools and are involved in a Lunch Club in London. People come together in somebody’s house and then either the host or someone else cooks lunch using Riverford produce - the group then talks about the food, and hopefully we get some new customers for the box scheme.
I have also recently bought a farm in France that we are in the process of converting and hope will be organic by spring 2010. This is set to plug supply gaps in the tricky April-May period, when it can be difficult to keep the vegetable boxes interesting.
I think there will be a few casualties in the organics market during the recession, particularly among the excessively expensive box schemes. But when people buy organic, it is for a lot of reasons - there is a whole basket of values for a box scheme to deliver on. Riverford does deliver on these and I am confident we will see healthy growth within a year.
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