Benefiting From the Halo Effect of Natural and Organic Products

Even during times of inflation, grocers should think about how they can further implement these items into their merchandising plans
Jenny McTaggart
Contributing Editor
Jenny McTaggart profile picture
National Grocers Organic
Natural Grocers (pictured here) is just one of the smaller, specialized retailers that sells 100% organic produce in its stores.

While U.S. grocery shoppers are certainly concerned about inflation, it’s not stopping many of them from seeking out and purchasing organic and natural products. With a halo effect around better health and a greener environment, these items are being viewed in a more positive light than ever — especially among younger consumers. Even during times of economic uncertainty, retailers can grow their sales and lay claim to a piece of this lucrative business by honing their pricing strategies and offering more information and better transparency to their increasingly discerning shoppers.

Today’s consumers have no shortage of places to shop for organic or natural products, whether they be food, beverages or nonfoods. Mass merchandisers like Walmart and Target feature them in-store and online, Amazon owns one of the premier chains for organic and natural products (Whole Foods Market), traditional grocers carry them, a growing number of regional chains with smaller footprints are dedicated to them, neighborhood natural food stores provide them to their loyal followings, and now new online channels like Thrive Market offer to customize assortments and deliver them to consumers’ homes.

[Read more: "Organic Produce Dollar Growth Up in 2022, Volume Down"]

In short, it’s not easy to compete in the world of organic and natural retailing today. But there’s a broad swath of shoppers with different needs and attitudes who are either already looking for these products or could be easily persuaded to try them. Therefore, retailers would be wise to think about how they can further implement natural and organic products into their merchandising plans while staying true to their brand missions.

Andrew Henkel, EVP of retail for Chicago-based SPINS, points out that natural products continue to be a growth engine for mainstream supermarkets, and that fact has increased the urgency for both health-oriented and mid-market retailers to build a uniquely differentiated assortment. “Loyalty is built on grocers having assortments that align with the unique needs of their shoppers, and the most successful grocers are finding ways to more readily connect their shoppers to their preferences,” notes Henkel.

UNFI Wild Harvest
United Natural Foods recently expanded its Wild Harvest private label organic produce line, featuring easily recognizable purple branding and a prominent USDA Organic Certified label.

Organic Sales Stabilize After Pandemic

The total sales of natural and organic products aren’t easy to measure, especially since natural products aren’t as readily defined (while the term “organic” is aligned to a federal standard, the FDA doesn’t have a formal definition for the term “natural,” although it’s generally understood to mean that nothing artificial or synthetic has been added to a food that wouldn’t be expected to be there). There’s no doubt, however, that these items received a huge lift during the pandemic, when shoppers couldn’t always find conventional products at their regular stores, and in some cases opted to purchase things like recycled toilet paper and organic milk, which maybe they hadn’t done before.

In 2021, organic sales experienced steady yet more stable growth, with a $1.4 billion or 2% lift over the previous year. Total sales surpassed $63 billion, according to the Organic Trade Association’s 2022 Organic Industry Survey, the most recent report available. Food sales for 2021, which comprise more than 90% of organic sales, rose to $57.5 billion (roughly 2% growth), while nonfood sales reached $6 billion in sales, accounting for 7% growth.

Katie Macarelli, manager of public relations at Lakewood, Colo.-based Vitamin Cottage Natural Food Markets, which operates 166 Natural Grocers stores in 21 states, says that while the retailer definitely picked up new shoppers during the pandemic, people have continued to come in during a time of high inflation because of the stores’ affordable prices. “We’ve done really well in the past year in maintaining our commitment to affordability in light of inflation and heavily subsidizing things like eggs,” she notes.

In fact, in recent months, when local news stations came by to record footage of Natural Grocers stores with empty egg cases, Macarelli made sure reporters knew that the shortage was due to their low prices, not because of avian flu. The company’s base standard is $3.50 for a dozen free-range eggs.

In addition to offering “always affordable pricing,” Natural Grocers has a free loyalty program called {N}power, which offers members additional discounts and free products.

In Macarelli’s view, younger consumers in particular are demanding more information about where their food comes from and how it’s produced, and this is helping to drive sales of natural and organic products. This demographic cares whether there are chemicals not only in their food, but also in their shampoo and other nonfood products, she observes. Natural Grocers has taken on the mission of educating shoppers on these issues and spotlighting the high standards it adheres to when selecting vendors. “We proudly share information, but not in a pretentious way,” Macarelli adds, “because none of this matters if people can’t afford it.”

The retailer relies on a monthly magazine, knowledgeable store staff, and creative social media outreach, including TikTok videos to instruct and serve its shoppers. Natural Grocers is also among the few retailers to offer free, on-site nutritional educational coaching. “Anyone who walks in and wants more nutritional guidance — whether it be an athlete preparing for their first Ironman, someone with a recent cancer diagnosis, or a parent whose child has multiple food allergies — can get counseling on the spot or can make an appointment for an hour-long session with a certified nutritional health coach,” explains Macarelli.

Natural Grocers features several special promotional periods throughout the year to create excitement among its shoppers. Earth Day on April 22 is always a big event — in fact, the retailer celebrates the occasion throughout the entire month of April. Then, in September, stores focus on Organic Month. Coinciding with these promotional periods, Natural Grocers runs a semiannual campaign with Washington, D.C.-based Beyond Pesticides called Ladybug Love, which lets shoppers donate to the cause of pesticide-free parks and open spaces.

Organic Trade Association
The Organic Trade Association now offers retailers tools like this Organic Sustainability Wheel to help educate about the attributes of organic.

