How are natural and organic products faring amid an inflation-challenged retail environment?
That question was answered in detail during the opening keynote session of this year's Natural Products Expo West show, March 7-11, in Anaheim, Calif.
Carlotta Mast of the New Hope Network led a discussion of "The State of Natural and Organic" on March 8 with Nick McCoy of Whipstitch Capital and Kathryn Peters of SPINS, in which they said that in 2022, the total natural and organic products industry grew 5.4% to reach $278 billion in U.S. consumer sales. Mast said the industry is expected to grow to more than $300 billion this year.
"This represents a doubling of industry sales over the last decade," commented Mast. "And so that is a huge increase. We are a sizable, impactful, meaningful industry. We're not a fad anymore. We're not this niche industry. I heard that a cabdriver was bringing one of our attendees over and called this 'the granola conference.' We're no longer the granola conference. We're very mainstream."
Mast added that she projects the industry will reach $338 billion in sales by 2025.
The top-selling, inflation-proof food and beverage categories in terms of natural last year were dairy alternatives, better-for-you sweeteners and canned and dry soup.
When it comes to organics, growth bounced back in 2022, "with sales increasing from the 1.9% we saw in 2021 to an estimated 4.6% in 2022," Mast said. "And the organic food and beverage category has now surpassed the $50 billion mark and this represents a doubling of organic food and beverage sales since 2014," Mast said.
The baby food category was a standout product category for organic last year, and other categories that performed quite well included organic candy, dips, soft drinks and yogurt. "We're expecting to continue to see strong, stable growth for organic into the future," Mast said.
Functional food and beverages saw 5.8% growth in 2022, Mast said. Some of the categories that really helped drive those sales include sports and energy drinks, frozen foods, healthier soft drinks, snacks and chips and products that provide functional benefits in addition to being clean label.
"Electrolytes, mushrooms, adaptogens such as ashwaganda, healthy fats, prebiotics. These are still the really powerhouse functional ingredients that are driving a lot of innovation and growth in our industry," Mast said.
Supplement sales moderated in 2022 after recording record growth of 14.5% during the pandemic. Last year, supplements only had 1.7% growth but still surpassed the $60 billion mark "and we are expecting that things will once again stabilize and we'll get back to mid-single digit growth, which is quite normal for the supplement industry moving forward," Mast said.
Kathryn Peters of SPINS added that "92% of growth in supplements is coming from brick-and-mortar stores. So, this is really telling us that this is a big shift back to come back to more normal growth curves and something we anticipate. This a great, bright story for the future," she said.
Peters, Mast and McCoy all talked about the value shopper and their behavior when it comes to natural/organic. Peters said natural channel shoppers do much more research compared to a conventional shopper. "So they're really paying attention to what they're buying and they're doing a lot of this research online. So as a brand as well as a retailer, you must be thinking about how you're creating a true omnichannel experience for that shopper that's doing research in your aisles or doing research on your specific product before they decide to make a purchase," Peters said.
The panel also highlighted how inflation is hitting the consumer. Peters said the majority of consumers are reporting that they're feeling increased pressure and stress due to the rising cost of goods, and have changed their grocery shopping behaviors as a result.
"We found that 74% of consumers reported buying more grocery products that are on sale. Sixty-seven percent reported doing more meal planning and sticking to a grocery list," explained Peters. "So, still cooking at home and trying to save a little money there. Sixty-six percent are using coupons or discount codes. And interestingly, this research didn't show as much of a shift when it comes to moving away from organic or purchases of natural organic or humanely raised meat or poultry. And so we're finding that a lot of consumers are sticking with their values. And this is not just natural channel consumers, this represents the U.S. population are sticking with their values and finding other creative ways to be able to save a little bit of money."
Trends Gaining Ground
Looking ahead, the panel said that some of the trends in the industry gaining traction with consumers include products focused on digestive health, plant-based items that provide whole food nutrition, more alternatives to alcoholic beverages, probiotics, prebiotics, functional ingredients, relaxation or mood support items, adaptogenic products and mushroom-fueled foods.
Then there's sustainability. "This industry has done a phenomenal job of training consumers about food and how to understand what's in your food," McCoy said. "Now we need to up the game and do the same thing around sustainability and what's good for our planet and what's good for our communities. We've got to figure out how to get, whether it's, again, blending the digital and the in-store experience by putting your disclosures in an easy code to get to what your brand's disclosures are and what you're doing around sustainability, or whether it's around supporting certifications. Consumers want to put their money with sustainable brands and we all need to make it easier as retailers and as individuals to make that really come into reality."