Attacking ‘Organic Fraud’

3/1/2011

Retailers are urged to “come clean” on product claims.

Big changes are afoot in the hair and foot care aisles — especially with organic and natural products — as a campaign aimed at eliminating false or misleading claims on product packages takes root.

Last June, Austin, Texas-based Whole Foods Market released new requirements for manufacturers wishing to sell products labeled with the word “organic” in the company's Whole Body departments. Essentially, those suppliers' products must meet the same USDA National Organic Program (NOP) requirements that have been established for food.

“Our shoppers do not expect the definition of ‘organic’ to change substantially between the food and the nonfood aisles of our stores,” says Jeremiah McElwee, senior Whole Body coordinator at Whole Foods. “In efforts to provide this level of authenticity and transparency, we've created a set of requirements that must apply to all personal care products which use the word ‘organic’ in any way on the product label.”

By June 1, 2011, all products sold in Whole Foods stores must comply with the new standard. Products where “organic” is part of the brand name must be certified by USDA, meaning that at least 95 percent of the ingredients must be organic.

“Innovation is going to be the key to keep [foot care product sales] rolling over the next few years.” —Dan Feldman, Profoot

The Finland, Minn.-based Organics Consumers Association (OCA) has been campaigning against what it calls “organic cosmetics fraud” for at least two years, and is urging other retailers to follow Whole Foods' example. “Many brands make organic claims on products whose main cleansing and moisturizing ingredients are composed in significant part of petrochemicals,” OCA says in a website blog called “Retailers, Are You Ready to Come Clean?”

“Retailers selling noncertified ‘organic’ cosmetics face a choice,” OCA says. “They can follow Whole Foods' lead and require truthful labels, or they can continue to enable organic fraud. Consumers will look unfavorably on retailers that duck responsibility and continue to profit from the organic cheater brands that rip off their customers. What will your store do?”

Industry Impact

The Whole Foods initiative is having a significant impact on personal care products that make natural and organic claims, and could result in a realignment within the category, agrees Tony Olson, CEO at SPINS, the Schaumburg, Ill.-based market research and consulting firm for the natural products industry, and K. Jesse Singerman, president of Iowa City, Iowa-based independent business consulting firm Prairie Ventures.

“As manufacturers race to redo their labels to meet the timelines of major retailers, and also to anticipate the outcome of regulatory discussions between NOP and FDA, the brand leaders in the natural and organic personal care category may look quite different in the future than they do today,” according to a recent online article from SPINS.

Lynea Schultz-Ela, CEO of Hotchkiss, Colo.-based Natural Resource LLC, which provides consulting services to retailers and manufacturers on natural product initiatives, concurs. “These factors could mean a wholesale change in the brand mix in organic personal care,” she says. “For sure, we will see a reduction in a variety of brands in the category, and more focus on a powerful handful.”

What has caused the fraudulent claims, according to organic industry advocates like Schultz-Ela, is the lack of federal standards or laws for natural or organic personal care products. “It's a free-for-all,” she says. “Certainly many manufacturers were doing their best to purify their products as much as possible, but they certainly did not follow the food labeling law.”

The Whole Foods standard sends a strong proactive message to the industry, Schultz-Ela contends, which will result in manufacturers that wish to do business with Whole Foods taking the steps necessary to comply. As suppliers develop truly organic products, “consumers who want to use products that have a lower chemical load and are clearly organic” will now be able to find them in natural product stores — or even in supermarkets.

Schultz-Ela advises supermarkets that are serious about increasing sales of natural/organic hair care products to merchandise them in line with other products in the category, rather than confining them to a natural/organic product section.

“All too often, they make the customer go to a separate section,” she says. “The conventional store's margins on natural and organic personal care products are very high, and the cost ration to retail price is too wide, and so prices are higher than at the natural product retailer. If they want to compete, they need to put these products in-line and price competitively.”

According to Chicago-based research firm Mintel, sales of natural/organic hair care products grew from $73.3 million in 2007 to $84.5 million in 2009, and are predicted to reach $97.5 million this year.

“Sluggish sales grown in 2009 can be attributed to a lackluster economy, in which consumers have been hesitant to spend more money on basic, frequent-use items such as shampoo, and likely to some degree because of new SLS-free formulations from conventional brands,” Mintel reports. (Sodium lauryl sulfate, or SLS, is a petroleum-based foaming agent commonly used in soaps and shampoos.)

Mintel says additional consumers of natural/organic hair care products are expected to come from those who have traded down from hair salons but would still like to pamper their hair, or who may view natural/organic products as a small luxury they can afford while cutting back elsewhere in their budgets.

Getting in Step

While the company's latest foot care products analysis didn't break out natural/organic products, it discussed some key trends that will influence the category in the years ahead.

Although 2009 sales dropped 7 percent from 2008 because of the recession, the category has grown 20 percent to $671 million in food/drug/mass outlets since 2004.

Driving that growth were foot care device segment sales, which increased 52 percent in the five years from 2004 to 2009, while sales of foot care/athlete's foot medications slipped 12 percent during the same period.

The poor economy caused some consumers to leave minor foot care problems untreated, and others to switch to private labels, Mintel reports. However, FDMx sales of foot care devices increased, largely driven by market leader Dr. Scholl's efforts to move the segment into high-performance inserts, including a broad range of specialized gel products.

“With little significant new product news to bring attention to the segment, sales of foot care/athlete's foot medications stagnated and turned negative in 2007, and continued to decline through 2009,” Mintel says. “The segment addresses an array of infrequently suffered conditions, but consumers aren't motivated to purchase unless they are currently suffering from the problem. In addition, foot ailments often go untreated, resulting in the loss of potential sales.”

However, as adults age, Mintel suggests they are more likely to suffer from pain in specific parts of their feet, often as a result of conditions such as diabetes or obesity. “Aging baby boomers, still bent on leading active lifestyles, are key to the expansion of the foot care product market,” the market researcher observes.

Global Industry Analysts Inc. (GIA) reports that the global market for foot care products will reach $3.2 billion by 2015, adding that aging baby boomers and growing numbers of diabetic patients will drive the market. “Further, product innovations in the foot care, segment coupled with increasing awareness among people pertaining to foot problems, are likely to fuel market growth in the near future,” GIA says.

The analysts there note that consumer interest in products that cleanse, moisturize, exfoliate and offer cosmetic treatments for feet have prompted many suppliers to provide beauty-related products in the United States. “A new trend is being witnessed among women for improving feet appearance, due to the popularity of open-toed sandals and shoes.”

Importance of Innovation

GIA emphasizes the importance of product innovation, noting that increased numbers of new products have been launched to help ease the “growing stress or pressures that human feet undergo on a daily basis.”

Dan Feldman, EVP of Profoot Inc., the second-leading retail foot care brand, agrees with the importance of innovation to category growth, but says many supermarket operators are missing out on the sales lift that new products can offer, because they don't give enough space or emphasis to the category.

“This is especially true when there are a lot of private label products in the set,” he says. “There is no such thing as a private label innovative product. The retailer that either dedicates more space or uses it to take advantage of hot products is the one that will be the most successful.”

He points out that the foot care category shopper is loyal and dedicated, one who repeatedly returns to the set looking for new products. “I would recommend very strongly that innovation is going to be the key to keep this rolling over the next few years,” he says.

While Profoot's products don't claim to be natural or organic, Feldman stresses the company's commitment to sustainability by using blistercard packaging made of recycled paper and soy-based inks, as well as powering its facility with solar energy. The master shipping carton has been redesigned to reduce cardboard waste.

“Our innovation extends far beyond our products to our shipping and packaging methods,” Feldman says.

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