Different Strategies for Different Retailers

Like Natural Grocers, MOM’s Organic Market is a regional chain that focuses solely on organic and natural products. Scott Nash, CEO of the 23-store chain, which is based in Rockville, Md., tells Progressive Grocer that shoppers appreciate the chain’s competitive pricing, especially amid the current economic environment. “We have seen inflation impact our shoppers, and while we’ve had to pass along some of the rising costs to them, we still aim to offer very competitive pricing,” maintains Nash, adding that the retailer has been doing a lot more to cut waste and operate as efficiently as possible, as today’s retailing environment requires.

Nash doesn’t see education as being quite as important for MOM’s Organic Market shoppers, because so many of them already buy into the organic/natural lifestyle. “People don’t go from Doritos and Coke to kale and kombucha overnight,” he asserts. “It’s a journey.” He credits Whole Foods with doing a great job of educating loyal organic and natural shoppers.

According to Nash, he feels very confident about the future of the industry, primarily because organic foods are better for the environment, and also because they’re perceived as being better quality and better for people’s health. He notes that shoppers in his stores are inveterate label readers, so manufacturers will continue to play an important role in making their products as “clean” as possible.

Of course, dedicated natural/organic retailers aren’t the only ones that can serve label-reading shoppers. Take The Kroger Co., for example. While the Cincinnati-based company is much more massive and mainstream in scale, it has served a growing niche by integrating natural and organic products alongside mainstream items, and by developing a private brand dedicated to natural and organic products. The retailer’s Simple Truth brand, which turns 10 this year, is now considered America’s No. 1 natural and organic brand, featuring more than 1,500 items that are free from 101 artificial colors, flavors, preservatives and sweeteners, and contain no artificial ingredients. To mark the anniversary, Kroger offered customers 10 fuel points with all Simple Truth purchases made using a digital coupon during Jan. 18-31.

Last summer, Kroger’s Holly Adrien and Alexandra Trott, of the grocer’s 84.51° division, shared on that more than 73% of Kroger’s shopping households had purchased an item in the natural/organic category over the past year. Meanwhile, 5 million omnichannel Kroger shoppers had bought natural and organic items online, and two-thirds of those were brand-new to the category. Among those shoppers, the price-sensitive ones spent more time considering cost while shopping online, from comparing prices to looking for coupons.

To highlight its organic and natural products in stores, Kroger uses signage such as green “plant-based” clings, and also runs special campaigns.

Label Readers on the Rise

Angela Jagiello, director of education and insights at the Washington, D.C.-based Organic Trade Association (OTA), points out that two-thirds of organic shoppers are new to the category at any given time, according to OTA research, so education is key.

“That fact, combined with the sheer complexity of the label, means that brands and retailers are constantly in the position of educating about what organic means,” she notes. “At the same time, food inflation is real, and the unbridled spending on grocery that we saw during the worst of the pandemic has come to an end. Shoppers have demonstrated they are willing to pay more for products that align with their values. They look to retailers to help them understand and prioritize.”

To help retailers in their outreach efforts, OTA offers a Good Organic Retail Practices Guide that includes tips on handling, display and marketing organic products, as well as an Organic Opportunity Communications Toolkit, which it describes as a science-backed information resource.

Sarah Christiansen, VP of shopper insights and category leadership at Campbell Snacks, a division of the Camden, N.J.-based Campbell Co., confirms that shoppers seem more eager than ever to learn about ingredients. “Since the pandemic, wellness remains top of mind for consumers, and we’re seeing nearly half of shoppers pay more attention to food labels and ingredients compared to pre-pandemic levels,” observes Christiansen, citing Kantar ShopperScape research.

SPINS’ Henkel stresses that the idea of value isn’t solely related to price for many shoppers. “Throughout the pandemic, we’ve seen shoppers rediscover the joys of better-for-you and small indulgences at home,” he notes. “Since health and wellness continues to be a central priority for shoppers, grocers need to address the ‘total basket’ — realizing premiums on truly unique products while ensuring commoditized offerings create an affordable foundation in the basket.” 

    Breaking Down Organic Categories

    Here’s a look at how specific organic categories performed in 2021, as highlighted in the Washington, D.C.-based Organic Trade Association’s 2022 Organic Industry Survey:

    Fruits and veggies: Organic fruits and vegetables accounted for 15% of the total product market and brought in more than $21 billion in revenues. This was a 4.5% increase over 2020. Fresh produce and dried beans, fruits and vegetables drove the category, while frozen and canned foods declined slightly as consumers cut back on pantry loading.

    Dairy, eggs and meat: After hitting the highest growth rate in more than a decade in 2020, the organic dairy and egg category unsurprisingly leveled off in 2021. These segments remained relatively flat through 2021, although they still outperformed 2019 sales by nearly 11%. Meanwhile, sales of organic meat, including poultry, livestock and seafood, increased by 2.5%, representing nearly $2 billion in annual sales. Organic poultry was the strongest performer, with 4.7% growth.

    Packaged and prepared foods, including snacks: Packaged and prepared organic foods experienced an overall decline of around 5% in 2021, representing a shift away from pantry loading and toward more measured purchasing patterns. Organic baby food, which saw more than 11% growth, was the biggest bright spot. Snacks saw healthy growth of 6%, with nutrition bars reaching nearly 15% growth.

    Beverages: Organic beverages experienced strong growth of 8%, thanks in part to manufacturers’ ability to adjust quickly to shifting consumer needs and habits. Organic coffee topped the beverage performance chart, with more than 5% growth.

    Breads and grains: Organic bread and grain sales tapered off slightly in 2021 as the pandemic boom subsided, but sales were still strong, at $6.2 billion overall. Frozen and fresh breads, the largest subcategory, saw a modest increase of 1.6%.

    Nonfoods: Fiber, supplements and personal care products were the dominant performers in nonfoods: Each saw growth rates of between 5.5% and 8.5% in 2021.