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March 22, 2012

In the spotlight: UK organic sector bemoans downbeat retailer view

The Soil Association's Organic Market Report 2012 points to a lack of support from multiple retailers as a primary reason why organic sales continue to fall in the UK, while other countries are showing growth.

The Soil Association’s Organic Market Report 2012 points to a lack of support from multiple retailers as a primary reason why organic sales continue to fall in the UK, while other countries are showing growth. Retailers refute this suggestion but Ben Cooper suggests some readjustment of retailer priorities is inevitable and understandable in the current climate of austerity.

Do supermarkets lead demand or does the close rapport they enjoy with their consumers allow them to provide what their consumers want, almost before they know that they want it? It is one of those chicken and egg questions but for the organic food sector it is by no means a rhetorical one.

According to the Soil Association’s recently published Organic Market Report 2012, the organic sector in the UK has suffered a far more significant reversal during the recession than seen in other comparable markets. While organic sales have continued to grow in the US, China and other European countries, sales in the UK fell by 3.7% in 2011 to GBP1.67bn (US$2.64bn).

The primary reason for this was a 5% decline in multiple retail sales, which account for 71.4% of the market, precipitated by three factors. In addition to the pressure on household spending, “continuing cuts by nearly all the retailers in ranges and shelf space” had reduced choice and availability, while there had also been “a striking lack of investment in own-label organic ranges, reflected by minimal marketing activity”.

Unduly harsh words for multiple retailers that have done much to drive growth for the organic food market? An indignant Richard Dodd of the British Retail Consortium (BRC) certainly thinks so.

Describing the idea that a lack of retailer innovation and investment has caused the UK’s organic market to lag behind others as “rubbish”, Dodd points out that supermarkets “have been at the forefront of driving the development of organic sales over the last ten years or more”, increasing access to organic for “huge numbers” of consumers.

“The reason why organic sales have been having tougher times over the last few years is not about any reining back of the commitment from retailers,” Dodd says. “It’s simply about customers experiencing enormous pressure on their budgets and re-examining their priorities. Retailers are as committed to organics as they always have been.”

His stout defence was echoed by Tesco and Sainsbury’s. A Tesco spokesperson told just-food: “We aim to provide our customers with as much variety and choice as possible, and we are committed to offering a range of organic foods for those customers who wish to buy organic products,” referring to Tesco’s recently redesigned organic packaging as evidence of “our commitment to the range”.

Sainsbury’s said it was “continuing to invest” in its organic range and was delivering “some growth”. For example, organic fruit was performing “above expectations”. The retailer pointed out that it had run a permanent value promotion throughout the season on So Organic apples. Despite the overall decline in the market, Sainsbury’s said a number of its product lines were “bucking the trend”, including some fruits, salad and red meat.

In spite of these bullish remarks, the Soil Association report states that both Sainsbury’s and Tesco are anticipating a decline in organic sales in 2012, basing this on responses to a survey of organic specialists within different retailers. Neither retailer would confirm those negative projections to just-food, though tellingly neither took the opportunity to suggest they expected overall sales to grow.

The supermarkets’ protestations that their commitment to organic is undiminished can perhaps be taken with a liberal pinch of salt. The Soil Association report may be hyperbolising a little but it would be surprising if there had not been some change in attitude, given that organic can be characterised as a specialist, premium area of the market. Indeed, in the current climate of austerity it would be both understandable and arguably justified.

However, Martin Cottingham, the report’s author and former Soil Association marketing director, believes the retrenchment has been too severe, and has exacerbated the negative trend.

While acknowledging that multiple retailers had been “in the forefront of bringing organic food to a wider audience” and had played an “important part in the dramatic expansion of organic sales”, he believes there was “an element of pessimism” in retailers’ approach when growth flattened off which made the decline “a self-fulfilling prophecy”.

The report points to a move among the retailers over the past three years from “positive choice editing”, that is offering only organic options on some lines, to “negative choice denial”, which is offering no organic option at all. Cottingham even suggests some organic specialists working within the supermarket chains have been “frustrated” by the degree of retrenchment.

He also believes the major supermarket chains are “missing a trick”. As organic enthusiasts tend to be more affluent, investing in an attractive organic offer can help to attract and retain higher-spending consumers, he suggests.

The report points to the growth in home delivery and among specialist organic retailers as evidence that the organic consumers are out there and that supermarkets are simply not doing enough to attract them and develop that underlying potential.

The experience of Waitrose, which with the Waitrose Organic and Duchy Originals brands has one of the broadest organic ranges on the retail market, is arguably the Soil Association’s prime piece of evidence. The report said Waitrose was “the only major supermarket engaging in significant promotional activity or investment in its organic offering” and was the only one of the top three supermarkets in the organic market forecasting growth for 2012.

Even Marks & Spencer, which given its consumer profile could also be expected to be more proactive than the major supermarkets on organic, seems relatively downbeat about the sector.

M&S chief executive Marc Bolland recently announced that the company would not achieve its goal, laid down as part of its Plan A strategy in 2007, of tripling organic sales by 2012. “We said we would triple our sales of organic food over five years. We did not. Actually, organic food stayed sort of stable. The market for organic food – both on the production and the consumer side – has not moved.”

Furthermore, Bolland said the retailer took a pragmatic view regarding the six of its 100 Plan A targets that it would not achieve. “If the market isn’t there,” Bolland said, the retailer would not try to “push it uphill”. If that is the view a retailer such as M&S is taking on organic, it is certainly a sobering thought for the organic sector.

And for all its positivity, Waitrose still saw its organic sales decline by 2.2%, albeit compared to a 9.5% drop in the combined organic sales of the other six leading multiples, which would seem to support the contention that the organic sector’s lack of growth stems more from a fundamental weakness in the market rather than retailer retrenchment.

A Waitrose spokesperson told just-food that it was “outperforming the market” in organic, and had grown its market share to 22%, against its 4.5% share of the wider grocery market, with sales remaining “relatively steady over the past year”.

Waitrose points to the expansion over the past year of the Duchy Originals range to some 250 products, as evidence of its continued commitment.

Waitrose’s differing experience can either be seen as further evidence that it is a case apart in terms of consumers and consumer motivations, or suggest that the other retailers – which have certainly lost share of organic to Waitrose – are indeed missing an opportunity.

What may jar to the neutral observer is the sense from the Soil Association report that the supermarkets bear some kind of moral responsibility here. Retailers must be expected to act in their own best interests which in an ideal world one hopes would be based on the best interests of their customers.

The Soil Association suggests government should play a more active role in promoting organic and providing “a supportive policy environment”. Dodd points to the role the Soil Association itself, and by implication organic producers, has to play in fostering demand. What both Cottingham and Dodd agree on, however, is that it is not a primary responsibility of the multiple retail sector to develop the organic market.

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