The US organics sector may still be dominated by small food producers, but the multinationals are dipping their toes in the water. Wary of launching organic products on the US market, US food manufacturers are increasingly using organic-friendly Europe as a test bed, or buying up existing organic brands, reports Philip Fine.

Heinz did something this year that its rival large USA-based food producers seem to be shying away from. It put its own name on an organic product.

One would think other US companies would have, by now, employed the same strategy as Heinz: use organic-friendly Europe as a test-market for an eventual US launch of an organic product, but the idea seems to be slow in catching on.

The American unveiling in June of Heinz Organic Ketchup was preceded by a successful introduction of the product in the UK and Scandinavia, where it captured an 80% share of those countries' organic condiment markets. The company also managed to double the size of that niche sector in just one year.

National organic brands scarce…

But national brands are at a premium on the shelves of the health food stores or in the organic section of US supermarkets. Heinz, along with baby food maker Gerber, and Dole, which now grows organic bananas, find themselves alone in a sea of homey names that sound like they are products of your vegetarian neighbour's kitchen. 

While large food producers like General Mills, Danone and Mars may not have put an organic seal on their own respective breakfast cereals, yoghurts and confectionery, behind the labels they are actively involved in organic food. They have snapped up successful independent brands, providing these seemingly small operators with key distribution and financing advantages. But they have left their names off the products. One might call them closet organic producers.

…but many heavyweights getting involved through the back door


"Some major food manufacturers might be called closet organic producers "
Corporate logos are nowhere to be found, replaced with cartoon pictures of cows, eco-conscious mission statements and humble histories of the seemingly simple organic companies like Small Planet Foods, Stonyfield Farm and Seeds of Change. Heinz itself has got involved in the acquisition game, buying 19% of Hain Food Group, which markets Terra Chips and Celestial Seasonings tea, while jam-maker Smucker's counts Santa Cruz Organic tortilla chips as one of its holdings.

The equity these large companies acquired can be found in the small companies' brand names and the loyalty that they have garnered. In an era of mergers and acquisitions, it's not just capability they are buying. The brand itself is very important, says Tim Willard, who follows business trends for the National Food Processors Association in the United States.

Organic buyers prefer not to know that a multinational is involved

That scenario plays out by General Mills choosing not to put out an organic line of Wheaties and Cheerios, but handing over those duties to its Small Planet subsidiary, which makes Wheat Crunch and Honey Nut's organic cereals through its successful Cascadian Farms brand. It is another example of a formally ubiquitous name being hidden behind companies that are likely aware of the antipathy among organic buyers for anything smacking of multinational.

Elsewhere on the supermarket shelf, it is difficult to find yoghurt-maker Danone's name anywhere on the website of Stonyfield Farm. The organic milk and soy product maker describes the company as simply 150 people in a small New Hampshire town, an operation that began almost 20 years ago with founder Samuel Kaymen, his wife and six children, milking, feeding and caring for a small herd of Jersey cows in a little room off a barn.


"The involvement of multinationals is helping the organic sector"

Danone's public (and very real) presence has been relegated to one press release in its web site's media section. But the details of that release reveal that the Paris-based worldwide leader in yoghurt and bottled water bought 40% of the company's shares last year. On top of that, Danone will have the opportunity in 2004 to acquire a majority holding in Stonyfield, currently the number four yoghurt-maker in the US.  

Sector surging in US

The attractiveness of the organic food operations and the growth in acquisition probably stem from the rapid surge the sector is currently experiencing. According to the Organic Trade Association and the Natural Marketing Institute, retail sales of organic products grew by more than 24% in the last three years. Assuming steady growth at a conservative rate of 20%, the organisations say that 2001 is expected to have generated US$9.3bn revenues and, by 2005, sales will have reached US$20bn.

The resulting corporate interest has made for apparently strange pairings, but which actually make much business sense for the big players. When heirloom seed company Seeds of Change decided to expand into organic pasta, sauces, cereals and bars, it paired up with an unlikely partner, Mars, makers of the chocolate bar of the same name. While the company that is committed to biodiversity receives no promotional mentions by a company committed to some of the most notorious junk food, Seeds of Change does give credit to the confectionery giant for helping it enter the organic food business and put more land under organic practices than it could with just its seeds.

Assistance from multinationals a boon


"The US organics sector, for instance, still represents less than 5% of total retail food sales"

Despite large food producers not fully endorsing organic practices for their own name-brand products, the OTA's Holly Givens believes that their involvement is actually helping the organics sector. She cites a recent figure that says that more organic food is being sold in mainstream stores than in health food stores, a sure sign that the distribution leverage of the multinationals has benefited the organics sector. She agrees with Seeds of Change, and says having the food giants enter the organic business has allowed for more farmers' fields to go organic.

There is plenty of work to be done; the US organics sector, for instance, still represents less than 5% of total retail food sales. That might change, however, with the introduction of the new US Department of Agriculture organic standards, that went into effect last month (21 October, 2002), says Brian Todd, president of The Food Institute. As more companies will have organic certification on their products, others will follow, he suggests.

Grooming for success

Expert Analysis

US Organic Food Market Profile

This report provides an overview of data on the US market, providing market size, segmentation, forecasts and a competitve landscape.

 

So it seems as if the US organics sector might be destined for European-style popularity, as more people buy organics and more multinationals invest in the sector - albeit through the back door.

Maybe their bashfulness represents a lack of confidence about the strength of their brands. As it was planning to launch its organic ketchup, Heinz acquired some key information from its US focus groups. It found many people who eat organic foods still have fond memories of Heinz ketchup. That made the company confident that customers, even those most adherent to an organic foods lifestyle, would be willing to let a multinational name brand into their homes and not make the company hide behind any cartoon cows.